Student loan delinquency describes what happens when you fall behind on your repayments and your account is no longer current. So for example if you don’t make your payments for a couple of months the lender of your loan may label your account as “delinquent”, which is basically a way of saying that you owe back payments and are not yet in full default.
Consequences of student loan delinquency include:
- Adverse credit effects
- Late fees and penalties
- Collection efforts
- Potential Default
For most student loans you will incur several late fees and penalties once you have fallen behind on your payments. Student loan lenders will expect you to pay these additional finance charges along with your back payments in order to make your account current again, so it is in your best interest to not miss any payments if you can.
Student Loan Default
Once you have missed consecutive payments for a number of months, there is a chance that your student loan will fall into default. For most federal student loans you have to miss nine months of payments to put your loan into default, and for most private student loans it may take about three months, although this will depend on the specific lender.
The consequences of student loan default are severe, and must be dealt with accordingly. Some of the major repercussions include:
- Adverse credit effects
- More late fees and penalties
- Aggressive collection efforts
- Potential for being sued in court
- Loans may be turned over to a collection agency
- Wages may be garnished
- Tax Returns may be intercepted
- Eligibility for federal student aid will be negated
- Certain repayment benefits will be negated
- Loss of professional licensure
- Inability to enroll in armed services
Now mind you that just because your student loan falls into default doesn’t necessarily mean that you will face all of the above consequences, although the potential is there if you let the problem fester and take no action to fix anything. Defaulting on federal student loans is generally worse than defaulting on private student loans due to the fact that the government can take action without the court’s intervention.
It is also much more difficult to default on federal student loans due to the plethora of repayment benefits that are available. The bottom line is that you don’t want your student loans to fall into default regardless of whether or not they are based federally, or privately, and you should do everything in your power to prevent such a default by contacting your lender, and perhaps arranging some kind of deal that can work for both parties.
Student loans are very difficult to discharge via bankruptcy, thus making a default even more impactful. As the current law stands you must have to prove “undue hardship” in order to have your student loans discharged via bankruptcy. Each state has a different interpretation of the current bankruptcy laws when it comes to student loans, and it is never guarantee that you’ll be able to have them eliminated even if you can show the court that you have been going through a very rough time.
In the end you should simply not go into debt that you may have trouble paying back, and if you know that you are going to be unable to make your payments for a given time period, don’t hesitate to go ahead and utilize any forbearance, deferment, or payment-adjustment options that you may have available to you.
