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This summer has been a rollercoaster for student loan holders. In June, the Supreme Court blocked Biden’s student loan forgiveness initiative. Then, in July, the Education Department revealed that it would automatically forgive student loans for over 800,000 borrowers on income-driven repayment plans.
Now, millions of Americans are still stuck with student debt, a far cry from the hope they had just a few months ago of seeing up to $20,000 in relief. For those who have enjoyed a payment freeze since March 2020, get ready: interest on your loans will start accumulating again on September 1, and payments will resume in October.
But have you ever thought about what would happen if you were to make just one late student loan payment? Not consistently being late, but just once? Maybe you imagine being reprimanded by a Sallie Mae agent, facing hefty fees, or watching your already-weakened credit score take a hit. While these scenarios may seem exaggerated, there’s a kernel of truth in each of them.
The Difference Between Loan Delinquency and Default
For student loan borrowers, lenders recognize that errors happen, and thus they treat a single missed payment differently from multiple missed payments. These two situations are seen as separate issues by your lender.
Loan delinquency refers to the status when a loan is considered delinquent immediately after a missed payment. The loan stays delinquent until the borrower takes steps such as making a payment, requesting deferment, or entering forbearance.
Loan default occurs after a longer period of non-payment. However, both lenders and the federal government usually provide a grace period before a loan is officially deemed in default. For instance, most federal student loans won’t be considered in default until 270 days of non-payment. Default carries more severe consequences than delinquency, including wage garnishment, a lower credit score, and involvement of collection agencies.
What Happens After a Single Late Payment?
If you miss just one payment, you are considered delinquent on your loan. This can lead to several potential consequences:
Impact on your credit report: For federal student loans, your delinquency will typically be reported to the three major credit bureaus (TransUnion, Equifax, and Experian) after 90 days. Private loans may report delinquencies sooner, often within as little as 30 days. If your payment is less than 30 days late, your credit report usually remains unaffected. However, anything beyond that can result in a decrease of up to 100 points on your credit score, which can make future loans more costly.
Late payment charges: Delinquent loans often come with late fees, although many lenders offer a grace period before penalties apply. For instance, Sallie Mae imposes a late payment fee of 5% of the overdue amount, capped at $25, plus a returned check fee of up to $20. Be sure to check with your lender for specific rules, as private loans may differ from federal loans in terms of fees and grace periods.
How to steer clear of late fees
A simple way to avoid missing a payment is by enrolling in automatic bill payments for your student loans through your bank (which sounds basic, but many forget to do it). Just be sure that you have enough funds available on the payment date to avoid overdraft fees.
If your problem is just a temporary cash flow issue, reach out to your lender and explain the situation. If you have a history of timely payments, they might waive your late fee or delay reporting your delinquency to the credit bureaus.
If you're uncertain about your ability to manage your student loans long-term, the advice remains unchanged: Contact your lender to discuss potential solutions. Lenders may offer forbearance options, but these are available only if you haven't already defaulted on your loans (for further details, refer to this Mytour post).
Here’s our guide to structuring your debt repayment plan and discovering other loan forgiveness options that could still be available to you. On the flip side, here’s what happens if you don’t miss just one payment, but instead decide to throw in the towel and say, well, forget it all.
This post was initially published in January 2021, and was updated on Aug. 7, 2023 to include revised context and current information about late student loan payments.
