How One Late Student Loan Payment Affects You

What is a maintenance loan?

A maintenance loan is to cover your living costs while you are studying – you shouldn’t need to use this money on your tuition, as this comes as a separate loan.

You may have to provide details of your household income on application for a maintenance loan as this affects how much you’re entitled to.

The cash is paid into your bank account at the start of each term, so you could get up to three payments in a year.

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To find out how much you can borrow, visit the government website.

Can you discharge student loans in bankruptcy?

The U.S. Bankruptcy Code allows for student loans to be discharged if borrowers can demonstrate that not doing so will be an “undue hardship.” However, proving an undue hardship has been shown to be difficult. Borrowers must meet the three guidelines of undue hardship, which is called the Brunner test:

  • You can prove that if forced to repay the loan, you could not maintain a minimal standard of living.
  • You demonstrate that the hardship will continue for much of your loan repayment period.
  • You made good faith efforts to repay the loan before you filed for bankruptcy.

It’s technically possible to discharge student loans in bankruptcy, and there are currently attempts in the House and Senate to make discharging federal and private student loans easier. However, you should realize it will be an uphill battle to prove that repaying your student loans will impose an undue hardship on you.

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Avoiding student loan delinquency and default

You’re better off avoiding student loan delinquency and default whenever possible. Budget some money from each paycheck toward your student loan debt and set up automatic payments if you struggle to pay on time each month. If your lender doesn’t allow for that, set reminders for yourself so you remember to pay.

If you can’t keep up with your federal student loan payments, try switching to a different repayment plan. Income-driven repayment plans base your monthly payments on your income, so they may fit into your budget more easily than the standard repayment plan — although you might pay more in interest overall. Private student loans often don’t allow income-driven repayment plans, so you might have to go straight to the next step if you can’t keep up with these loans.

When you can’t afford to make any student loan payments, deferment or forbearance can help keep you out of delinquency or default. These options halt your student loan payments for a set amount of time.

Deferment typically has stricter criteria, while forbearance is up to the judgment of your loan servicer. Common reasons for pausing payments include being in school, temporary financial hardship, a medical emergency, or active-duty military service.

If you have subsidized federal student loans, the government will pay the interest during deferment, but not forbearance. For unsubsidized federal loans, you’re responsible for the interest in either case. Private student loans may offer deferment or forbearance, but their terms usually aren’t as flexible as federal student loans.

You could also try refinancing or consolidating your student loans for a lower interest rate. Federal student loans offer the same interest rates to all borrowers, but private student loan lenders base their rates on your creditworthiness. If you have good credit, you might be able to secure a better deal. But don’t just look at cost. Pay attention to the repayment options, fees, and opportunities for deferment and forbearance too, especially if you think you might struggle to keep up with your payments.

Missing a student loan payment might not be a big deal if you forgot and were only a few days late. But, if you were late because you couldn’t afford to make the payment, your mistake could haunt you for decades. Try some of the above tips to avoid loan delinquency and default (or to get your federal student loans out of default if they’re already in it) and minimize their effect on your credit and your financial security.

5. Pay Your Loans Automatically

Late payments could hurt your credit score. Scheduling your loan payments to be deducted from your checking account automatically each month means you don’t have to worry about paying late or damaging your credit.

You could also score some interest rate savings if your lender offers a rate discount for using autopay—federal loan servicers and many private lenders do. The discount may only be a quarter of a percentage point, but that can make a difference in how quickly you pay off the loans over time.

Moving Forward

These are all short-term fixes. You’ll ultimately need a long-term plan to stay on top of the bills. Life is less stressful when you don’t have to constantly put out fires, and you can ideally move on to fund future goals.

Emergency Fund

It’s essential to have emergency savings. Having some extra cash available helps you avoid problems, whether it’s $1,000 to get you out of a jam or three months’ worth of living expenses. You won’t need to borrow when something breaks if you have enough money in reserve, and you’ll be able to pay bills without interruption. The primary challenge is to build your emergency fund, which requires spending less than you earn.

Understand Your Finances

You need a firm grasp on your income and spending to be successful. Track every penny you spend for at least one month. Longer is better. Remember to include expenses you only pay annually, such as property tax or an insurance premium. You can’t make smart decisions until you know where your money is going.

You might have to earn more, spend less, or both. The most common solutions for quick results include taking on extra work, cutting spending, and selling items you no longer need. For longer-term success, work on your career and spending habits that can pay dividends for many years to come.

Federal Student Loans

You might have extra options available if you borrowed for higher education through government loan programs. Loans that are backed by the federal government have benefits that you can’t find elsewhere.

Deferment

You can stop making payments temporarily if you qualify for a deferment, giving you time to get back on your feet. This is an option during periods of unemployment or other financial hardship for some borrowers.

Income-Based Repayment

You might be able to at least lower your monthly payments if you don’t qualify for a deferment. Income-driven repayment programs are designed to keep payments affordable. You’ll end up with an extremely low payment to ease the burden if your income is extremely low.

Federal student loan borrowers were automatically placed in an administrative forbearance as of March 13, 2020 due to the COVID-19 pandemic. This allowed you to temporarily stop making your monthly loan payments. The suspension of payments was set to expire on Sept. 30, 2021, but it was extended to Jan. 31, 2022, then again to May 1, 2022. You may still make payments if you choose to during this time, however.

FTC Advisory Opinion on Section 623(a)(2) of the FCRA

And that’s when I stumbled upon the FTC advisory opinion on Section 623(a)(2) of the FCRA which changed everything.

This advisory opinion basically states that a student loan provider is required to both update and correct information provided to credit reporting agencies when that information is provided.

There’s dispute as to whether this means removing late payments entirely from a credit report or merely to updating that the report to reflect that a payment status is no longer delinquent or past due.

There’s a huge difference between the two because in the latter situation your payments may no longer show that they are currently delinquent but in the former scenario your payments are completely removed from your credit score.

Thus, I changed my strategy from employing the nice-guy, apologetic tone (“I screwed up and am sorry”) to going with a more aggressive and authoritative style and actually asserted that this loan provider was in violation of Section 623(a)(2) by not removing my late payments.

The below is the letter that I responded to the loan provider with. This time I sent the letter via certified mail.

August 25, 2015

My Name and Contact Info

Loan Provider Contact Info

Re: Late Payment Removal/  Ref # XXXXXXXXXX

Dear Sir or Madam:

This correspondence is in response to the XXXX August 17, 2015 letter I received regarding my goodwill request to have late payments removed from my credit score report. In the letter I was told that such reports could not be removed due to regulations promulgated by the DOE and the FCRA. Contrary to these assertions, by failing to update previously reported information, XXXX is in violation of Section 623(a)(2) of the FCRA.

I have attached an FTC advisory opinion which interprets Section 623(a)(2) of the FCRA. The issue posed in the advisory opinion is how a lender is to handle a situation when subsequent information updates a report that was allegedly accurate when it was made but no longer is accurate in the present time (i.e., the identical situation I am currently in).

The advisory opinion states that the Section 623(a)(2) of the FCRA addresses the duty to correct and update information by “furnishers,” or persons who furnish information to consumer reporting agencies (“CRA”) such as credit bureaus. In particular, this section requires a person that “has furnished to a consumer reporting agency information that the person determines is not complete or accurate” to “promptly notify the consumer reporting agency of that determination” and provide any information needed to make it complete and accurate. Thus, on its face, this provision requires a furnisher to provide corrected or updated information to the consumer reporting agency that it had reported to originally. This duty extends to all student loan accounts reported to CRAs, regardless of whether they were accurate at one point, because the section requires the furnisher both to “update” accounts as well as to “correct.”

XXXX representatives told me that because the delinquent payments were accurately reported in November of 2014 that any subsequently initiated deferments would not allow for XXXX to update reports to CRAs to show that the payments were not late and actually in deferment. However, Section 623(a)(2) clearly shows that the reports must be updated/corrected regardless of whether they were accurate at one point.* 

All of my XXX accounts that were part of the September 2014 late payments show deferment status effective as of “9/15/14.” Also, I was enrolled full time before any payment in September became due. Therefore, my credit reports do not currently accurately reflect previous payment statuses with XXXX, both as they actually existed and as XXXX has recorded them. I am thus requesting that in compliance with Section 623(a)(2) of the FCRA that the six accounts showing a 60-day late payment in November 2014 be updated and/or corrected and removed.

In the event that these reports are not immediately updated to accurately reflect my payment status during November 2014, I intend on filing disputes with each credit bureau in addition to official complaints with the FTC, CFPB, BBB, and pursue other legal routes if necessary.

Please respond within 14 days of the date of this letter with an update to this matter.

Very Truly Yours,

[*Footnote: For the record, I do not agree that XXXX ever “accurately” reported the status of my loans. Since my July 28th email, I have discovered that all other loan providers timely processed the deferment leaving me to suspect a processing error on behalf of XXXX. In addition to the possible Section 623(a)(2) claim, I intend on disputing the processing of my deferment if need be.]

As you can see, the tone was much different from the email I had previously sent. There are a few points to consider about my situation and the letter I sent.

  • I sent the letter as an attorney (e.g., I signed “Name, Esq.”). That representation in addition to the attaching the Advisory Opinion and supplying my own quasi-legal analysis of that opinion could’ve played a role in lending more gravity to my argument.
  • The footnote above was meant to let them know that I no longer suspected the error to be my mistake (as they reiterated in their original response to my goodwill letter). Since other loan providers had timely processed my deferral (which was not sent from me) I thought I had a good argument that they were the outliers and likely the party who made the mistake.
  • Keep in mind this was for an in-school deferment — it was indisputable that my loans qualified for deferment. I say that because there may be some differences if you are trying to argue that your loans should’ve been in forbearance or some other status allowing for delayed payments. I don’t know that for sure, however. It may not make a difference but that is just something I’m saying to take note of.

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How To Avoid Missing Student Loan Payments

There are several reasons why you might miss a student loan payment—some of which have nothing to do with not being able to afford repayment. Here are three scenarios and what you should do in each.

1. You Forgot the Loan Existed

What you should do: Find all your student loans—both federal and private. Your federal student loans are listed on studentaid.gov and all your private student loans on your credit reports via AnnualCreditReport.com. If you see a loan you don’t recognize, contact either the Department of Education or the lender directly.

2. You Lose Track of Payment Dates

What you should do: Choose automatic payment deductions. If you forget to make payments, the best way to avoid missing payments in the future is to sign up for automatic withdrawals from your bank account. Federal student loans offer an incentive of a 0.25% interest rate reduction for signing up.

Private student loan lenders may offer an incentive as well. If you change bank accounts, make sure you give yourself a month’s overlap to make sure your student loan automatic debit is processed on the new account before closing the old one.

The other option is to call your servicer or lender and ask to change the payment date to one that is easier for you to remember.

3.You Can’t Afford Your Payments

If you can’t afford to make your payments, here are three steps you can take:

  • Call your loan servicers immediately. Federal and private student loans offer deferment and forbearance options during time periods of economic hardship. Federal loan servicers have mandated ones, but often private student loans will offer payment breaks at their discretion. Ask your loan servicers and lenders about taking a break from payments or switching to an alternate payment plan.
  • Put federal student loans on hold, or lower payments, to pay private ones. Since federal student loans have more options for breaks from payments, it can be best to use these payment breaks while you catch up on private student loan payments.
  • Reevaluate your budget. If you have a financial issue with student loan repayment and it isn’t a temporary issue, you should take a close look at your budget. Look for painless budget cuts first. For instance, negotiate your phone, cable or insurance bills.

Bottom Line

Missing or being late on a student loan payment generally doesn’t have consequences for at least 30 days. However, you should look for solutions to missing payments as early as possible. The solution that’s best for you depends on why you are missing payments and ranges from tightening up budgets to choosing a new repayment plan.

Whatever you do, don’t skip contacting your lender if you can’t make a payment. Consequences can be serious, such as a credit score drop or your wages getting garnished.

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