Student Loan Late Fees

Student loan late fees are charged when a borrower does not make the monthly student loan payments on time. The definition of a late payment and the amount of the late fee varies, depending on the lender and loan program.

Typically, a payment is considered late when it is made after the due date, with some lenders allowing the payment to be received up to 15 or 30 days after the due date.

Late charges are often expressed as a percentage of the unpaid amount due, such as 5% or 6%, or a specific dollar amount, such as $15.

If a borrower continues to skip paying the past due amount, the student loan will eventually go into default, with serious consequences for the borrower. However, there are several tips that can help borrowers avoid late payments.

Definition of a Late Payment

The definition of a “late payment” depends on the type of loan.

• For federal student loans made under the FederalFamily Education Loan Program (FFELP), also known as the guaranteed student loan program, a student loan payment is considered to be late if it is not received within 15 days after the due date, per the regulations at 34 CFR 682.202(e).
• For federal student loans made under the William D. Ford Federal Direct Loan Program (DL), also known as the direct loan program, a student loan payment is considered to be late if it is not received within 30 days after the due date, per the regulations at 34 CFR 685.202(d).
• For private student loans, the definition of a late payment depends on the lender and is defined in the promissory note. Typically, a loan payment is considered to be late if it is not received within 15 days after the due date.

When the borrower makes all or part of a required payment late or misses a required payment, the loan is considered to be delinquent. The loan will remain delinquent until the borrower pays the past-due amount. The number of days past the due date is the length of the delinquency.

Consequences of a Late Payment

When a student loan payment is late, the lender may charge a late fee.

• The late fee on a delinquent federal student loan is 6% of the amount that was due and unpaid. The late fee is the same on both FFEL program and direct loan program loans.
• The late fee on a delinquent private student loan depends on the lender and loan program. Some private student loans do not have late fees. Others charge a specific dollar amount or specific percentage of the unpaid amount. For example, $15 or 5%, whichever is greater, is typical.

When a student loan is delinquent, the late payment may be reported to the three national credit reporting agencies, Equifax, Experian and TransUnion. Late payments are typically reported to the credit bureaus after a 30-day delinquency for private student loans and after a 90-day delinquency for federal student loans. Some private student loan servicers differ as to when they report late payments, with some not reporting delinquencies until the payment is 30, 60 or 90 days late.

A late payment can ding the borrower’s and cosigner’s credit scores by as much as 100 points or more. This can make it difficult to qualify for new loans and may increase the interest rates significantly.

Late payments can also affect whether a borrower will qualify for cosigner release.

What Is a Serious Delinquency?

When a payment is more than 90 days delinquent, the loan is described as having a serious delinquency. About 10% of student loans are in a serious delinquency, according to the Federal Reserve Bank of New York.

If a loan continues in a serious delinquency, it will eventually go into default.

When Does a Delinquent Loan Go into Default?

A private student loan will go into default after it is 120 days delinquent.

A federal student loan will go into default after it is 360 days delinquent. For federal student loans in the FFEL program, technically a default occurs after the loan is 270 days delinquent. But, lenders have 90 days to file a default claim, and most wait until the end of the 90-day claim period.

Federal student loans previously required a shorter delinquency before the loan was considered to be in default. Before April 7, 1986, a federal student loan was considered to be in default after the loan was 120 days delinquent. This was increased to 180 days delinquent by the Consolidated Omnibus Budget Reconciliation Act of 1985 (P.L. 99-272) on April 7, 1986 and to 270 days by the Higher Education Amendments of 1998 (P.L. 105-244) on October 7, 1998.

Federal student loan defaults will remain on the borrower’s and cosigner’s credit history for seven years. Borrowers can have the default removed earlier by rehabilitating the defaulted loans.

When a federal student loan is in default, collection charges of as much as a fifth of each payment are deducted before the remainder of the payment is applied to the interest and principal balance. This will slow the repayment trajectory of the loan. In addition, up to 15% of the borrower’s wages and Social Security benefit payments may be garnished and income tax refunds may be offset to repay the debt.

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