After years of sacrificing sleep to finish assignments and overcoming anxiety to ace those tests, you and your peers have finally been rewarded with a celebration of your accomplishments. After all this, you may wonder what lies ahead for you and your future, especially financially.
For seven out of 10 Americans, the answer is student loans. The average American graduates with about $37,172 in student loan debt. Unfortunately some may fall behind on their payments, leading to delinquency or even default on their student loans.
Delinquency, Default and Your Credit
Student loan delinquency and default are similar, but they have different effects on your credit.
As a borrower, you’re considered delinquent on your student loan if you miss a scheduled payment altogether or are late on a payment.
If payments haven’t been made toward a student loan account for more than 270 days, you’re subject to defaulting on your loans. Victoria Slater from QLCredit works with credit scores and warns against the potential downfalls of student loan debt, especially defaulting.
“Your credit will be impacted by a missed payment, but your credit will be severely impacted by a default,” Slater said.
Just how much your credit is impacted can differ based upon many factors.
“We can’t say exactly how much it will affect your score because that depends on other factors such as previous payment history, age of accounts, etc.,” Slater said. “We can say you do not want to be delinquent or default – both will be really bad for your score.”
How to Avoid Late Payments
Whether it requires auto-pay for your loans or changing your payment plan, late payments on student loans can be avoided. Stephanie Hanigan, Scholarship Coordinator and Compliance Supervisor at Southern Oregon University, is in favor of using automated payments regarding student loans.
“Every student should ensure they have created an online account with their student loan servicer and make it a habit to log in and check the account at least once every three months,” Hanigan said. “Some loan servicers will offer incentives such as reduced interest if the borrower signs up for automatic debit payments.”
Another way to avoid late payments on student loans is to explore any repayment options that may be available.
Many times, recent graduates experience financial hardships that may interfere with making scheduled payments. If you’re in a position where you’re struggling to make payments or to find a job, you could consider enrolling in an income-driven payment plan. This plan allows you to pay as you earn money. In many cases, these payments could be as low as zero dollars. In this situation, you’d still likely want to consider paying anything you can comfortably pay on your loans, because while your principal loan might not increase, the cost of the interest on these loans may.
In addition, student loan forgiveness programs are gaining popularity. Kevin Glancy, Marketing Manager for Student Loan Resources, believes taking advantage of these programs can be beneficial.
“If you want to stay on top of your loan payments and avoid going into default, you’re going to want to get into a forgiveness program as quickly as you can,” Glancy said. “With federal loans, you have the option of joining the 20-25 year-long forgiveness programs, which take off thousands from your student loan debt.”
Bouncing Back from Delinquency or Default
While being delinquent or defaulting on your student loans may have harsh consequences, it’s important to know what to do after you have experienced this.
One thing that you can do is to reach out to your loan provider as soon as possible regarding your loan payments. Many times, loan providers can be understanding enough to set up different payment plans.
It’s not helpful to avoid speaking to your loan provider regarding your missed payments. “It is never a good plan to avoid the repayment of the loan; the student should contact the servicer and explain their situation,” Hanigan said. “There are always options!”
Do you have good tips for conquering student loan debt? Share in the comment section below, and check out how your student loans can affect your mortgage.
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