While most student loan borrowers have returned to repayment by now, time is running out for those not making payments to avoid further consequences.
After Sept. 30, student loan servicers will once again be able to report missed or incomplete payments to borrowers’ credit agencies. That means missing a payment could potentially damage your credit score or be a blemish on your credit report for years to come.
Federal student loan servicers resumed charging interest in September 2023 and began collecting monthly payments in October, nearly four years after former President Donald Trump started the pandemic forbearance in March 2020. During the forbearance, borrowers were not required to make monthly payments and interest did not grow on their loans.
Since payments and interest resumed in fall 2023, servicers have not been reporting missed payments to credit agencies due to President Joe Biden’s student loan payment “on-ramp” period.
The goal was to give borrowers a bit of breathing room as they worked student loan payments back into their budgets after three and a half years of not making them. Interest still accrued on their loans, unlike during the Covid-19 forbearance, but missed payments did not impact their credit scores.
Nearly 7 million borrowers were at least 30 days late on their loans at the end of March, according to Education Department data. More borrowers who hadn’t been paying their loans were automatically transferred into forbearance after three missed payments during the on-ramp period.
Unfortunately, borrowers don’t have many options if they’re struggling to make their payments as the on-ramp period expires.
Income-driven repayment on pause
For some borrowers, it may not be possible to get on a more affordable repayment plan right now. Federal courts have currently blocked Biden’s full implementation of the Saving on a Valuable Education plan, and the injunction may go even further.
In its injunction blocking the SAVE plan from moving forward, the 8th Circuit Court of Appeals was unclear about whether the Biden administration had the power to forgive debt under any programs, including the other income-driven repayment plans and Public Service Loan Forgiveness.
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The Biden administration asked the court to clarify, but the court declined. As such, borrowers on the SAVE plan have been placed in an interest-free forbearance until further notice, and IDR applications are not being processed at this time, the Federal Student Aid website says.
Borrowers are unable to submit IDR applications online, and while FSA says borrowers can print an application and fax or upload it to their servicer’s site, “servicers have temporarily paused processing of IDR applications until we can ensure applications are processed correctly,” the FSA website says.
The best thing you can do if you’re having trouble making your payment is contact your loan servicer. Solutions are not guaranteed, but communicating your situation may help you avoid the worst outcomes.
What happens if you miss student loan payments
Your student loans are considered delinquent the day after you miss your payment. If you don’t pay the total balance due or make other arrangements after 90 days, your servicer may report your delinquency to the credit agencies. That delinquency can stay on your credit report for up to seven years, potentially impacting your ability to qualify for mortgages, credit cards and more.
Most federal loans, aside from Perkins loans, will be considered in default after 270 days of nonpayment. This is essentially your worst case scenario: your loans and all unpaid interest become due, in full, immediately. You’ll lose eligibility for future federal student aid, as well as protections like forbearance or deferment. Your credit score will likely take a significant hit and your wages could even be garnished.
The bottom line: You don’t want to default on your loans. Talk to your servicer to see if you’re eligible to put your loans in forbearance or deferment before you miss a payment and things escalate.
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