Key student loan protection ends Sept. 30, here's what borrowers should know
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A temporary student loan grace period protecting borrowers with missed or late payments will end later this month.
The big picture: Nearly 10 million borrowers were past due on their payments as of January, per a Government Accountability Office report released last month. That's about $290 billion in outstanding loans.
Zoom in: September 30 marks the end of a one-year on-ramp period, where borrowers who were late or missed payments on federal student loans were not penalized or reported to credit bureaus.
- Starting October 1, borrowers who are late on payments or do not make them can be reported to credit bureaus, which can negatively impact their credit scores for as long as seven years.
Yes, but federal student loans have "relatively generous guidelines for late payments," NerdWallet lending expert Kate Wood said.
- If you are late with a federal student loan payment, that won't be reported to the credit bureaus for 90 days, which is longer than the usual 30-day billing cycle, according to Wood.
Context: Federal student loan payments resumed in October 2023, after a more than three-year break due to the COVID-19 pandemic.
- To help some 40 million borrowers return to repayment, the Department of Education created a temporary on-ramp period through Sept. 30, 2024.
- The 12-month period was to "[protect] borrowers from the worst consequences of missed, late, or partial payments, including negative credit reporting for delinquent payments," the department said.
- Payments were still due during that time and interest continued to accrue. But the department and servicers did not report borrowers to credit bureaus as delinquent during that time.
What's next: Borrowers who are coming out of the on-ramp period and are having difficulty making payments have options, Wood said.
- They can enroll in an income-driven repayment plan. At this time, that essentially means the loan will be put into a forbearance due to ongoing litigation.
- "There are the hoops to jump through of having to download the PDF and deal with getting that sent in," Wood said, noting that online forbearance applications have been paused. "But it is technically possible. It's just a much less friendly experience than doing an online application would be."
- Borrowers who need a few more months to get their payment situation sorted can also talk to their servicer about doing a bridge forbearance or doing a deferment, Wood said. These options would put student loans on hold for a short time.
Zoom out: The end of the on-ramp period comes as the Department of Education awaits a final decision on its SAVE Plan and other income-driven repayment programs after a federal court injunction prevented their implementation.
- The block was part of a Republican-backed push to undercut the Biden administration's student loan forgiveness plans.
- Despite the efforts and the Supreme Court blocking President Biden's signature student loan forgiveness plan last year, the administration has found ways to provide more than $168 billion in relief for more than 4.7 million borrowers thus far without relying on Congress or court approval.
- Biden unveiled a newer forgiveness plan this spring, which is also facing legal challenges from Republican-led states.
The bottom line: "This is a really confusing time for student loan borrowers," Wood said. "There is so much limbo."
- It's important for borrowers to understand, Wood said, "that if you're feeling baffled by everything going on with these plans and the forbearances and the lawsuits, this is not a problem with you. This is genuinely a really confusing situation to be in."
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