First, I think it is very important to dispel a common myth about student loans: They are required to be repaid, and they can ruin your financially if they are ignored!
If you don’t make your student loan payment or make your payment late, your loan may eventually go into default. If you default on your student loan, that status will be reported to credit bureaus, and your credit rating and future borrowing ability will be damaged. In addition, legal action can be taken to require payment through garnishment of wages and withholding of tax refunds.
Unfortunately, I meet too many students who admit they did not realize the money they were receiving for college was from student loans, and that they would someday have to repay these student loans. This is a heartbreaking realization, but also one that is easily avoidable.
Don’t ignore the fine print on your college financial aid award letter!
With that said, let’s suppose that you do understand your need to repay your student loans but you run into financial difficulties and are struggling to repay your monthly loan payment.
What Happens if I Don’t Make My Student Loan Payment?
The Good News
Student loans have the most flexible and generous repayment terms of any other loan on the market.
The Bad News
Student loans cannot be discharged in bankruptcy so you will need to eventually figure out a way to repay them.
Where to Start?
First, you will need to determine what type of student loans you are repaying. There are a number of student loans, and each of them will likely have a different repayment servicer.
Here is a handy chart from the Department of Education:
Which Organizations Handle Which Loans
Type of Loan
Whom to Pay
|Direct Loans and FFEL loans owned by ED||You will make your payments to your loan servicer. Your loan servicer will provide you with information about your repayment terms and your repayment start date.|
|FFEL loans not owned by ED||You will make your payments to your lender, the organization that made the loan initially. The lender could be a bank, credit union, or other lending institution. Your lender will provide you with information about your repayment terms and your repayment start date.|
|Federal Perkins Loans||Your loan servicer will most likely be the school you were attending when you received the loan, but in some cases, the school will have a separate organization handle the billing and other services for your Perkins Loan. Contact the school about making Perkins Loan payments.|
As indicated in the chart above there are three main types of student loans: Federal, Private, and Campus Based. Each of these loans will have different methods for handling payment arrangements so it is imperative that you know which loans you have.
Second, you will need to evaluate your own financial situation to determine if your financial troubles will only cause you to be late for one month, or if you anticipate this to be an extended financial situation. If you just lost your job for example, you would treat this differently than if you spent too much on clothes this month.
If you expect your financial troubles to extend beyond one month, then you should consider applying for a financial hardship forbearance. You will need to contact your lender or repayment servicer and fill out their form to begin this application process. The key is to begin this process as soon as possible. Waiting until the day your payment is due to begin this process will not help you!
Third, you should consider a loan consolidation if you have multiple student loans to repay each month. Many student complain about forgetting to pay a student loan each month. If you have multiple student loans that are repaid to different lenders, this can be confusing. One way to alleviate some of this confusion is to consolidate your loans into one monthly payment. This allows you to have one payment to focus on each month and can generally allow you to pay your loans off faster.
You should be careful however, as consolidating your student loans also may cause you to lose deferment and forbearance options in the future.
The Bottom Line
It is important to understand that student loans do have to be repaid and they can hurt your credit if they are not repaid.
You have many options available to you and all of these can be accessed with a simple phone call or a visit to your lender’s website.
The worst thing you can do is shrink into a hole and hope that your financial trouble goes away. There are people willing to help, but they cannot help you unless you reach out t them!