Missed a student loan payment? Call your servicer ASAP!
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More than $44 million Americans owe student loans totaling more than $1.4 trillion. Of those loans, millions are delinquent and more run late every day. Last year’s graduates racked up an average of $37k in student loans by the time they graduated. Even if it’s been years since you left college, you might still be struggling with student loan debt. It’s important to understand what happens if you miss a student loan payment and what to do to protect yourself if you know you’ll miss more payments.
Delinquent vs. Default
With federal student loans, as soon as you miss one payment, you are considered delinquent. That essentially means that you’re late. If you stay delinquent for nine months, then you move into the category known as default. With private student loans, default starts the day after you miss a payment. In either case, there are options to get back on the right track for a better financial future.
Debt Collection Begins Immediately
As soon as you miss even one student loan payment, you can expect to get calls and letters from the delinquency department. By missing a payment, you are in direct violation of the promissory note you signed when you obtained the loan. For the first 15 days following your payment due date, you can expect several contact attempts from your loan servicer.
Your Credit Score Will Take a Hit
With credit cards, mortgage or an auto loan, you can expect a hit to your credit score the month following a missed or late payment. But with federal student loans, servicers will generally report to the three credit bureaus after 60 to 90 days of delinquency. When that hits your report, your credit score will drop. Even if you catch up, the negative item will remain on your credit report for seven years.
What to Do If You Can’t Catch Up
The very first thing to do when you miss a student loan payment or realize that you will miss one, is to contact your loan servicer. They have options to offer you including deferment, forbearance, and alternate repayment plans. If you call and explain what’s happening with your finances, they can spell out your options, so you at least know what to expect and what’s available to you.
What Are Deferment and Forbearance?
Deferment and forbearance allow you to stop making payments on your student loans for a period. In deferment, which requires you to show financial hardship, your student loans will not accrue interest while you’re on pause. With forbearance, interest will continue to accrue so you’ll owe more when your forbearance ends than when it began.
Deferment is shorter in term and carries greater requirements to qualify. Forbearance is open ended, but the longer you stay in this holding pattern, the greater the interest that will accrue and the larger balance you’ll face when you finally get off of deferment and back to making payments. But in a pinch, deferment and forbearance are better than going into default.
Going into Default Cuts Off Most Options
The big deal about defaulting on your federal student loans is that, up until that point, you have options open to you. There are income-based repayment programs. There are deferment and forbearance. There is consolidation which can give you a reset. But once you’re in default, most of these are out of reach. That’s why it’s important to contact your student loan servicer the moment that you know you missed (or will miss) a payment. They can guide you to resources like these to prevent a debt free fall.
How Bankruptcy Can Help
Filing North Carolina bankruptcy may also help with your student loans. It’s a myth that student loans cannot be helped by bankruptcy. First, 99% of student loan borrowers that file bankruptcy do not take the extra step (called an adversary proceeding) to ask for student loan relief. Second, when borrowers do ask for relief, in about half of cases, they received some form of assistance. Third, even if your federal loans can’t be reduced or discharged in bankruptcy, dealing with other debt can help.
Finally, for private student loans, the rules are different. If your private student loans are out of the statute of limitations, they can be discharged like other unsecured debts in NC bankruptcy. To find out more about the benefits of bankruptcy with student loans, contact the Law Offices of John T. Orcutt. Call +1-919-646-2654 today for a free consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.