Today, student loan debt is one of the most significant issues in Americans’ lives. Pew Research shows that about 20% of student loan borrowers are currently in default. It’s tempting to ignore your debt. But this can lead to serious consequences. A lot has been written on this topic. If you wish, you can buy customer research paper on this.
In most cases, defaulting upon a student loan will have the same consequences that failing to repay a credit card. But it could be worse. Federal student loans are almost always guaranteed, and the feds have power that debt collectors can only imagine. While it is unlikely to be as unpleasant as having armed marshals at the door, it could be quite distressing. Learn more below.
What happens if you don’t pay student loans?
Federal Loan Timeline
Federal student loans are available to undergraduate and graduate students. Parents of college students can also apply for them. Direct Loan Program loans are currently available. Follow the timelines below to see how they work. You should note that this does not include the temporary payments or interest rate relief provided by the Covid-19 pandemic.
Within six months of graduation. For unsubsidized or direct loans, there is a grace period of six months that begins after graduation. During the grace period you are not required to make any payments on your debt. You can defer your payments up to six months after graduation for Grad PLUS or Parent PLUS loans.
Six months after graduation. Six months after graduation, your loans go into repayment. The repayment schedule for your loan agreement will dictate when you must begin making payments. The default repayment plan is a 10-year-term with fixed monthly payments.
One-day late payments are considered delinquent. You can be late by as little a day. Your account will be held in default until the balance is paid and fees are paid.
30 day late payment. Late fees will be charged by your loan servicer if you do not make your full monthly payments within 30 days. The late fee can amount to as much as 6% of your monthly payment amount.
For payments that are more than 90 days late. The loan servicer will report delinquency for at least 90 days to the major credit bureaus Equifax, Experian, and TransUnion.
If your payment is more than 270 days late, Your loan will be in default.
Private Student Loan Process
Nearly $130 billion was owed on private student loans as of the end 2019 school year. This includes loans for undergraduate students and loans for medical school. Private loans work in a different way than federal loans. Online lenders, banks, and credit unions offer private loans. Repayment terms may vary depending on which lender they are. Private student loans generally follow the following timeline:
Right after graduation. While some private lenders allow borrowers to take grace periods, this is not true for all. Many lenders will require you to pay your loan payments as soon as you graduate.
One day late payment. Your lender may mark your account as insolvent and report it to credit bureaus.
The lender will consider you in default if your payment is more than 90 days late. They may attempt to collect the debt through a collection agency or by taking you to court.
Late payment is for 120 days. The lender will charge the debt often if the payment is not made within 120 days. The lender will transfer the debt to a collection agency that will take care of the loan.
5 Things to Do if Your Student Loan Payments Are Unaffordable
You should act quickly if your student loans are not affordable. One or more of these options may be available to you to manage your debt.
1. Alternate Payment Plans
An alternative payment plan may be available if you cannot afford your monthly payments but haven’t missed one. These relief options are available to federal student loans holders:
Income-driven repayment (IDR): IDR plans rely on the income of your family, your discretionary income, as well as a longer repayment term. Enrolling in an IDR program can help you reduce your monthly payments if income has been reduced.
You can temporarily defer or forbear your payments if you are unable to pay your bills because of a job loss or illness. Depending on your situation, you may qualify for a temporary forbearance lasting up to 3 years.
Private student loan lenders typically don’t offer other payment options. There is no law that requires private lenders to offer payment relief. Lenders may offer reduced monthly payments or interest-only payments for specific periods of time. Lenders will sometimes allow you to delay your payments for a few months if there is a serious financial emergency. Get in touch with your lender to discuss the various options.
2. Federal Loans Consolidation
You can consolidate federal loans to avoid default by taking out a direct consolidation loan. To be eligible, you will need to make three consecutive on-time monthly payments and also enroll in an IDR program.
3. Federal Loans Rehabilitation
You can also opt for loan rehabilitation if you do not want federal loan consolidation. You agree to make nine on-time, voluntary monthly payments. Your loan will be removed if you make nine on-time payments in the next 10 months.
4. Private Rehabilitation
Although private lenders will not be able to offer the same rehabilitation programs as federal lenders, they may still have their own options for getting out of default. To find out how to make your loans current, contact your lender.
5. Student Loan Refinance
Student loan refinances are an option for those with federal or private student loans. You can refinance student loans by applying to a private lender for a loan. This loan will be used to pay off existing debt. After you have paid off your student loans, your debts will be marked as “paid in full,” and you won’t be in default. To get a lower monthly repayment, you can choose to have the new loan term extended.
You may not be eligible for refinancing loans if your credit has been damaged by defaults on loan payments. You may be approved if your co-signer has great credit.