Student loans are one of the top financial burdens many young people face in the United States.
It takes the average loan borrower 20 years to pay off their student loans. And more than 3,000 students default on their federal student loans every day. But what happens when you can’t pay student loans?
Usually, what happens when you miss federal student loan payments follow a common pattern. But private loans don’t follow such patterns since the federal government does not cover them. Often, private student loans have specific contracts that determine the consequences of missing a payment.
Here’s a step-by-step guide to what happens when you miss federal loan payments.
After You Graduate From School
When you graduate or leave school, your federal student loans go into repayment. However, most federal loans come with a grace period. For example, if you have Direct subsidized, direct unsubsidized, or FFEL, you get a six-month grace period before you start making payments.
You get a nine-month grace period for Perkins Loans. After the grace period, you make regular monthly payments according to your chosen repayment plan.
15 Days After Your Payments Are Due
Most federal student loans give borrowers a grace period of about 15 days to make payments after their regular due date. So there’s a chance of few consequences when you’re less than 15 days late in making payments.
However, if you’ve not made any payment and the 15-day period ends, your loans will be delinquent. And that will start affecting your credit scores, and as you probably know, that’ll have long-term consequences.
But even at that point, you can still make payments and get back on your feet.
270 Days After Your Payments Are Due
Your federal loans get into default after 270 days. When the student loan is in default, the federal government can garnish your wages, federal tax refunds, social security checks, and disability benefits.
In some states, borrowers can have their driver’s licenses and even professional licenses revoked if their loans defaulted. But before the government proceeds, you’ll get a notice 30 days before the garnishment begins. That gives you a chance to request an appeal.
One Year After Your Payments Are Due
If you don’t make a payment for one year, the federal government will transfer your loans to a default collection agency.
These collection agencies will then charge fees and penalties for not making payments. Sometimes, it can be as huge as 18% of the balance of your student loan.
What Can You Do?
You can avoid these dire consequences, but you need to do something before your student debt gets into default. Numerous federal student loan forgiveness and repayment programs are designed to help you pay off your student loans. And you can access them as long as you have federal student loans.
Consider The Three Similar Repayment Programs
Three similar repayment programs can reduce your loan payments and make them affordable, depending on your income and family size. They are:
The government may pay part of the interest on the loan. And they will forgive any outstanding debt after you make your monthly payments for a specific period. So you’ll be free of debt, but after 20 or 25 years of payments.
The Public Service Loan Forgiveness (PSLF) Program Can Help
The PSLF program is designed specifically for people who work in public service jobs, either for a non-profit or the government. If you participate in this program, your debt will be forgiven after working for ten years and making qualifying payments for ten years.
You can find more details of these federal programs online, for example, eligibility requirements. But it’s important to know that these programs are not available to you if your loan is already in default.
The first and best thing to do is contact your loan lender if you realize you can’t keep up with the payments. Your lender may develop ways to help you make your repayments or guide you towards one of the federal programs.
If you don’t keep up with your monthly payments, it can have disastrous consequences. So do your best to make your repayments as soon as possible.
If you’re struggling with the payments, find a repayment plan that works for you, like an income-driven repayment plan or refinancing your student loans.
But whatever you do, don’t make the decision alone. Contact an expert.