Federal Reserve Bank of New York data show that a whopping 10.9% of the nation’s outstanding student loan debt is “severely delinquent” — i.e. it’s borrowers are 90 or more days behind on their payments.
If you’re struggling to repay your student loans, inaction and procrastination are the worst things to do. They make you delinquent and eventually lead to default.
You become delinquent when you fail to make a full payment by its due date. When federal loan delinquencies reach 90 days, Washington notifies all three national credit bureaus, damaging your credit rating. This shrinks your chances of getting apartments, auto and home loans, cell phone plans, credit cards, homeowner’s insurance, jobs, and utilities.
After 9 months of delinquency on federal student debts, maybe less for non-federal debts, you’re in default and facing several painful consequences.
Delinquencies and defaults on institutional, private, and state student loans trigger similar penalties. Exactly what their lenders do to you, and when they do it, depends on the promissory notes (contracts) you signed for them.
If you’ll soon be or are delinquent, you have many options. Explore them and choose the best for overcoming what’s hurting your ability to repay. Contact your loan servicer — whomever you make payments to, your lender or a third-party it hires — to pursue them:
• Changing Payment Due Date: Ask about resetting your monthly due date if you get paid after that date or your financial obligations leave you with insufficient funds on it.
• Changing Repayment Plan: Federal borrowers generally begin in the Standard 10-Year Repayment Plan. Long-run, it’s the quickest, most cost-effective way to repay. But short-run, it typically requires the highest monthly payments. To reduce those payments, research the six other federal repayment plans, including income-driven plans, and use the Federal Student Loan Repayment Estimator to determine your monthly and total repayment amounts under each.
• Consolidate: A Federal Direct Consolidation Loan gives you up to a 30-year repayment depending on your outstanding federal college loan balance. This usually lowers your monthly payments. But it’ll also increase what you spend overall to repay.
• Deferment or Forbearance: Meeting certain conditions may entitle you to deferment of your monthly payment obligation. Under other circumstances, you may receive a forbearance, letting you either postpone or shrink your monthly payments for a stated period. There are big difference between deferments and forbearances but, long-term, each raises the total amount you repay, so study them carefully.
Most student loan borrowers never seek help as they approach or are in delinquency. But help is ready and waiting so, if you suffer repayment problems, do your research and run to, not from, your loan servicer!
Today College Affordability Solutions begins its summer break, so this is its last post until August 14, 2019. But feel free to use its Topical Index to find more than 150 articles on higher education affordability strategies to use before, during, and after college. Have a great summer!