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Do Late Student Loan Payments Hurt Your Score?

Late student loan payments will taint your credit score once they’re reported to the credit bureaus, but deferment or forbearance programs can help mitigate damage.

By Randi Gollin | American Express Credit Intel Freelance Contributor

5 Min Read | November 1, 2021 in Credit Score

 

At-A-Glance

If you’re 30 days late with your payment, your student loan status shifts from current to delinquent.

Your credit score is affected once your lender reports your late payment to the major credit bureaus – for private loans, that can be after 30 days; for federal, it’s 90 days.

After 270 days, you’re in default, which usually damages your credit score as well as future financial aid eligibility.

For many students, loans are a necessary part of getting an education. But as with any financial undertaking, late or missed payments will hurt your credit score, and your chances of getting any future student aid or loans may also suffer. If you’re a young adult or recent college grad who has hit a major financial speed bump, there are plenty of options to help you put student loan payments on pause.

 
If you have a large amount of student debt, you’re not alone. In fact, U.S. borrowers owe over $1.72 trillion in student debt – over $1.5 trillion in federal loans1 and over $136 billion in private student loans.2

  
Here’s a look at how late student loan payments affect your credit score, student loan forgiveness programs, how deferment and forbearance impact your credit, the long-term consequences of defaulting on your student loan, and tips for removing late payments.

 

What Happens if You’re Late with a Student Loan Payment? 

Since your payment history accounts for 35% of your credit score, late payments have a large impact. If you’re 30 days late, your student loan status goes from current to delinquent and won’t revert back until you make a payment or contact your loan servicer to discuss hardship and options like deferment or forbearance. If it was a one-off oversight, you can avoid future mishaps by signing up for autopay.

 

After 30 days, you may incur a late-fee penalty, and you’ll continue to accrue late fees for as long as you’re delinquent. As soon as your lender reports your delinquency to one or all three of the major credit bureaus, your credit score will likely decrease. With a private loan, lenders may report late payments after just 30 days; for federal loans, it’s typically 90 days or more. Once reported, your delinquency can stay on your credit report for seven years, which may hinder your ability to get a new credit card or cause your interest rates to rise on current cards.

 

If a payment lapse lasts 270 days, loan status moves from delinquent to default. Defaulting means that the entire balance of the student loan becomes due, plus any interest, fines, and penalties. Here’s what else could happen in default situations:

  • The government could legally seize the wages of the debtor, or take the borrower’s tax return as payment.
  • Your lender could pursue legal action.
  • If there’s a cosigner on the loan, the cosigner’s credit could also be affected.

Conversely, if you make your loan payments on time, it helps lay the groundwork for a strong payment history, which, again, is 35% of your credit score. If you also have a credit card, your student loan helps diversify your credit mix, something that accounts for 10% of your score. Since many student loans come with a 10-year payment plan, you can build up a solid credit history. Length of credit history typically makes up 15% of your credit score.

 

Payment Plan Options for Hardship Situations

Deferment, forbearance, and income-driven repayment (IDR) plans such as those discussed below can help students out of a sticky financial situation. While noted on your credit score, they typically won’t hurt it.

  • Student loan forgiveness. If you’re eligible for a student loan forgiveness program, you might ultimately pay less than the amount you actually owe on your student loans. But usually only federal student loan borrowers are considered, and you must qualify through your chosen career, your current financial situation, or a student loan discharge. For more, read “What Is Student Loan Debt Forgiveness.”
  • Income-driven repayment plans. IDRs establish affordable monthly payments – generally a percentage of discretionary income based on your income and family size. Regardless of the IDR plan you choose, if you have not repaid your federal student loans by the time the repayment period ends – usually either 20 or 25 years – they’ll be forgiven. Under some programs, you may qualify for forgiveness after 10 years of payments.
  • Forbearance. Should financial adversity strike, your lender may grant you a forbearance, which temporarily suspends or decreases your loan payments for a certain period, usually 12 months. The interest still accumulates, however, so you’ll end up owing more in the long run.
  • Deferment. If you’re unemployed, experiencing hardship, going back to school or military service, or serving in the Peace Corps, your lender may relieve you from making payments for a set period of time by granting you a deferment on your loan.

 

Removing Student Loan Defaults from Your Credit Record

If your loan is in default, you can discuss rehabilitating your loan with your lender. This option is a one-time arrangement that involves making nine consecutive payments toward your loan, on time, and within 10 months. Payment amounts are typically 15% of your discretionary income divided by 12. After loan rehabilitation, the default classification is expunged from your account, and any wage garnishment or tax offset ceases.3

 

In late-payment situations, you can also try writing your loan servicer a goodwill letter, explaining the circumstances and requesting a “goodwill adjustment.” If accepted, your late payments will be removed from your credit report.

 

The Takeaway

Late payments on student loans can harm your credit. If you’re 30 days late, your student loan status goes from current to delinquent and once your lender reports your late payment to the major credit bureaus, your credit score could fall. After a 270-day lapse, student loans are considered in default, a serious situation that hurts your credit for up to seven years. However, various payment options can help mitigate the damage to your credit score or prevent damage in the first place. 

Randi Gollin

Randi Gollin is a freelance writer, editor, and content strategist who’s covered topics including travel, shopping, and dining for tech and media brands and digital publications.

 

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

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