If you’re anything like me, you have to overcome major avoidance issues when you sit down to review your monthly financial statements. I’d rather clean the toilet than sit down and look over my bank account and credit card bills, but over the years, I’ve definitely learned the hard way that ignoring my finances usually ends up with me paying crazy late fees and penalties.
It’s tempting to let student loan monthly statements get lost in a pile of bills or in your email inbox, but the long-term effects of ignoring your student loans can be extremely detrimental to your credit and even your monthly paychecks. If you’ve been procrastinating on addressing your student loan payments or overwhelmed by the consequences, take action immediately. It’s never too late to address financial mistakes, but the sooner the better.
Here’s a breakdown of what happens if you’ve been ignoring your student loans, and what you should do if you’ve missed payments.
You Miss One Monthly Payment
Your loan is considered delinquent the day after a missed payment, but if you make a payment within 15 days of the due date, you can probably avoid late fees. Check to see what type of loan you have and its associated terms here. If you make a payment within 30 days of the due date, you’re safe from the late payment affecting your credit. If you’re over 30 days late on a payment, your lender has probably already contacted you at least once to ask you to pay. If you’re over 45 days late, they may have also already reported you to the credit bureaus, so your credit score might be affected. Anything more than 90 days late, your credit has definitely taken a hit. Delinquent student loans can take up to 100 points off your credit score.
What to Do: Make a payment immediately. You don’t want to let late payments add up, so if you’re making a steady income/can afford the monthly payments, simply change your payment option to automatic debit so that you’ll never make another late payment again.
If you really can’t pay that monthly payment, then you have the option of applying for either deferment or forbearance. You should contact your lender as soon as possible to discuss your circumstances (unemployment, attending more school, financial hardships) and the best possible option to minimize monthly payments without having to accrue additional penalties.
Do not rely on these options unless it’s an emergency and you’re truly in dire financial circumstances. There is a limited amount of time you can use these options, and interest usually still accrues on your loan balance even when you’re not making payments.
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You Don’t Pay Your Student Loan for Months
If you’ve simply ignored your student loan statements for months, you’ll have to do a little more work to address your outstanding student loan and minimize the long-term damage to your credit. At this point, your options really depend on how long it’s been since your last payment. If your loan is delinquent for too long, then your status shifts into something much more serious.
At 270 days late, your loan is in default. This means that the lender will turn over the loan to a collections agency that will be contacting you to pay as much of the balance as possible. You are no longer eligible for monthly repayment plans to your lender. Default status is serious because it harms your credit, but it can also make you ineligible for any other student loans you may need in the future.
If you’ve defaulted on federal student loans, then the government could seize your IRS refund to apply to your loan balance. The Department of Education might even give you 30 days notice that they will begin to garnish your wages. They can withhold 15% of your paycheck for every pay period and use it to pay off your loan balance. If you’re in default on a private loan, then the lender will have to get a court order to garnish your wages.
What to Do: Contact your lender immediately. You want to get your loan out of default as soon as possible. To get your loan out of default, you have to pay the full amount of the loan and all other associated fees dealing with the collection process.
Paying the full amount isn’t really an option for most of us, so you can also either try loan rehabilitation to negotiate a new payment plan with your lender or apply for loan consolidation to consolidate all your loans into one loan that includes all the accrued interest and additional fees set at a fixed interest rate. You should read more about these options here to determine which works best for your circumstances.
The Bottom Line: Don’t Ignore Your Student Loans
Ignoring your loans will always get you into trouble or make your financial situation worse, but if you ignore student loans, so much more can be affected than just your credit. If you’re borrowing from the federal government, your employment salary and tax refund are easily at stake. You’ll also be spending countless hours contacting your lender to get your loans out of default status, and the longer you wait, the more money you’ll owe in fees and penalties.
Ignorance is not a bliss when it comes to student loans. It may not be fun or easy to want to pay back student loans. It may even take a lot of courage for you to open your monthly student loan statement after ignoring them for so long.
But bottom line: you need to address your student loans as soon as possible, because the longer you wait, the worse it gets and the fewer options you’ll have to get yourself out of debt.