Keeping up with student loan payments could put a strain on your budget, especially if your income has been affected by the coronavirus pandemic.
While the CARES Act provides financial relief to borrowers on federal student loans – including temporary student loan forbearance and 0% interest rates – these measures won’t last forever. And the law does not provide any relief for those with private student loans who may have been affected by COVID-19.
For those with private student loans (and only private student loans at this point, as the benefits of federal loans are different), refinancing may make sense. An online tool like Credible can be handy for comparing student loan refinance rates from several lenders without affecting your credit score.
Non-payment of student loans, whether for federal or private loans, can damage your credit score and make it difficult to obtain new loans to finance your education. Here’s what can happen if you fall behind on school loans, plus tips on how to avoid it.
What happens if I am behind on federal student loan payments?
If you owe federal student loans that are covered by the protections of the CARES Act, you don’t have to worry about being late just yet. Thanks to President Biden’s decree issued in January, forbearance from student loans and 0% interest rates are extended until September 30, 2021. The law also suspends collection actions on overdue loans.
Coronavirus relief for federal student loans may continue after that date if another executive order is issued. But if it doesn’t, you must be prepared to start repaying your loan again.
What will happen if a borrower is in arrears for a few days?
The first day after a loan payment is missed, you are considered past due. You will remain in default until you make a payment or otherwise resolve your loans. For example, you can get back on track by consolidating loans, requesting income-based repayment plans, or requesting a deferral or forbearance.
Loan officers probably won’t report your account as overdue to the credit bureaus if you’re only a few days late. But you may be charged late payment fees.
What will happen if a borrower is 90 days or more overdue?
If you are 90 days or more behind in federal student loan repayments, loan departments may report you to the credit bureaus. It could hurt your credit score.
The longer you delay paying off your student loans, the closer you get to default. For federal student loans, the default occurs when you have 270 days or more for payments.
At this point, your entire loan balance becomes immediately due, you can no longer receive deferral or forbearance, you become ineligible for the new federal student assistance, and you cannot apply for repayment plans based on the returned. Your wages could also be garnished and your tax refund could be offset to collect what is owed.
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What happens if I am behind on my private student loan payments?
Private student loans do not follow the same rules as federal loans when it comes to late payments. The consequences of late payment for private student loans can vary from lender to lender. But generally, you may be subjected to any of the following:
- Late payment fees
- Negative reports to credit bureaus
- Loss of benefits or incentives for the borrower, such as interest rate reductions for automatic payments
- Loss of eligibility for new private loans or forbearance / deferment options
If you are at risk of falling behind on your private student loan repayments, it’s important to contact your lender or loan manager as soon as possible. They can discuss the options available to stay up to date on your loans.
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What should I do if I need help repaying my private student loans?
If you’re having trouble paying your private student loans, there is a potential solution: refinancing your student loan. You can use Credible to compare student loan refinance rates from several lenders at once without affecting your credit score.
Private student loan refinancing allows you to replace your existing loans with a new one, ideally at a lower interest rate. Lower rates can translate into lower payments, and you’ll save money on interest over the life of the loan.
Whether or not to refinance private student loans may depend on your loan balance, whether you currently have fixed interest rates or variable interest rates, and your credit history. On the benefit side, refinancing can lower the total cost of borrowing to pay for school. However, if you have already paid off most of your school loans, refinancing them may not result in significant savings.
Before refinancing for private student loans, it is important to first estimate your monthly payments and savings using an online refinance calculator. This can give you an idea of the relevance of refinancing from a numbers perspective.
From there, you can view your rates from different lenders to compare loan options. It’s easy to do this using an online tool like Credible, where you can view a rate table that compares the rates of multiple lenders at once.
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