Student Loan Delinquencies Could Hurt Your Credit Scores
Photo by LinkedIn Sales Navigator
According to Investopedia, federal student loan borrowers are facing some tough new challenges now that missed payments are starting to affect credit scores for the first time since the COVID-19 payment pause kicked in back in March 2020. This pause, which put a stop to payments and set interest rates to 0%, wrapped up in September 2023. After that, there’s a 12-month "on-ramp" period where missed payments were not reported to credit bureaus until October 2024. Now, if borrowers miss a payment, they’re considered delinquent, but late payments only get reported to national credit bureaus after 90 days of non-payment. Once that happens, these delinquencies can stick around on credit reports for up to seven years, which can really drag down scores.
This situation could make it tougher for borrowers to get new credit cards, mortgages, or auto loans, and it might lead to higher interest rates on future borrowing. The Federal Reserve Bank of New York estimates that more than 9 million borrowers could see significant drops in their credit scores in 2025 because of these delinquencies. To help ease the burden, borrowers who are having trouble making payments can look into income-driven repayment (IDR) plans, which limit payments based on income, or they can request forbearance to temporarily pause payments. Just keep in mind that interest continues to accrue during forbearance, which can increase overall debt.
Experts are encouraging borrowers to take action by reaching out to their loan servicers to discuss options like IDR or loan rehabilitation to steer clear of default. Default happens after 270 days of non-payment and can lead to serious consequences like wage garnishment. With millions of borrowers at risk of seeing their credit scores drop, it’s crucial to check loan status and explore repayment options to keep financial health in check.
To read more go to the original article
Disclaimer: My Home Pathway is a technology driven risk improvement platform. We are not a mortgage broker or lender and are not representatives of any home loan programs. We are not a credit repair company, HUD certified counseling agency, or one on one home counselor. While we offer mortgage related services, we are not a bank, non profit organization, foundation, or real estate agency. We may partner with those organizations to provide content and access related to our services.
The information provided is for educational purposes only and should not be considered credit repair advice or housing counseling services. For credit repair assistance or housing counseling, please consult with appropriate certified professionals or HUD-approved agencies.
Fintech Founder at My Home Pathway. VC Backed Startup. Financial Inclusion Leader and Speaker.
Risk and project management professional with experience in Federal Reserve banking regulations, risk management policies as well as risk management advisory services. Critical skills include credit risk analysis, capital markets, strategic planning, current state assessments and target operating models. Ability to assess evolving regulatory guidelines and potential impact on financial services organizations operationally and strategically.
Mr. Johnson received his Bachelor of Science in Management and International Business from Penn State University where he was a Bunton Waller Scholar and Division 1 athlete and his MBA in Finance and Accounting from New York University.
