As if dealing with your student loan debt wasn’t bad enough, all the confusing rules and terms around repayment just add insult to injury.
Reading through the requirements can feel like trying to translate a foreign language. And added difficulty isn’t exactly what you’re looking for when you’re already struggling to make your payments.
So if you’re dangerously close to missing a payment, or have missed payments, start here to understand the difference between student loan default and delinquency – and what you can do if you find yourself in either situation.
Defining student loan delinquency and default
When you signed the paperwork to borrow money for your college education, you agreed to be legally obligated to repay that money under a certain set of terms. Delinquency and default are both words used to describe some sort of failure to adhere to those terms.
If you miss a payment on your student loans, you’re considered delinquent. Even being a few days late technically means you’re in delinquency. Default occurs when you remain in delinquency for a set period of time. This usually happens when you’re delinquent for more than 270 days.
What’s the impact of student loan delinquency?
When you’re in delinquency, your student loan servicer will send you a notice if you’re more than 15 days late on your payment. Being late on a payment once or twice won’t dramatically impact your financial situation right away, but it can impact your credit score. The more immediate consequence may be the loss of benefits on your loans, like interest rate discounts.
Being delinquent on your loans for an extended period of time – and eventually entering default – will likely cause your credit score to drop dramatically. This makes you appear less creditworthy to financial institutions and will prevent you from receiving the lowest possible interest rates on other loans or even being approved at all.
This can be a serious issue in the future. It’s not easy to repair a credit score once it’s tanked, and defaulting on your loans can do serious damage. Being in default can also lead to more severe action on the part of your loan servicer.
Again, signing the loan when you borrowed the money put you in a legally binding agreement in which you promised to repay your balance. Defaulting could allow the loan servicer to garnish your wages or withhold any potential tax refunds until you repay the balance of the loan in full (And that balance becomes due in full when you default!)
Additional collection tactics can include taking Social Security benefits, refusing to issue new loans or grants, and even charging additional fees for demanding collections in default.
How to get out of student loan delinquency
Getting out of delinquency requires a fairly simple action: make your payment as soon as possible. This is simple – but not necessarily easy if you’re struggling to make at least the minimum payment.
Dealing with student loan default
If you find yourself in default on your student loans, you have a few options for getting yourself out of the situation. The first is to repay your loan in full. This might be realistic if the loan is a few thousand dollars and you’re able to come up with the cash.
But for larger balances, you might need to consider student loan rehabilitation. The federal government offers a few programs for rehabilitation, but this might not be the best route depending on what type of student loan debt you have.
A final option is loan consolidation. This wouldn’t magically disappear all the money you owed. in fact, consolidation means taking out another loan, repaying the original loans with the new borrowed funds, and starting a new payment plan with the new loan.
Avoiding falling behind on your student loan payments
These are ways you can remedy the situation once you find yourself in it. But the best course of action is to avoid both delinquency and ultimately default altogether.
Set up a sound budgeting system so you’re efficiently managing your money each month. Then work to save more and create a bigger gap between your income and your expenses, so you have enough cash flow to cover your student loan payments.
If you’re maxed out on how many costs you can cut and don’t know how to save any more, it’s time to look at increasing your income. You can start with your current job and seek to earn and negotiate a raise, or you can increase your workload and pick up a side hustle to earn extra cash.
What to do in the worst-case scenario
But sometimes, you simply do not have the money to make your payment. Thankfully, that doesn’t mean the immediate result is delinquency. Step one is to reach out to your loan servicer to understand your options.
“If you find yourself in a situation where your finances are tight, reach out to your loan provider,” advised Katie Gampietro Burke, CFP and founder of financial planning firm Wealth by Empowerment. You can avoid delinquency by doing things like changing your due date or even your payment plan as a whole.
There is always some step, however small or temporary, that you can take to avoid finding yourself in this situation. Don’t give up hope and don’t avoid doing anything at all.
“You may be eligible for deferment, forbearance, or a lower payment,” Burke adds. She points out that your worst option is to do nothing, as a lack of action can lead to serious consequences for your financial situation.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.57% – 6.97%1||Undergrad & Graduate|
|2.47% – 6.99%3||Undergrad & Graduate|
|2.68% – 8.77%4||Undergrad & Graduate|
|3.24% – 6.66%2||Undergrad & Graduate|
|2.61% – 7.35%5||Undergrad & Graduate|
|3.01% – 9.75%6||Undergrad & Graduate|