What to Do If You're a Delinquent Student Loan Borrower

Last week, the New York Federal Reserve issued its Quarterly Report on Household Debt and Credit and the news was not what the Student Loan Ranger had hoped.

Despite an increase in the use and awareness of options such as the income-driven repayment plans, 11.6 percent of student loan borrowers had loans 90 days or more past due during the last quarter, which ended at the end of September. That's higher than the delinquency rate for car loans, mortgages and even credit cards.

Meanwhile, the overall student loan debt balance increased by $13 billion in the same time frame -- bringing outstanding student debt balances in this country to $1.2 trillion. To put that in perspective, credit card debt increased $11 billion in the same period to a total of $714 billion, and there's $1.05 trillion in outstanding auto loans -- but only 3.4 percent of auto loans are 90 days or more past due.

A footnote reminds readers that these student loan delinquency numbers don't take into account the fact that up to half of the loans in "good standing" are likely not in repayment at all but are postponed because the borrowers are still in or recently separated from school, or are temporarily putting off payment. This means that delinquency rates actually could be twice as high.

If you're one of the rising number of student loan borrowers in delinquency, here are some tips to try and navigate those treacherous waters. It all starts with knowing how far past due you are.

See a [timeline of federal student loan delinquency and default consequences.]

A Payment or 2

This is not the end of the world. At worst, you have some late fees and payment amounts to make up. If they are federal student loans, you haven't been reported to the credit bureaus yet, so fix this before that happens. If it's a private loan, you might have been dinged already, as most of those report at 60 or 90 days past due.

Either way, call your loan holder -- today. If you can afford to pay the past-due amount, that's great. Go ahead and see if you can do that over the phone with little or no fee for this. If it's a high fee, you may want to see if your own bank will send a check today for free.

If you can't afford to make up the past-due amount but can afford your payments going forward, you have a couple of options. If you know you're at least 30 days away from a report to the credit bureaus, you could make up the payments over time by sending extra every month until you're caught up. You'll still get the past-due reminder letters and phone calls, but you will prevent any interest from being added to the principal via capitalization, which is the downside to the alternative strategy -- forbearance.

If you can afford your monthly payment but not a penny more, or if a few months of phone calls and letters just isn't worth it to you, call the loan holder and request forbearance. Many will process it right over the phone.

Make sure you only ask for what you need, which is enough time to get current on the payments. Private loan lenders may charge a fee for this, and both federal and private loans limit the amount allowed over time.

[Know when it's OK to postpone a student loan payment.]

3 Payments or More

Now we're in the danger zone. Your loan -- whether federal or private -- has probably already been reported to the credit bureaus as past due. Your immediate concern is to get it below that 90-days-past-due mark and come up with a plan to keep it there.

Call use that verbal forbearance option if you have it available to bring the account current, today. While you're at it, ask about the different lower payment options that are available.

If you've missed this many payments, something's not working -- and chances are your payment might be too high to handle. If it's not the payment amount, talk to them about automatic debit so the bill is paid on time every month. Many loan holders even give a small interest rate discount for using this option.

Private loans are technically considered in default after the first missed payment -- but at around 120 days they go into "charge off" status. This doesn't mean you don't owe the money, it just means that at this point a collection agency may be involved and you can likely expect more intensive collection activities. You can also expect a pretty decent negative mark on your credit report.

[Learn how falling student loan default rates are challenging borrowers.]

6 Payments or More

A shared characteristic of seriously delinquent and defaulted student loan borrowers is that they never spoke with anyone regarding the options available to them . While we can understand the intimidation factor of being so late on payments, we can also promise that dealing with the situation head-on is your best bet. We can't tell you how many times we hear seriously past-due borrowers say, "I wish I'd called sooner."

If that's not incentive enough, remember that the next step is default. Once you hit 270 days past due on a federal loan, your eligibility for most options becomes severely hampered. Go longer than that and the 24 percent collection costs and 15 percent wage garnishments start becoming a real possibility. So trust us. If you get into trouble with your student loans, call your loan holders -- today.

Betsy Mayotte, director of regulatory compliance for American Student Assistance, regularly advises consumers on planning and paying for college. Mayotte, who received a B.S. in business communications from Bentley College, is a frequent contributor to ASA's SALT Blog; responds to public inquiries via the advice resource "Just Ask;" and is frequently quoted in traditional and social media on the topics of student loans and financial aid.