For many student loan borrowers, the past few years have offered a reprieve. The pandemic-era forbearance period paused payments and prevented defaults from impacting credit reports. However, that grace period officially ended on September 30, 2024. This means missed student loan payments are once again being reported to credit bureaus, potentially impacting millions of borrowers. If you’re a student loan borrower, understanding the current situation and taking proactive steps is crucial to protecting your credit.
What’s Changed?
The end of the forbearance period means the “on-ramp” is over. Previously, missed payments weren’t reported to credit bureaus, giving borrowers time to adjust to repayment. Now, standard delinquency and default reporting procedures are back in effect. This means:
- Late Payments Hurt Your Score: Even one missed payment can negatively impact your credit score if it’s reported after 30 days. Subsequent late payments at 60 and 90 days further damage your credit.
- Default Has Severe Consequences: Defaulting on your student loans (after 270 days of non-payment for federal loans, potentially sooner for private loans) has severe repercussions, including:
- Significantly lower credit score.
- Wage garnishment.
- Tax refund offset.
- Difficulty securing future loans or credit.
- Collection agency involvement.
What You Need to Do Now:
- Know Your Loan Status: Log in to your loan servicer’s website or contact them directly to confirm your loan status, due dates, and payment amounts. Don’t assume everything is the same as it was before the forbearance period ended.
- Make a Payment Plan: If you’re struggling to afford your payments, don’t ignore the problem. Contact your loan servicer immediately to discuss options. For federal loans, these may include:
- Income-Driven Repayment (IDR) Plans: These plans adjust your monthly payment based on your income and family size.
- Deferment or Forbearance: These options temporarily postpone or reduce your payments under specific circumstances. However, interest may still accrue.
For private loans, contact your lender to discuss possible hardship programs or alternative repayment options.
- Explore Refinancing or Consolidation (With Caution): Refinancing or consolidating your loans can potentially lower your interest rate or simplify your payments. However, be aware of the potential downsides:
- Refinancing federal loans into private loans means losing federal protections, such as IDR plans, deferment, forbearance, and potential forgiveness programs.
- Consolidation can reset progress toward loan forgiveness under certain IDR plans.
- Monitor Your Credit Report: Regularly check your credit report from all three major credit bureaus (Equifax, Experian, and TransUnion). Look for errors and ensure your student loan information is accurate. You can access free credit reports annually through AnnualCreditReport.com.
Don’t Wait, Act Now:
The end of the student loan grace period means the time to act is now. Ignoring your student loans will only worsen the situation and damage your credit. By taking proactive steps, communicating with your loan servicer, and exploring available options, you can protect your credit and manage your student loan debt effectively. Remember, you’re not alone – resources and assistance are available. Contact your loan servicer or the Federal Student Aid office for guidance.
