Did you know that at the end of 2014, 11.3 percent of student loans were delinquent?
Delinquency means missing one or more payments. And yes, sometimes one payment has to be sacrificed in order to keep the roof over your head, or to put food in the fridge. However, not paying your student loans (or ANY bills for that matter) also has some serious consequences.
Missing Student Loan Payments:
- Your credit score takes a hit. Your credit score will drop once you miss one or more payments, making it more difficult for you to get approved for other loans down the road. A low credit score also affects the interest rate you get on credit cards and loans - you will end up paying more money because of higher interest.
- You could go into default. If you miss more than 270 days of payments, your account may go into default. Going into default is serious. Your lender can ask for the unpaid balance in full, and it will likely be passed on to a collections agency. A defaulted loan will hurt your credit score more than a delinquent loan. This can seriously impact your ability to get approved for an auto loan, mortgage, etc., and even your ability to get a job.
- You may never receive your tax refund again. Private lenders cannot take away your tax refund, but Uncle Sam can! For any defaulted federal loan payments, the government can retrieve your tax refund to pay your loan. Plus, if you file jointly with your spouse, their refund is on the line, too.
- The government may come after your income. The federal government can take up to 15 percent of your income to pay back unpaid loans! Private lenders can take part of your income too, but they have to take you to court first.
- Your cosigner will be responsible for your debt. If you go into default, the first thing you should do is apologize to your cosigner. They will suffer the consequences for late payments alongside you: credit damage, wage garnishment, lawsuits, etc.
Making It Work:
Use the National Student Loan Data System or Student Loan Hero to view your outstanding loan balances. Once you figure out your monthly payment, prioritize. If you can, pay off your private loans first, and then tackle your highest-interest loans. If you can't pay off loans in full, continue making the minimum monthly payments. If you absolutely cannot pay, call your lender, and see what other repayment options you may have. To make repaying easier, set up automatic transfer payments. That way, you are sure to be on time!
Source: Yahoo Finance