It has been one year since federal student loan payments resumed after a 42-month pandemic-related pause, but borrowers have been receiving one benefit: Missed payments didn’t damage their credit standing.
That’s about to change.
The Biden administration provided borrowers with a yearlong “on-ramp” to help them ease back into the repayment routine. Missed bills weren’t reported as late or delinquent, and borrowers weren’t placed in default or reported to collection agencies. This ended on Sept. 30, and October will usher in a return to business as usual.
Many borrowers may be confused. The eight million people enrolled in the repayment program known as SAVE, for example, had their payments frozen because of legal challenges from several Republican-led states — and those bills are still on hold.
Here’s what borrowers need to know.
What’s changing right now — and how can it affect my credit?
Student loan payments resumed and interest began to accrue in September 2023. If you have been making on-time payments since then, nothing meaningful changes for you now that the on-ramp has ended.
But if you’ve missed some or all of your monthly bills — and continue to — that new activity will now be reported to the big three credit reporting companies: Equifax, Experian and TransUnion.
There’s still a bit of wiggle room built into the payment process: A missed bill is reported only after 90 days of nonpayment. So if you fail to pay your October bill, you have until your due date in January to become current or take other actions (like enrolling in a more affordable repayment plan or getting a forbearance), senior Education Department officials explained. After that, you’ll be reported as delinquent.
I missed payments during the on-ramp. When will those become due?
Your loan servicer automatically put any missed payments in forbearance, which, in this context, means they were tacked on to the end of your loan term.
But interest on missed payments has continued to accrue. To avoid a big payment at the end of the term, the extra interest may be added to your monthly bills to ensure you pay your loan off on time. If you are enrolled in an income-driven repayment plan and miss a payment, however, your payment generally won’t increase (since payments are based on income and family size).
My loans were in default. What does this mean for me?
Borrowers in default have a limited opportunity to wipe their slate clean — but they’ll need to act immediately: They have only until Oct. 2 at 3 a.m. Eastern time to take full advantage of the Fresh Start program. (The deadline has been extended from Sept. 30 thanks to website issues.)
Borrowers who fell into default before the payment pause — which happens when you’re at least 270 days behind — have received a fresh start and are considered current on their payments.
But they need to take certain steps by Oct. 2 to keep their loans out of default for the long term. They need to contact the Education Department’s Default Resolution Group — by phone, online or mail — and ask to take their loans out of default through the “Fresh Start” program.
The group will then transfer their loans to a regular loan servicer and wipe the record of default from their credit report. After the loans are transferred, the new loan servicer will be in touch with a set of instructions; borrowers will automatically be enrolled in the standard repayment plan, but many people opt for more affordable payments through an income-driven repayment program, a senior department official said.
I missed my window for Fresh Start. Now what?
Your loans will be reported as in default to the big three credit reporting companies, and may soon be placed into collections, according to a senior department official, which means your wages can be garnished. Without the Fresh Start option, borrowers who want to start anew and get out of default after Oct. 2 will have to take the usual pathway, which is more challenging. But it’s a necessary step if you want to enter an income-driven repayment plan, for example.
Paying off the loan is one option, but that’s not always feasible. Other options include consolidating the defaulted loan, or rehabilitating the loan, which requires making nine out of 10 consecutive “reasonable” payments, which loan holders determine by using a formula.
What if I’m enrolled in the SAVE plan?
You’ve received an extra reprieve. Because of the continuinglegal challenges lobbed against the Saving on a Valuable Education (SAVE) plan, your account is in an interest-free forbearance: That means payments are temporarily frozen and interest is not accruing to your account.
I want to enroll in the SAVE plan or another income-driven repayment plan.
Finding a repayment plan you can afford is crucial to staying current on your monthly obligations, but enrolling right now isn’t easy: The courts have temporarily blocked the SAVE plan — the most affordable program — while the legal challenges are resolved.
The future of SAVE — and its terms — also remain in question, and depend on how the situation unfolds.
Loan servicers are holding SAVE and all other income-driven repayment plan applications for the moment because the Education Department needs to ensure that they will be processed correctly, and the legal situation remains fluid.
Applications for SAVE and other income-driven repayment plans are temporarily unavailable on StudentAid.gov. But borrowers can still submit a PDF application to their loan servicer by uploading it to the servicer’s website (mail or fax also works). The same applies to loan consolidation applications. Expect lengthy delays.
Is there anything else I should know?
The student loan market has been in such flux since payments have restarted, it was inevitable that errors would be made. All borrowers would be well-advised to check their annual credit reports at each of the big three reporting companies for free through annualcreditreport.com.
Some borrowers have noticed that their loan amounts were incorrectly reported to the big three (sometimes inflating their balances by double), hurting their credit scores. If you find errors on your credit files, be sure to file a dispute with the credit reporting companies to have them corrected — and file a complaint with the Consumer Financial Protection Bureau, which can help track systemic issues.
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