What Happens If You Are Late on a Student Loan Payment?

Student loans are a common way to finance higher education, but they require timely repayment. Missing even one payment can negatively impact a borrower’s financial standing and future borrowing capacity.

Initial Overdue Status

A missed student loan payment makes the loan past due, or delinquent. While delinquency begins immediately, significant consequences typically follow a period of time. Federal student loans are usually reported to national credit bureaus after 90 days of delinquency. Private lenders may report missed payments as early as 30 days past due. This reporting can negatively impact a borrower’s credit score, potentially by as much as 100 points or more, making it harder to obtain other forms of credit like car loans or mortgages.

Loan servicers contact borrowers shortly after a missed payment. Federal student loans do not assess late fees on Direct Loans. However, private student loan lenders often impose late fees, which vary based on the loan agreement. These fees are commonly a percentage of the missed payment (5% to 6%) or a fixed amount ($15 to $25). Some lenders may offer a brief grace period (15 to 30 days) before applying a late fee.

Understanding Default

If a student loan remains delinquent for an extended period, it will eventually enter default, a more severe status with significant financial repercussions. The timeline for default varies between federal and private loans. Most federal student loans typically enter default after 270 days of non-payment, which is approximately nine months. However, certain federal loans, like Federal Perkins Loans, can be declared in default sooner, depending on the loan holder.

Defaulting on federal student loans triggers a range of serious consequences. The entire unpaid balance of the loan, including accrued interest, becomes immediately due, a process known as acceleration. Borrowers lose eligibility for federal student aid, as well as for benefits like deferment, forbearance, and income-driven repayment plans.

The federal government possesses powerful collection tools, including the ability to garnish wages (up to 15% of disposable pay) without a court order. Federal tax refunds and other federal payments, such as Social Security benefits, can also be withheld and applied toward the defaulted loan through Treasury offset. Additionally, collection costs, which can be as much as 25% of the principal and interest, are added to the loan balance, further increasing the debt.

For private student loans, the default timeline is often shorter, commonly ranging from 90 to 180 days of missed payments, or about three to six months, as defined in the individual loan agreement. Once a private loan defaults, the entire loan balance is typically accelerated, becoming immediately payable. Private lenders can report the default to credit bureaus, severely damaging the borrower’s credit score for up to seven years.

Unlike federal loans, private lenders cannot garnish wages or offset federal payments without a court order. However, they can pursue legal action, which may result in a court judgment allowing for wage garnishment or bank account levies. Co-signers on private student loans are equally responsible for the debt, and a default will negatively impact their credit and may lead to the lender pursuing them for repayment.

Addressing Late Payments and Default

Addressing late student loan payments or default requires proactive engagement with the loan servicer or lender. If payments are late but before default, borrowers should immediately contact their loan servicer to discuss options.

Federal loan borrowers may temporarily postpone payments through deferment or forbearance. Deferment allows for a temporary suspension of payments, and for subsidized loans, interest may not accrue. Forbearance also temporarily suspends payments, but interest typically accrues on all loan types. To apply, borrowers generally need to complete a form and provide supporting documentation.

Federal loan borrowers can also explore income-driven repayment (IDR) plans, which adjust monthly payments based on income and family size, potentially reducing payments to zero. Enrollment in an IDR plan involves an application process, often available online through the Federal Student Aid website.

For federal loans already in default, several pathways exist to bring them back into good standing:
Loan Rehabilitation: Requires making nine voluntary, reasonable, and on-time monthly payments over ten consecutive months. The payment amount is typically based on the borrower’s income.
Loan Consolidation: Defaulted federal loans are combined into a new Direct Consolidation Loan. To consolidate, borrowers must either agree to repay the new loan under an IDR plan or make three consecutive, voluntary, on-time, full monthly payments on the defaulted loan first. Consolidation removes the loan from default status and halts collections, but it does not remove the default record from the credit history.
Repaying in Full: Pay the entire loan balance if feasible.

For private student loans in default, options are less standardized. Borrowers should contact their lender to negotiate a repayment plan or a settlement. Lenders may be willing to work with borrowers to establish a manageable payment schedule or accept a lump sum for less than the full amount owed. If legal action is threatened or initiated, seeking legal advice is important to understand rights and potential defenses.