Have you ever wondered what would happen if you made one late student loan payment? Not being late every month, or every few months, but just one time? Perhaps you envision being scolded by some Sallie Mae rep, incurring devastating fees, or taking an immediate hit on your already fragile credit score. While these late payment scenarios may be exaggerated in your mind, there are nuggets of truth to each of them.
Understand the Difference Between Loan Delinquency and Loan Default
Fortunately for those with student loans, lenders understand that people make mistakes. Missing one payment and missing several payments are two different issues in the eyes of lenders, and are treated differently as well.
Loan Delinquency: A loan becomes delinquent the day after the missed due date. The loan remains in delinquent status until the borrower takes an action such as payment, deferment, or forbearance.
Loan Default: A loan goes into default when a person fails to repay according to the terms of the agreed promissory note. True, by being late on a payment, you are not adhering to the promissory note. However, there is a time lapse lenders and the federal government will allow before the loan is officially considered to be in default status. For example, most federal student loans will not be moved into default status until after the person has gone 270 days without making any payments.
Consequences of One Late Payment
For now, let’s assume that your loan is delinquent, and that you have only one missed payment at this time. The possible consequences of a delinquent loan include the following:
Ding on Your Credit Report: For Federal student loans, delinquency is typically reported to the three major credit bureaus (TransUnion, Equifax, and Experian) after 90 days has passed. The length of time afforded before reporting to a credit bureau is different for private loans and for each lender; for example, Sallie Mae usually reports delinquent private loans after 45 days. Usually if you are not 45 days late, you won’t incur a bad mark on your credit report—at least, not yet.
Late Fees: There is typically a grace period on delinquent loans before a late fee is assessed, though it varies by lender. Sallie Mae, for example, issues a late fee of 6% of your minimum payment after one late payment that is at least 15 days past your due date.
In order to find this information, I actually had to call Sallie Mae and ask—they don’t always make it easy to find. So be sure to call your own lender and ask the same questions so that you understand the consequences of a delinquent federal student loan versus a delinquent private student loan.
To Avoid Late Penalties, Be Proactive in Dealing with Loans
No one wants to miss a payment on their student loans, most of all because of the possible consequences that will occur. One of the best ways to prevent doing so in the future is by setting up automatic bill payment on your student loans that will debit your account before the due date. If you do this, be sure to understand whether or not your bank account will push a payment through or not in the event that you do not have enough funds to cover the debit (and if they do push the payment through, understand that you will incur overdraft fees from your bank with the upside being that you will not be late on your student loan payment).
Another way to be proactive when dealing with your loans is by keeping the lines of communication open with your lender throughout the repayment process. Instead of sticking your head in the sand and hoping for the storm to blow over, get in touch with your lender as soon as you know that you will need to make one late student loan payment. Hopefully you have had on-time and consistent payments up until now, as this could help you in making sure your delinquency is not reported to the credit bureaus or even to take off a late fee.
Just like when you are late on a credit card payment, the consequences of being late on student loan payments can be both financial as well as non-financial. Fortunately, there are grace periods for each of the consequences discussed.