If you’ve fallen behind on student loan payments or your student loans are in default, you aren’t alone. There is more than $1.6 trillion in outstanding student loan debt. Financial experts say that up to 40 percent of people with student loans could be in default in the next three years. The pandemic and all of its fallout have made student loan debt even more of a crisis.
What should you do if you’re in default or you’ve fallen behind on your student loans?
Defaulting on a debt, any debt, means you fail to pay that debt at the time it is due. Not paying on the due date a single time does not automatically mean debt is in default. The time a default happens varies based on the creditor and the borrower. Some default after missing one payment, while others require several missed payments to trigger a default. In the case of federal student loans, default occurs when you miss a payment due date by just one day.
The important thing to recognize is that if you have fallen behind on student loan payments, whether it’s gone as far as defaulting or not, is that help is available. There is no reason to live with stress about your student loan debt or allow unaffordable debt to ruin your credit. Here’s what you can do:
The best way to avoid problems with the default of your student loan is to bring the payments up to date. Of course, this is easier said than done if you are struggling financially. If you missed a payment because you forgot the due date or for any other reason any you have the financial ability to make the payment, do so as soon as possible. Setting up an automatic draft payment that doesn’t require you to manually make a payment might be the best way to avoid accidental default.
When you fall behind on your student loan payments by 90 days or more, your delinquency is reported to the three major credit bureaus. This hurts your credit.
However, despite falling behind, you have options. For many people, deferment or forbearance is the best way to avoid damage to your credit when you cannot afford student loan payments. Additionally, federal student loans do not accumulate interest while in deferment (they do in forbearance).
Make sure you understand the terms of a deferment or forbearance before agreeing to it, but this is an option for many people who have the temporary inability to meet their loan payment obligations.
You could be eligible to consolidate multiple student loans into a single payment. This might result in owing less than you do on two or more loans. Doing so could lengthen the term of the loan, but make it more affordable from month-to-month. Some consolidated loan payments are even income-driven, which means what you pay each month is based on how much you earn.
You can learn more about student loan consolidation here.
Refinance is an option if you have private student loans. You might be able to consolidate private loans. You can also negotiate a lower interest rate or extend the length of repayment time and reduce your monthly payments. Keep in mind, your credit must be at least average or better to refinance. If you anticipate financial problems in the near future, it’s important to act quickly to refinance before those problems affect your credit score.
You might also be able to negotiate different terms or alter your payment on federal student loans. It never hurts to speak to your loan provider about your circumstances and explore your options.
If your financial situation is dire or headed that way, bankruptcy might be the best option. Student loans are not always eligible to be included in a bankruptcy. However, if you are struggling to afford student loan payments because of other debts, filing for bankruptcy frees up funds to put toward your student loan payments.
If you would like to know more about how bankruptcy can help you manage student loan debt or you are ready to schedule a consultation with an experienced bankruptcy attorney, contact the Law Office of Robert M. Geller at 813-254-5696 to learn more.
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