The clock is ticking for millions of student loan borrowers as the pause on repayments is set to end on September 30. After this date, those who haven't resumed payments risk damaging their credit scores.
The Impact of a Damaged Credit Score
A good credit score is crucial for various aspects of life. It can influence loan interest rates, housing options, insurance premiums, and even job prospects. A damaged credit score can significantly limit these opportunities.
Millions at Risk
According to the Government Accountability Office, approximately 10 million borrowers were behind on their student loan payments as of January. Of these, 6.7 million were seriously delinquent, but the repayment pause protected them from negative credit reporting.
Avoiding Credit Score Damage
To prevent a credit score hit, borrowers must start making payments in October. While there may be a slight increase in the balance due to accrued interest, it won't significantly impact the credit score.
What if You Can't Afford to Pay?
If you're struggling to make payments, it's essential to seek help. Don't ignore the debt. Consult with a financial advisor or debt counselor to explore options like:
- Income-Driven Repayment (IDR) Plans: These plans adjust your monthly payment based on your income and family size.
- Debt Counseling: Nonprofits can help you develop a repayment plan.
- Fresh Start: This program allows those with defaulted loans to rehabilitate their debt.
Consequences of Default
Failing to make payments can lead to serious consequences, including:
- Immediate Due Balance: The entire loan amount becomes due.
- Tax Refund Withholding: The government can withhold your tax refunds.
- Wage Garnishment: While currently suspended, this may be reinstated in the future.
Taking Action
It's crucial to address your student loan debt proactively. Even making minimum payments can help prevent default and mitigate the damage to your credit score. By seeking assistance and developing a repayment plan, you can navigate this challenging situation more effectively.