Consumer Reports: How to stay ahead and avoid student loan defaults

CHARLOTTE — More student loan borrowers are missing payments, and confusion about overdue dates isn’t helping. On top of that, interest on SAVE plan loans is back, affecting millions of Americans, but Consumer Reports shows what you can do now before collectors come after your paycheck or tax refund.

TransUnion says nearly 6 million Americans are at least three months behind on their federal student loans payments. The Federal Student Aid office warns many delinquent borrowers are in danger of defaulting in the coming months.

“I feel like I’m walking on glass,” Dorien Rogers, a student loan borrower, said.

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For borrowers like Rogers, the stress is overwhelming. It’s tens of thousands of dollars in debt that shape choices about housing, transportation, and long-term goals.

“If I miss one payment the you know the interest is gonna capitalize on itself, and I may not be able to pay it all back,” Rogers said. “Does that mean that it’s gonna rupture my credit? Does that mean that I can’t do the things that I want to do?”

The day you miss a payment, your loan is considered delinquent. After 90 days, it’s reported to the credit bureaus. If the delinquency continues, your loan can go into default.

“You want to do everything you can to keep your loans out of collections,” Consumer Reports’ Chuck Bell said. “Once they get there, you’re in real trouble because debt collectors can take part of your paycheck, your tax refund, even your Social Security payments.”

If you’re in this situation, Consumer Reports recommends calling your loan servicer. Ask about your options, and find out which repayment plan works best for you.

If you’ve already slipped into default, the Department of Education says there are two main ways out:

With loan rehabilitation, what you’ll need to do depends on your loan type and who holds it, so contact your loan holder.
For direct loans or FFEL Program loans, you agree to make affordable monthly payments within 10 months. Once that’s complete, your loan is no longer in default.

The other option is loan consolidation -- combining one or more defaulted loans into a single new loan. There’s just one monthly payment, but you could end up paying more interest over time.

“The key is not to ignore the problem,” Bell said. “The sooner you act, the more options you’ll have to get back on track.”

Consumer Reports also warns about student loan scams. Watch out for anyone promising fast debt relief. They may charge big fees or even steal your personal information. Always check with your loan servicer before agreeing to anything.

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