The one-year grace period for student loan borrowers who miss a payment is coming to an end this week, as missed payments will now take a hit to borrowers’ credit.
The “on-ramp period” runs through Sept. 20, 2024, and will now bring back consequences for those who miss a payment. This will be the first time in more than four years that some could see their credit take a hit for failing to pay their student loan bill.
After ending the pandemic-era payment pause, which lasted more than three years, the Biden Administration announced its SAVE program and the 12-month grace period that would still allow some to get their feet under them while they missed their payments.
During the last year, student loan servicers were not reporting missed, late, or partial payments to the three national credit bureaus.
According to the credit bureau TransUnion, just over half of borrowers who should have been making payments made them over the past year, showing that many were taking advantage of the on-ramp period.
Now that the period is over, student loan servicers will notify the credit bureaus if a payment is not made within 90 days of the due date. Loans will also go into default after a borrower fails to make a payment for 270 days.
Both instances can cause serious damage to a borrower’s credit score, impacting their ability to do several things, including buying a car or a house. They could even see their federal tax refund withheld.
When it comes to Biden’s student loan efforts, much remains up in the air, as the SAVE plan was recently challenged in federal court. Now, the plan and payments are currently on hold while litigation plays out.
A hearing has been scheduled for Oct. 15 at the 8th US Circuit Court of Appeals.
While the plan is being blocked, borrowers who have enrolled in SAVE do not have to pay their monthly student loan bills, but if the plan is struck down, they may face bigger monthly payments going forward.