If you’re struggling to make your student loan debt payments, you’re far from alone. According to research by the Brookings Institution, 11.4% of student loan borrowers have defaulted on their debt — and the figure is much higher for people who attended for-profit universities.
Student loan delinquency comes before default, however, and while it doesn’t carry as heavy of consequences as default, it can still make a financially stressful situation much worse. Here’s what you need to know about what happens if you don’t pay student loans and how you can prevent delinquent student loans in the first place.
What happens if you don’t pay student loans?
Student loan delinquency occurs as soon as you miss one payment. Whether it was a mistake or because you can’t afford to pay what you owe, your loans will remain delinquent until you pay the past-due amount, enter a deferment or forbearance period or change your repayment plan.
This means that even if you miss a payment then make your next one on time, your loans will still be considered delinquent until you address the past-due amount.
If you were assessed a late fee, you might also need to pay that before your student loans are considered current. Also, the longer you allow student loan delinquency to go on, your lender or servicer could tack on more late fees.
Missing a student loan payment by one day won’t necessarily harm your credit score. In fact, you have 90 days with federal student loans to get caught up before your loan servicer reports your delinquent student loans to the three national credit bureaus, Experian, Equifax and TransUnion.
With private student loans, lenders may choose to report late payments as early as 30 days after the due date.
If this happens, it could have a significant negative impact on your credit score. According to FICO, whose credit score is used by 90% of top lenders in credit decisions, your payment history makes up a whopping 35% of your score.
Of course, that’s more of a guideline than exact math, but it goes to show just how much damage a student loan delinquency can have. If your credit score goes from good or excellent to poor or fair, it could make it difficult to get approved for credit in the future when you really need it, such as when buying a new car or getting into a home.
Even if you do get approved, lower credit scores are associated with higher interest rates. A low credit score can also make it more difficult to save money on auto and homeowner’s insurance, get an apartment or job or even qualify for a utility account without needing to make a deposit.
In other words, delinquent student loans can wreak havoc on your finances for years to come, making an already challenging situation so much worse.
What you can do to get payment relief
If you already have delinquent student loans or you’re looking for ways to avoid delinquency, here are some potential solutions that can help you stay out of trouble.
Talk to your loan servicer or lender
It may sound counterintuitive, but the first step to preventing student loan delinquency is to reach out to your loan servicer or lender. Their top priority is to get paid, but they generally realize that it’s more effective to work with you than to allow you to go delinquent and possibly into default.
Each servicer or lender is different in the solutions it provides, and some of our tips below may be among your options. The key is that you don’t avoid talking about the elephant in the room and show that you’re actively working to find a solution with them.
Apply for an income-driven repayment plan
If you have federal student loans, you may qualify for one or more of the four income-driven repayment plans that are available. Depending on the plan you choose, your new monthly payment will be between 10% and 20% of your discretionary income, which can be significantly less than what you’re currently paying.
With income-driven repayment plans, your repayment term will also be extended to 20 or 25 years, and your loan servicer will adjust your payment every year based on your current income and family size. If you still have a balance remaining after the repayment term ends, it will be forgiven (though it may also be considered taxable as income).
Even if you’re just looking for temporary relief, getting on an income-driven repayment plan can provide that. You can always up your payments or refinance your student loans with a shorter repayment term when you can afford it.
Unfortunately, most private student lenders don’t offer income-driven repayment plans. But some lenders may offer a modified repayment plan for a time to allow you get to back on your feet.
Request deferment or forbearance
Depending on the type of loans you have, you may be able to request deferment or forbearance on your debt. With federal loans, you may apply for either option if you’re unemployed or experiencing financial hardship. Forbearance lasts for up to 12 months at a time, and deferment can last even longer, depending on the circumstance.
Read up on the eligibility requirements for federal loans, then reach out to your servicer to apply.
If you have private student loans, deferment and forbearance policies can vary from lender to lender, and some may not offer them at all. Check with your lender to see what your options are.
Note that interest may still accrue on your student loans while they’re in deferment or forbearance, and it will increase the total amount you owe once you’re back in repayment. But that can still be better than dealing with the consequences of delinquent student loans.
The bottom line
What happens if you don’t pay student loans can be as harmless as a late fee or as damaging as delinquent student loans on your credit report or even default. If you’re facing student loan delinquency, take some time to research your options and plan to speak your servicer or lender about how to avoid a worse situation.
