Q: What is a delinquent student loan?

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Stanley tate

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A delinquent student loan is any student loan that you've missed a monthly payment for. This is true for both federal student loans and private student loans no matter who your loan servicer is, no matter who your loan holder is.

To be clear, you're not delinquent on a student loan if you're a day or two late. No matter the type of loan, you'll usually have a grace period for student loan payments. For instance, with federal student loans, your payment is on time if it's made with 15 days of the due date. For private student loans, contact your loan servicer to find out your grace period.

What happens if your student loan is delinquent?

Being delinquent on a student loan isn't the worst thing. Your loans aren't sent to a collection agency. So you don't have to worry about wage garnishment or tax refund and Social Security offset. And you're still eligible for loan forgiveness and to get new federal student aid (loans, grants, etc.).

You do, however, run the risk of having negative information sent to the credit bureaus. I'll dive deeper into the impact on your credit score below, but for now, just know that messing up your credit score is about the worst thing that can happen when you're delinquent.

How to fix delinquent student loans

There are two options to fix student loan delinquency for both federal loans and private loans:

  1. make the monthly payments you missed or
  2. request a deferment/forbearance.

There's a big problem with the latter option: capitalization. When the forbearance is applied to your account, your loan servicer will add student loan payments you missed to your principal balance. So if your goal is to get rid of your student loan debt quickly, avoid forbearances that lead to capitalization.

Student loan default considerations

Your federal loans default after you miss more than 9 student loan payments (270 days). When that happens, your servicer will send your loans to the loan holder (either the US Department of Education or a guaranty agency like ECMC). Your loan holder typically sends most of its defaulted loans to a private collection agency.

Keep in mind, your defaulted loans are likely not being sold. Instead, the responsibility for handling the servicing/collecting of the loan is being transferred from one company to the next. Because they're not being sold, it's unlikely you'll get a settlement for pennies on the dollar.

The big that happens when you default on a federal loan is that collection fees are added to your balance, and then you become at risk of wage garnishment and tax refund offset. If you move quickly to get out of default, you may be able to stop the federal government from taking your money. Your two repayment options for getting out of default are applying for a Direct Consolidation Loan or entering into the loan rehabilitation program.

Private student loan default

Defaulting on private student loans isn't as bad.

Private lenders can't automatically garnish your wages or garnish your bank account. They have to sue you and get a court order first.

In my experience, your student loan lender will wait until the statute of limitations is close before they'll sue.

Do delinquent student loans affect credit?

Delinquent student loans usually cause your credit score to drop. The reason for the drop is that your servicer will ding your credit history by reporting each month of student loan payments you missed for each loan you missed a payment on. So if you have 10 loans and you missed 3 months of payments on those loans, 30 late payments will show on your credit history.

Your federal loans (Direct Loans, Federal Family Education Loans, Perkins Loans, etc.) won't report late payments until your 90 days past due. Until then, you can fix the delinquency without worrying about your credit.

With private loans, your servicer may report your late payments after the first missed payment or after a couple of missed payments. The speed really depends on the servicer.

Click here to read What to do when student loans are killing your credit score

How to remove delinquent student loans from credit report?

I don't have a great answer to how to remove delinquent student loans from your credit report. The problem you're going to have in getting negative information deleted is that negative information can stay on your report so long as it's true.

You can ask your servicer to remove the late payments from your report, but they almost never do.

So what do you do?

If you really need to get the payments removed to raise your score, say to buy a home, your best bet may be to file a dispute with the credit bureaus.

How successful is that? I've seen some people get the information removed. I've seen others not be successful.

What makes the difference? I don't know.

COVID-19/CARES Act considerations

In response to the coronavirus pandemic, the federal government passed the CARES Act. This Act helps federal student loan borrowers by:

  • suspending the interest rate from accruing on your loans
  • giving you credit for your payments if you're in a repayment plan
  • giving you credit for loan forgiveness programs (e.g., Public Service Loan Forgiveness) and, if you're in default,
  • giving you credit for your monthly payments while you're in a loan rehabilitation agreement.

These benefits only apply to loans owned by the US Department of Education. So if your federal loans are owned by a guaranty agency or your school (FFEL and Perkins Loans) your loans aren't covered.

To find out who owns your loans, visit studentaid.gov.

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Hey, I’m Tate.

I'm a student loan lawyer that helps people like you with their federal and private student loans wherever they live.

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