What Happens If You Miss a Student Loan Payment?

Missed student loan payments can lead to serious financial consequences. The path from a single missed payment to loan default involves several stages, each with increasing implications for a borrower’s financial health.

Immediate Repercussions of a Missed Payment

When a student loan payment is missed, the loan enters delinquency. The account remains delinquent until the overdue amount is paid or other arrangements are made. Federal student loan servicers generally report delinquency to national credit bureaus after 90 days. Private lenders may report after just 30 days.

Late fees are imposed shortly after a missed payment. For federal student loans, this fee can be up to 6% of the unpaid amount. Private loan late fees vary by lender and may be a percentage of the unpaid amount or a flat fee.

Loan servicers will contact the borrower to remind them of the overdue payment. Reporting delinquency to credit bureaus significantly impacts a borrower’s credit score, making it challenging to obtain future credit, secure housing, or qualify for certain employment. This negative mark can remain on a credit report for up to seven years.

The Consequences of Student Loan Default

If missed payments continue, a student loan will eventually enter default, a far more serious status than delinquency. For most federal student loans, default occurs after 270 days of non-payment. Federal Perkins Loans can default sooner, sometimes after a single missed payment. Private student loans often default more quickly, generally after 90 to 120 days of missed payments.

Once a loan defaults, the entire unpaid balance and any accrued interest can become immediately due through acceleration. This eliminates previous repayment plans and borrower protections. Defaulted federal loan borrowers lose eligibility for future federal student aid, as well as benefits like deferment, forbearance, and income-driven repayment plans. The negative impact on a borrower’s credit history and credit score is much more severe with default, remaining on the credit report for seven years and making it difficult to secure new credit or even rent an apartment.

Defaulted loans are transferred to collection agencies, which add substantial fees. For federal loans, collection costs can be as much as 18.5% of the principal and interest owed. These agencies pursue repayment, and the government has powers to collect on defaulted federal student loans without a court order.

Enforcement actions include wage garnishment, where up to 15% of a borrower’s disposable income can be withheld. Another collection method is the tax refund offset, allowing the U.S. Department of the Treasury to seize federal and state tax refunds. A portion of Social Security retirement or disability benefits can also be offset, with up to 15% potentially withheld. For private student loans, lenders may pursue legal action, resulting in court judgments and further collection efforts, including wage garnishment or asset seizure. Unlike federal student loans, private loans have a statute of limitations, typically three to ten years, after which lenders generally cannot sue. Federal student loans, however, have no statute of limitations for collection.

Resolving Missed Payments and Default

Addressing missed student loan payments promptly is important to avoid escalating consequences. Contacting the loan servicer immediately is the recommended first step. This proactive communication can open doors to various repayment options and prevent the loan from moving into default.

For delinquent federal loans not yet in default, borrowers can explore options to make payments more manageable. Switching to an income-driven repayment (IDR) plan can adjust monthly payments based on income and family size, potentially lowering them to as little as $0 per month. Federal IDR plans include Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), Pay As You Earn (PAYE), and Saving on a Valuable Education (SAVE) Plan. Borrowers can also apply for deferment or forbearance, which are temporary pauses or reductions in payments. Deferment may be available for situations like unemployment, economic hardship, military service, or re-enrollment in school; interest may not accrue on subsidized federal loans during this period. Forbearance, often for general financial difficulties, typically allows interest to continue accruing, increasing the total loan balance. General forbearance is usually granted for up to 12 months at a time, with a cumulative limit of three years.

Once a federal student loan enters default, specific procedures are available to bring it back into good standing. Loan rehabilitation requires the borrower to make nine monthly payments within a 10-month period. Successfully completing rehabilitation removes the default from the borrower’s credit report, though the history of delinquency remains. This is generally a one-time option per loan.

Another option is loan consolidation through a Direct Consolidation Loan, which combines defaulted federal loans into a new loan. To qualify, borrowers must either agree to repay the new consolidated loan under an income-driven repayment plan or make three consecutive, on-time payments on the defaulted loan before consolidation. While consolidation removes the loan from default and stops collection efforts, the record of the default remains on the credit history.

Loan settlement, where the borrower pays a lump sum for a reduced balance, is another possibility, though it is less common for federal loans and often results in the forgiven amount being treated as taxable income by the IRS.