How to Deal With a Late Student Loan Payment

Interest and monthly payments on federal student loans are suspended through the end of 2020, thanks to coronavirus pandemic relief from the federal government.

Many private lenders are allowing forbearance to postpone monthly payments for up to 90 days, and are waiving late fees or offering reduced payment options.

Whatever type of student loan you have, what happens when 2021 starts and payments are expected again? Will the relief options continue?

If not, then what happens if you’re late with a student loan payment in 2021 and beyond?

You’ll have to deal with it. We’re here to show you how.

The First Thing to Do

The due date on your student loan is the same every month, so you should know when to have the money to your lender by.

Each lender may have different details in the contract with the borrower that describe the process after a payment is missed. If you have a private student loan, your loan contractor should give you this information.

For federal student loans, the U.S. Department of Education explains how late payments are processed on its Federal Student Aid website.

Once you know this information, you should contact your loan provider to find out what can be done next.

Tell them why you’ve missed payments. A job loss, medical emergency or other unforeseen event may be reason enough to allow you to postpone payment for a few months. Federal student loans can be moved to income-driven repayment plans that can make them more affordable.

Missing a payment changes the loan status from current to “delinquent,” and it won’t be changed back to current until you do something about it. You’ll have to make the payment, ask for a deferment or forbearance, or change the repayment plans.

Delinquency and Default Are Next

If none of those options work, then the bill becomes delinquent, or past due. Remain delinquent for 90 days or more and the loan servicer will report it to the three major national credit bureaus. Your credit score will likely drop and it will be harder to get approved for credit.

Continuing in delinquency can cause the loan to go into default. That usually happens after not making loan payments for at least 270 days. Some lenders may declare the loan in default as soon as a scheduled payment is past due.

Other consequences of default can include:

• Entire unpaid balance and interest owed are due immediately
• Can no longer receive deferment or forbearance
• Lose eligibility for other benefits, such as choosing a repayment plan
• Lose eligibility for additional federal aid
• May not be able to buy or sell assets such as real estate
• Tax refunds and federal benefit payments may be withheld and applied toward repayment of defaulted loan
• Garnished wages
• Sued in court by loan holder
• Academic transcript withheld by school

Late Fees

This is a minor inconvenience compared to what a loan default will do, but just the first month of a missed student loan payment will lead to a late fee penalty. Even if you pay it a month later, a fee of $20 or so, or 5% after 30 days due, will likely be charged.

A one-time fee is manageable if you get your payments back on track. But keep missing them and the fees will add up for as long as your account is delinquent.

If your account goes into default after 270 days, the accrued interest, fines and penalties must be paid in full with the loan balance to have them removed from your credit report and to be considered resolved.

Avoiding Future Problems

If you can get your missed student loan payment taken care of, then maybe it’s time to consider other ways to ensure it doesn’t happen again.

Automatic loan payments can be made to keep that chore off your plate. Many lenders reduce interest rates by a quarter of a percentage point for automatic payments. These on-time payments can also boost your credit score.

If you can’t depend on having the money to make a payment automatically on a set date each month, ask your lender if you can change the due date to line up with your payday.

If you just forgot that the bill was due, maybe it’s time to get better organized. Sign up for email notifications of due dates, set the due date on your phone calendar, and set calendar alerts for when payment is due.

If your student loan is so big that you can’t afford it, ask your loan servicer about other repayment options that can lower the monthly payment. Interest rates are low, so refinancing might be a good choice.

Some public service jobs allow entire federal student loan balances to be forgiven.

If a problem arises again and you can’t make a monthly payment, contact your lender for help. They likely have a payment plan that will fit your needs.