How One Overdue Student Loan Payment Affects You
Ever wonder what happens if you make one late payment on a student loan? To be late not every month or every few months, but only once? Perhaps you fantasize about being scolded by some Sally Mae representative, you will incur huge fees or immediately suffer a blow to your already fragile credit rating. And while these late payment scenarios may be exaggerated in your mind, there is a grain of truth in each of them.
Understand the difference between a loan delinquency and a default
Luckily for student loan borrowers, lenders understand that people make mistakes, so the difference between missing one payment and missing multiple payments is viewed by your lender as separate issues.
- A loan delinquency is when a loan becomes overdue the day after the due date. The loan remains in arrears until the borrower takes action such as payment, deferral, or deferred payment.
- Non-payment of the loan occurs after a certain period of non-payment. However, lenders and the federal government will grant a grace period before the loan is formally declared in default. For example, most federal student loans will not default until the person makes payment within 270 days . Default has more serious consequences than delays and can lead to withholding wages, lower credit ratings, and collection agencies (read more about outstanding student loans in this Lifehacker post ).
Fortunately, borrowers now have more breathing room as federal student loan payments have been delayed due to COVID. Payments have been suspended, outstanding loan fees and interest rates have been set at 0% until at least February 1, although President-elect Joe Biden is expected to extend the moratorium on student loan payments once he takes office in January. twenty.
Consequences of one late payment
Since we are only talking about one missed payment, you will be considered overdue on your loan. Potential consequences include:
- Your credit report is messed up : For federal student loans, delinquencies are usually reported to the three major credit bureaus (TransUnion, Equifax, and Experian) after 90 days. The time period for reporting to the credit bureau differs for private loans, but can often be as little as 30 days . Unless you’re 30 days late, you generally won’t get a bad mark on your credit report. Otherwise, you can get up to 100 points on your credit rating , which will make future loans more expensive.
- Arrears Fees : There is usually a grace period for overdue loans before late fees are charged, although this varies depending on the lender. Sally Mae charges a late payment fee of 5% of the overdue amount up to $ 25 and a returned check fee of up to $ 20. However, not all lenders are the same, so make sure you call your own lender and understand the implications of a late private student loan versus a late federal student loan.
How to avoid late penalties
One of the easiest ways to prevent a missed payment is to set up automatic payment of student loan bills through your bank (which may seem obvious, but many don’t). Of course, make sure you have enough money on the date of withdrawal to cover the debit to avoid overdraft fees.
Otherwise, if the problem is simply that you cannot temporarily pay your bills, contact your lender and explain your situation. If you have a good track record of making consistent payments, your lender will likely give you a break and waive your late payment fees, or at least refrain from reporting your delay to the credit bureaus.
And if you’re just not sure if you have the finances to cover your student loans in the long run, the advice is the same: contact your lender and see if you can work something out. The lender will have several deferred payment options that are only available if you haven’t defaulted on your loans yet ( read this Lifehacker post for more information).
This post was originally published in 2013 and was updated on January 13, 2021 to include updated context and current information on overdue student loan payments.