Last month, the Federal Reserve Bank of New York issued its quarterly report on household debt, which showed student loan delinquencies continue to increase. As of the last quarter of 2016, 11.2 percent of all student loan borrowers were 90 days past due or more on their loans, with some of these borrowers in default.
This trend is troubling, especially when compared with the delinquency rate of 4.8 percent of consumer debt in general — that is, mortgages, credit cards, auto loans, etc. This means that student loan borrowers — despite the various lower payment, deferment and other options available for federal student loans — are more than twice as likely to become seriously delinquent on their student loans.
[Read more about what to do if you’re a delinquent student loan borrower.]
T he general consensus from the many studies on student loan borrowers seems to be that there’s overall confusion as to what options are available to struggling borrowers. Either borrowers don’t know that options exist or they are overwhelmed and confused by the ones they do know about.
Here are five basic strategies for dealing with delinquent student loans.
1. Know your loan standings: The first step is to get your ducks in a row. It’s important to understand what kind of loans you have, how much you owe, who holds them and if you are already delinquent on those loans — and if so, how delinquent you are.
T he National Student Loan Data System can show all of your federal student loans and their status . Private loans, including state and institutional loans, will only be listed on your credit report.
2. Understand payment timing: Once you know where your loans are, call the loan holders to find out how far past due you are and what your options might be. Timing is everything.
For both federal and private loans, whether the loans are in default yet will make all the difference as to what options are available to you for relief. For federal loans, in particular, the options available once you are in default diminish significantly, and the consequences are severe.
If you think you are close to default, call your loan holders immediately. Even missing that deadline by a single day can make getting the loan back in good standing much more difficult and time consuming.
Timing can also affect your credit . Most federal student loan holders report when you are 90 days past due. Making that phone call on day 89 could mean the difference between no e ffect and a nosedive that can affect your credit for many years, even after the loan is back in good standing.
3. Review default options: The good news is that even if your loan is in default, you have a few options. We’ve talked about loan rehabilitation and consolidation to resolve federal student loan defaults in the past. Loan rehabilitation in particular has been in the news lately, due to a recent change in Department of Education guidance regarding when collection costs are added to defaulted loans.
In essence, this change will have no e ffect on defaulted student loan borrowers, since the Department of Education and all student loan guarantors have publicly stated that they will maintain the current practice of not assessing collection costs to defaulted borrowers who begin a loan rehabilitation program within 60 days of default and complete that program within the required 10-month time frame.
That 60 days is typically a hard line — so, again, if you think you might be in default, timing is everything.
4. Explore repayment options: If your loans are not in default, you have quite a few options available under the federal student loan programs. Forbearance is the fastest way to resolve delinquency, since you can often get your application processed over the phone, but it can be the most expensive option.
All deferments, other than the in-school deferment in some cases, require an application. You can save time by downloading these forms from your loan holder’s website, filling them out, scanning them and submitting them via the holder’s online portal.
Your best bet is to discuss lower payment options with your loan holder. The federal loan programs have many repayment options, including plans that can extend repayment, base payments on your income and decrease payments and then gradually increase them. T his federal repayment calculator can show how each plan will affect your monthly payment and, more importantly, the total amount you will pay .
[Learn about 10 student loan repayment myths that are debunked.]
Private, state and institutional loans tend to not have the repayment options that federal loans do. Most offer limited forbearance, sometimes for a fee.
Others are starting to offer temporary interest-only payments or interest rate reductions in times of hardship. Consolidating your private loans can often be the best way to lower your monthly payments over the long term.
5. Prioritize repaying private loans: As an overall strategy, we generally advise borrowers who are struggling with both private and federal student debt to lower federal loan payments as much as possible and work on paying off private loans sooner rather than later.
F ederal loans have extra safety nets that private loans do not. If something financially devastating should happen , you usually have more flexibility with federal loans than you will have with private loans.
The Student Loan Ranger remains concerned with the number of student loan borrowers struggling with debt. While it can be overwhelming, the best way to reduce that burden is to have a solid plan and to understand all of your options. Making that phone call to your lender is the first and smartest step you can take in making a repayment plan.
More from U.S. News
Student Loan Borrowers: Don’t Panic About Forgiveness Eligibility
Young Workers Turn to Employers for Student Loan Debt Solutions
3 Debt Questions to Ask While Choosing a College
5 Strategies for Handling Student Loan Delinquency originally appeared on usnews.com
