After College: Use the Tools Available to You to Avoid and Resolve Student Loan Delinquency

The Federal Reserve reports that 9.08% of America’s student loan dollars are “seriously delinquent” — meaning their borrowers are 90 or more days behind on repaying them. You want to stay far away from any delinquency, especially serious delinquency. Fortunately, there tools to help do this.

Why should you care? The serious delinquency rate on student loans — which make up 45% of the federal government’s assets — is almost twice as high as on credit cards (4.49%).

So not surprisingly, you’ll face increasingly serious consequences at every stage of delinquency. In the federal programs, for example, you become delinquent after failing to make all or part of a required monthly payment within 30 days of its due date. You then immediately become liable for a 6% late fee on your delinquent debt.

Ninety days into delinquency, your tardiness is reported to all 3 major national credit bureaus, dropping your credit score and making it difficult to get consumer credit — auto loans, credit cards, mortgages, etc. If you do obtain such credit, your interest rate will be higher than that charged to your friends with better credit scores.

You default when you’re 270 days delinquent on your federal student loans. Now you’re obligated to repay your whole debt immediately. Washington hires high-pressure collection agencies to collect that debt. It also confiscates anything it owes you (tax returns, social security payments, etc.) and it may require your employer to divert up to 15% of your paycheck — all to repay your default. Finally, you lose driving, fishing, hunting, and/or occupational licenses in up to 20 states.

Ironically, almost every student loan borrower can avoid delinquency. Hiding from your loan servicer when you can’t pay seems natural but, to be blunt, it’s really stupid. Always contact your servicer and ask how to avoid or fix your delinquency.

Federal student loans, for instance, offer you several anti-delinquency tools:

Set up automatic monthly payments so forgetting your payment due date will never be a problem; and

Make a prepayment, if possible, for upcoming months in which you won’t be able to pay.

And if you’ve not yet defaulted:

Switch your payment due date if the current one doesn’t work — and if your servicer permits;

Change your repayment plan, reducing your monthly payment amount by taking more months to repay;

Borrow a consolidation loan to qualify for a longer repayment period, decreasing what you pay per month; and

Get a deferment or forbearance to temporarily postpone or reduce your monthly payments.

Aggressively managing your student debt to avoid (or end) every delinquency will prevent hurtful penalties and, remember, that’s always a good thing for you!

We’re here to help you. Feel free to contact College Affordability Solutions for advice, at no-charge, on how to manage your student loan debt.

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