With college in the rearview mirror, people who have accumulated debt will likely be wondering about the student loan penalties they might be facing. Perhaps they're worried that repaying loans early can result in additional fees, or maybe they're concerned that making late payments can incur extra charges. Regardless of the circumstances, individuals with student debt certainly don't want to pay any more to lenders than necessary.
There won't be a midterm or final exam, but that shouldn't stop former students from understanding the consequences of paying student loans early or late and learning some tips for helping to repay student loans before they're due.
Are there penalties for paying student loans early?
Are there penalties for paying student loans early?
The days of hanging out in the quad and studying for final exams are behind you, and you've been making payments on your student loans. With some sound financial planning, you may be in the fortunate -- and enviable -- position of paying off your student loans early. Although this may seem enticing, you may also be concerned about incurring penalties for paying your student loans back early.
You can breathe a sigh of relief. Regardless of whether it's a federal loan or a loan from a private lender, there are no penalties tied to repaying student loans before they're due.
Are there penalties for paying late?
Are there penalties for paying student loans late?
With the pause on federal student loan payments ending in September 2023, borrowers are tightening their purse strings to help make their monthly payments. Some may be wondering about the consequences of not making their payments on time.
As soon as you're late -- just one day -- on making a student loan payment, you're considered to be delinquent, and your lender may assess fees for missed payments. But it's not only a late charge that you need to worry about. There are additional consequences.
If you are 30 days late on repaying a private student loan or 90 days late repaying a federal student loan, the lenders will likely report your delinquency to credit bureaus. This will adversely affect your credit score and the interest rate you're offered when you apply for other types of loans, such as a mortgage, car loan, or credit card.
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What happens if you never pay?
What happens if you never pay your student loans?
If you remain delinquent with your repayment, your borrower will place your loan in default. When this will occur varies depending on the borrower and the type of loan. Private loans may be in default as soon as 90 days after becoming delinquent. For government loans from the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program, for example, you will be in default if you don't make payments for at least 270 days. A Federal Perkins Loan, on the other hand, may be considered in default as soon as one payment is missed.
Continuing to remain in default on your student loan can have significant repercussions. According to the U.S. Department of Education, borrowers can face a variety of consequences, including lack of access to additional financial aid, garnished wages, and the inability to purchase or sell assets such as real estate.
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Tips to pay off student loans early
Tips to pay off student loans early
One of the biggest steps you can take toward increasing personal wealth is reducing debt. Repaying student loans early is a savvy financial move -- although it shouldn't come at the risk of other smart financial planning moves, such as opening a savings account, building an emergency fund, and paying off that credit card you opened when you were still in college.
Now that you're ready to make some real strides toward repaying those student loans early, here are some moves to make.
- Examine the auto payment option: By automating your student loan payments, you may be able to reduce the interest rate on your loan, saving you money in the long run. But you may be able to save even more if you have the flexibility to set up an automatic payment schedule that is greater than the required amount, such as making two payments a month instead of one.
- See if you qualify for loan forgiveness: Depending on your circumstances, you may qualify for loan forgiveness. For example, there are programs that help teachers and nurses have portions of their student loans forgiven if they meet certain requirements.
- Pay more than the minimum: It may be tempting to simply pay the bare minimum each month, but to erase that debt even faster, make more than the minimum payment. If you can do this even a little, you'll be able to pay off your loan early. And if you have the ability to make a substantially higher payment consistently, you can shave some serious time off your loan repayment.
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The bottom line on student loan penalties
If you're financially stressed and you may be late in making student loan payments, you should consider contacting your borrower immediately. In addition to possibly qualifying for a deferment or forbearance, you may have other repayment options. While these choices will likely not stop interest from accruing, it may be more financially advantageous than incurring excessive late fees. Plus, if you're late on your student loan payments, you'll have the added consequence of taking a hit on your credit score and affecting future interest rates you receive, compromising your financial well-being even more.
