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Student loan repayments begin in October and skipping one will slam your creditplay icon
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Student loan repayments begin in October and skipping one will slam your credit

Lauren Barry
By Lauren BarrySep 17, 2024
Lauren Barry
Lauren Barry is a Chicago-based news content producer for Audacy’s central news team. She is the host/co-producer of The On Deadline Podcast, as…
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In just two weeks, years of pandemic-related student loan relief will end, and missing payments could have dangerous consequences.
Here’s what you need to know.

For more than three years the government hit pause on student loan payments due to the COVID-19 pandemic. While those payments started again last October, borrowers are currently in a transition period. During this period, they can’t fall into delinquency or default because they are automatically enrolled in the on-ramp and Fresh Start programs. When in the programs, missed payments aren’t reported to credit bureaus.

“If you have a loan listed as in default, you’re benefiting from the Fresh Start program,” NerdWallet explained.

Both of these programs are set to expire Sept. 30. Currently, millions or borrowers are enrolled in them – citing Federal Student Aid office data, NerdWallet said that, as of June 30, roughly 3 million borrowers have taken advantage of the on-ramp and were at least 30 days late on their loans.

In addition to the pandemic payment pause, President Joe Biden has been pushing forward programs to help tackle the student loan crisis since he took office in 2021. Per the Brookings Institute, the total number of Americans owing federal student loans more than doubled from 21 million to 45 million from 2000 to 2020 and the total amount they owed more than quadrupled from $387 billion to $1.8 trillion.

Some parts of the Biden administration plans have worked and some have been blocked, creating a confusing situation for borrowers.

“I think it’s really difficult… for so many Americans because of all the back and forth that there’s been of lately from the Biden administration, and not that it is their fault, but I think some of the legal challenges,” explained Bankrate analyst Sarah Foster in an interview with KCBS Radio’s Holly Quan.

In fact, NerdWallet said that some people might not even know they are in the on-ramp and Fresh Start programs. To check, borrowers should log into their studentaid.gov account and review your monthly payment history and loan repayment statuses.

“All defaulted borrowers temporarily have these benefits through Sept. 30, 2024. But you must use Fresh Start to get out of default to keep these benefits long-term,” said the Federal Student Aid office.

More affordable options, including income-driven repayment (IDR) plans such as the SAVE plan have been offered, but those options are now on hold due to a court injunction. Even if borrowers don’t think they can make payments for the foreseeable future, there are loan deferment or forbearance options that allow a payment pause for up to three years.

As of this January, the Education Department held $1.5 trillion in federal loans for nearly 43 million borrowers, according to the Government Accountability Office. Of those who were not in default, half were current on payments, nearly 30% were past due and the rest were not expected to make payments due to deferment or forbearance.

“Among the 6.2 million borrowers enrolled in SAVE who had scheduled monthly payments, nearly 60 percent (3.6 million) were scheduled to pay $0, as of January 31, 2024,” said the GOA. “On July 18, 2024, the U.S.
Court of Appeals for the Eighth Circuit granted an emergency motion for a stay temporarily prohibiting Education from implementing the SAVE plan. On July 19, 2024, Education announced that borrowers enrolled in the SAVE plan would be placed in an interest-free forbearance while the litigation was ongoing.”

For those that enter into plans that require payments by October, it is very important that they pay. Once a borrower is 270 days late on a payment, they will enter into student loan default, and debt collectors will be able to garnish their wages and charge them fees.

“If you default on your federal student loan, the entire balance of the loan (principal and interest) becomes immediately due,” said the Federal Student Aid office. “This is called acceleration. Once your loan is accelerated, your loan holder can begin collecting on your loan by taking money from your wages or your federal payments (such as tax refunds).”

USA Today noted that late payments would also be a gut punch to borrowers’ credit scores.

These scores can have a wide-ranging financial impact, according to Experian. They determine whether people qualify for homes and cars, whether they can get loans and what they will pay in interest if they get one. Landlords also use them to determine if they will rent units to certain applicants, banks consider them when people apply for credit cards to determine terms and insurers consider them when setting premiums.

While borrowers have 270 days before going into default, payments that are 90 days late are reported to credit bureaus. Damage can last up to seven years.

“It shows up when the payment’s 90 days past due,” said Liz Pagel, consumer lending leader at credit reporting agency TransUnion, as quoted by USA Today. “If you don’t pay in October, November, and December, in January, you’ll see that October payment past due. So then is when it’ll impact your credit report.”

Jared Chase, director of M&A and financial adviser at Signature Estate & Investment Advisors, said the worst thing to do is ignore payments, per USA Today.

“It’s best to really hope for the best, but prepare for the worst,” said Foster.

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