Can’t Make Loan Payments? What to Know

By Victoria Robertson on July 24, 2020

Student loans are such a problem in today’s society that nearly all of the college-attending population has needed financial help in one way or another to attend school.

That being said, for some of us, loan payments are higher than others, and for many of us, making sure that we are on top of those payments is harder than ever, especially in light of the current pandemic.

So, should you find yourself in a situation in which you can’t make your loan payments, there’s enough confusion and desperation to go around. However, to help ease some of the stressful burden that is the student loan debt to income ratio, here’s some helpful information on what you need to know when it comes to being unable to make your loan payments.

Photo Via Pixabay

What Will Happen?

First and foremost, you want to know what exactly is going to happen if you can’t make your payments. Assuming you go through all of the below-listed steps and simply cannot make your payment, you will end up in default on your loan. To explain in layman’s terms, you’ll owe fees, interest, and any other additional penalties that will continually build on your account, in addition to the full payment amounts that you owe from your missed payment(s).

You should also note that credit dings such as missed payments can not only cause your score to drop significantly, but those dropped numbers can keep your score low for about seven years.

And, worst-case scenario, you may need to appear in court should the missed payment issue escalate to that level.

What Can I Do?

The above outline may sound terrifying, but not to worry! The above scenario is worst-case, and there are plenty of methods through which you can stay on top of your loan payments without having to worry about the worst-case scenario.

So while the easiest answer is simply to make your payments (whether that be by asking family/friends for assistance, taking on part-time work in addition to your full-time job, etc.), that’s not always a realistic option for everyone.

In fact, some individuals have used every option available to them and still aren’t able to meet their payments! So, for those of you at your wit’s end and simply wondering what options you have, here are a few to keep in mind that can make your life quite a bit easier!

Infographic Via Canva

Make a Late Payment

When it comes to your credit score, the main concern is that you don’t get hit with a missed payment ding. So, if you realize you can’t make a payment, do what you can to make a payment within 30 days of the payment’s original due date.

While this is a last resort, it can help you to stay out of trouble while simultaneously buying you some extra time when it comes to making your payments.

With that being said, some loan services may report late payments immediately, as it’s up to their discretion, and different providers may have different policies when it comes to collecting the money they are owed.

Basically, you’ll want to know what time frame you have to make your late payment before collections gets involved. So the safest bet is to simply make your payment on time, but if that’s not a possibility, you should ensure you make a payment as close to that date (within a thirty-day window) as possible.

Refinance

There are numerous credit card companies, private student loan providers, and other entities that charge outrageous interest rates on student loans, preying on individuals that are left without any other choice.

If you are one of those individuals, unfortunately, there are rarely a lot of options available to you. That being said, while your credit is intact and before you are unable to make payments on your loan, you should look into refinancing.

To be clear, this isn’t always a possibility. However, when you are able to refinance or consolidate, you end up saving quite a bit more money, especially if your loans were taken out for every year that you attended college.

Additionally, with a new loan, you will likely have more time to repay your loan, which helps to keep your monthly payments lower. So while you may pay more back in the end, it will feel like less of a burden in your day-to-day life.

All consolidation or refinanced loans should be applied for prior to any missing payments, otherwise, you likely will not qualify for a new loan. In addition, you should do what you can to ensure your credit is strong enough to have lower interest rates, and you should even consider adding a cosigner to ensure you’re able to make the switch.

To begin searching, look for unsecured loans with banks and/or credit unions. Don’t ever respond to loan applications that are mailed to you and be conscious of the number of providers you apply to, as these applications require a hard credit check, which can also lower your score.

Defer

Deferment is an option available to those that have taken out federal student loans, and may be available to individuals that borrowed from private student loan providers. That being said, deferment is an option you don’t want to use unless you absolutely have to.

Basically, a deferment allows you to stop making payments for a certain amount of time. There are some cases in which you qualify for deferment, such as while you are in school, in which case you may or may not still accumulate interest (this is up to the individual provider).

So, in deferment, you will continue to owe more money, you just will have some breathing room before you need to make any payments again.

Some providers, such as the federal government, offer periods of deferment to those that qualify, which means you do have to go through an application process to determine whether or not you meet the mark to defer your loans temporarily.

Unemployment and financial hardship deferments are not sure things, as it’s up to the provider’s discretion as to whether or not they feel you need the pause in your student loan payments.

Also, note that deferment is not typically a lengthy period of time. They are designed to ensure you only hold off payments so long as you can’t afford them. The second you are able to make payments, you’re expected to.

And last, but certainly not least, you should also note that deferments can be limited by the provider. So this isn’t necessarily an option that you’ll have every time that you need it. Some providers cap the number of times you can defer your loan, which ensures that you are only using the period of deferment when it’s absolutely necessary.

Set Up a Payment Plan

Now, in some cases, you may have the option to set up a payment plan. That being said, this is not always the case and may require a call to your service provider to determine what is possible for you.

With that in mind, federal loan providers (and other providers may have this as well) offer an income-based repayment option through which you can lower your monthly payments to something more reasonably aligned with your monthly salary.

While the intention is to make sure your loans are affordable, your payments will be entirely based on your income. So for those making a lot of money, this likely doesn’t make sense. But for those of you living paycheck to paycheck, or unable to make ends meet, this is an extremely affordable option for you.

While that all likely sounds great and well, you should also note that not everyone is offered this repayment option. Like all other student-loan related expenses, you’ll need to apply for consideration, and the process is relatively lengthy. You’ll need to provide proof of income in several ways so the provider can accurately assess your monthly payments based on your monthly salary.

Additionally, this is a process you will have to do more than once. For most providers that offer such repayment plans, you’ll need to resubmit all of the documentation annually to account for any changes in your salary after a full year of service.

This means that any promotions, bonuses, and other incentives will be calculated annually, and your monthly payments will be adjusted accordingly. So while you may qualify for such payments one year, the next year, you may not.

While circumstances vary, it’s worth talking to your loan service provider to learn more about what you need to do to stay on top of your payments and lower them where possible.

Have a Conversation

This brings me to my next point, which is that you’ll likely need to have a conversation with your loan service provider. Whether you have a federal loan, a private loan, or a personal loan, you’re likely learning the lingo and rules as you go, which can be problematic.

Basically, you are not the expert when it comes to student loans, which means it always helps to talk to someone that has more information than you do. When it comes down to it, ask for help, and don’t assume that you know everything there is to know already.

In some cases (though, again, it will depend on your provider) you can speak to a representative from the loan provider and discuss ways in which you can make your monthly payments more manageable.

At the end of the day, the provider simply wants to be paid back their investment, and they are typically willing to work with you to ensure that happens. Making a call to your provider and speaking with an agent may sound (and be) tedious, but it also may change your payments for the better.

While there’s always the possibility there’s nothing a provider can do, if you’re able to set up a payment plan or simply explore all the available options so you can make the best, most informed decision for you, you’re already ahead of the game.

Knowledge is power, especially when it comes to student loans, so use the power that’s available at your disposal.

Move Things Around

And finally, when you’ve exhausted all other options, you can always consider moving your other payments around to ensure you’re shuffling the late payments from one bill to the next.

For instance, if you have any luxury bills, such as cable, you should be paying those bills last. Any important bills, such as water, electricity, gas, loan payments, and rent, should all be paid first, and in the order of most importance.

The last payments you make every month should be those luxuries that you want, but don’t necessarily need. Additionally, if you’re already on a tight budget, you should be cutting corners where you can, eliminating the payments that aren’t necessary.

In short, move things around where you can to make sure everything fits, and your payments are taken care of, no late fees needed.

Photo Via Pixabay

As mentioned previously, student loans have become a necessary evil in today’s society. As such, nearly every student has experienced them in some capacity. That being said, nearly every student’s loan experience is different, which means that there is a lot of ambiguity and confusion when it comes to student loans.

Make sure you are not only educating yourself and using the resources available to you but that you are also making changes where they make the most sense.

Student loan payments, if missed, can be detrimental to your credit, which, in turn, takes down your future capabilities, such as buying a car or a house. Credit is too important to let student loans ruin, so do what you can to ensure late or missed payments aren’t an issue.

These tips are a great starting point, but make sure you are doing your research and speaking to the experts to really determine what your best financial move is when it comes to your student loans and making on-time payments, month after month.

Victoria is a dedicated writer who graduated from the University of Illinois with a Bachelor of Arts in English. She currently writes freelance pieces for various sites and works in Marketing for Myndbee Inc., promoting their current mobile app, Picpal.

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