Loan payment

What happens if I miss a student loan payment?

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We get it – money is tight right now. But if you’re considering skipping a student loan payment in order to make some room in your budget, beware of the consequences.

In normal, non-pandemic life, borrowers are “expected” to make payments on time, says Nicole Stovall, head of consumer loans at Affinity Federal Credit Union. Because payment history has such an influence on your credit score, missing a bill can have pretty serious consequences.

“Your lender is going to report you to the credit bureaus,” adds Stovall. “You’re going to see a drastic reduction in your credit score just for one missed payment.”

The timeline at which you actually see this impact varies depending on the type of student loan you have. Federal loans become delinquent the first day after you miss a payment. The repairer will report it to the credit bureaus after 90 days, and later it could be in default. Private lending policies are often stricter. They depend on the company you are dealing with and may incur late fees.

Some lenders will offer a deferral or forbearance if you contact them and prove financial hardship. These options allow you to temporarily defer your student loan repayments.

“The notion of skipping is never a good idea,” says Stacey MacPhetres, college finance consultant at Bright Horizons. “But there are ways to do it that won’t hurt you in the long run.”

Fortunately, the situation is different in 2020.

Thanks to the pandemic, mass layoffs and the overall dire state of the economy, the government suspended some student loans this spring. Student loans held by the federal government were automatically placed on administrative forbearance, meaning borrowers were not required to make payments on them for a set period of time. Interest rates were also set at 0%, meaning people weren’t penalized for taking advantage of the break.

President Donald Trump recently extended that policy through the end of the year, so “you’re not obligated to make any payments at this time,” MacPhetres said.

Even if they don’t have For this, she recommended that people who can afford to continue paying their student loans regularly do so. Since interest does not accrue, the loan amount does not increase. The payments will go directly to the principal reduction, that is, to the faster repayment of the loan. Pleasant.

If life is stressing you out, you can keep your payments and instead boost your emergency fund. You’ll have a nice safety net, and if all goes well, you can always make a big dent in your loans just before Trump halts things.

Remember: this only applies to federal student loans. Private loans are another story. Stovall said many lenders are offering customers forbearance options during the pandemic, although interest will likely accrue.

“I don’t really know anyone who has said, ‘No, you have to make your payment,'” she adds. “Every financial institution said, ‘What do you need? How can we help you?'”

At the end of the line ? Skipping a student loan payment can ruin your credit. It’s less harmful during the pandemic due to special policies designed to ease the strain on borrowers, but the specifics depend on whether your loan is federal or private.

One piece of advice always applies: you should never ignore your lenders. Coronavirus or not, if you’re in a sticky situation, you need to contact them and tell them you’re struggling.

“Most of the time, if you contact your lenders, they’ll work with you,” MacPhetres says.

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