doing the math on partial student loan payments

Do Partial Student Loan Payments Help?

Michael Lux Blog 0 Comments

Many student loan borrowers find themselves in a difficult situation. They might be able to pay part of their student loan bill, but there are not able to make the full monthly payment. Does a partial payment help?  Will lenders be more understanding of the borrowers who make an effort to stay caught up?

Unfortunately, the borrowers who are struggling to stay up to date on their loan will find that lenders are not very understanding in most cases.  Being willing to make part of a payment can help, but it has to be part of a larger strategy.

Delaying negative reporting to credit agencies

One of the main reasons that borrowers consider making a partial payment is to prevent a late payment from showing up on their credit report.  The hope is that the lenders treat it as a small payment, rather than a late payment.

Sadly, the systems used by lenders are largely automated.  The computer will see if the monthly bill has been paid in full. If the monthly bill hasn’t been paid in full, it will be considered late.  Borrowers don’t get any extra credit for making an effort.

(Note: Lenders don’t usually report a payment as late on the day it is due. Borrowers are usually given at least a couple extra days past the deadline, but this varies by lender. Borrowers who are right on the borderline can call their lender to investigate the exact timeline on negative reporting.)

When is paying some but not all of a student loan bill beneficial?

Being willing to make an effort can have a benefit.

However, some lenders have special programs to help the borrowers who are really struggling.  These programs are not usually advertised, nor are they a part of the original loan terms. Enrollment depends entirely on a lender being willing to cut a borrower a break.

The best-known example of this program is the Rate Reduction Program with Sallie Mae. Borrowers who are struggling to get by may be able to get their interest rate lowered on a temporary basis, normally six months.

Getting signed up for a temporary interest rate reduction will require a call to your lender and a discussion of your finances, but if you are willing to work with your lender, they might be willing to work with you.

The key is not to make a partial payment and hope for the best.  A human might be helpful, a computer is usually unforgiving.

Alternatives to making a partial payment

Anyone in a situation where they cannot afford their student loan bill will likely benefit from revisiting their repayment strategy and repayment plan selection.

Federal student loan borrowers should consider an income-driven repayment plan. These plans set payments based upon what a borrower can afford rather than what they owe.  Borrowers already on an income-driven plan may want to have their monthly payments recalculated if they are finding them to be too high.

Refinancing with a private lender may appear to be an idea option because it allows borrowers to lock in a lower interest rate.  Unfortunately, this option is usually only available to borrowers with a solid income and credit score.  Those that are struggling to get by will be unlikely to find help from the private refinance lenders.

Should I take a deferment or forbearance?

Here at the Student Loan Sherpa, we are not fans of deferments or forbearances. Delaying payment just means the next bill will be even larger due to the extra interest that will accrue.

In the case of a borrower considering a partial payment in order to a late payment being reported to the credit bureaus, a deferment or forbearance might make sense.  The problem won’t be solved, but it can avoid a hit to the credit score.

Borrowers who expect to have no issue making payments in future months might benefit from the deferment option.  Those that will have the same problem in the future should instead focus on putting together a plan to eliminate the debt long-term.  This usually requires a lender call and some research. It can be frustrating, but delaying the hard talks usually just makes them more difficult.

Final Thoughts

If you owe a family member some money and can’t make the full payment, paying what you can is definitely the best route.

When it comes to the massive corporations that handle student loan lending, making an honest effort won’t make much of a difference.