As Student Loan On-Ramp Ends, Payments Once Again Impact Your Credit

Begin Repayment Now to Avoid Credit Damage

Student loan payments became due in October 2023, after three years of a pandemic-era pause. But the Biden administration implemented a 12-month grace period to give borrowers a safety net during the transition. During that grace period, missed payments weren't reported to the three major credit bureaus (Experian, TransUnion and Equifax), and didn't negatively affect borrowers' credit.

The on-ramp period ended September 30, 2024. As of October 1, 2024, the consequences of missing monthly payments are back in effect.

Keep in mind that for student loans, late payments are not reported to the credit bureaus until they are 90 days past due. Because the on-ramp period ended September 30, delinquencies could begin to appear on borrower credit reports by December 2024 or January 2025. That also means that if you haven't made a payment yet, you aren't too late to avoid negative impacts to your credit.

How Will the End of the On-Ramp Period Affect Me?

A June 2023 study from the credit-scoring company VantageScore^® estimated that anywhere from 34% to 76% of borrowers may miss their first required student loan payment at the end of forbearance. The study also estimates how borrowers' credit scores could be impacted:

• Borrowers who resume payments could see score increases of up to eight points on average.
• Credit scores for borrowers whose student loan payments become delinquent could decline by an estimated 49 to 82 points.

Because everyone's credit situation is different, the actual impact of making or missing student loan payments can vary. The most important thing to keep in mind is that if you aren't already making payments, you'll need to start now to avoid hurting your credit. Having a history of missed payments on your credit report can make it more difficult to qualify for favorable terms if you need to borrow down the line, such as to buy a house or a car. On the flip side, positive payment history on your loans could help you build good credit.

Learn more >> What Happens if I Default on a Loan?

How to Handle Student Loan Repayment

Depending on your situation and budget, there may be several ways you can approach paying down your student loans. The simplest, of course, is to make your regular payment on time, ideally on autopay so you never miss a payment.

However, if you're worried you may not be able to make regular payments, consider these options.

1. Look Into Income-Driven Repayment Plans

The Department of Education currently offers two different income-driven repayment plans borrowers can apply for:

• Saving on a Valuable Education (SAVE) Plan
• Income-Based Repayment Plan

(The Pay As You Earn (PAYE) Repayment Plan and Income-Contingent Repayment Plan stopped accepting new enrollments as of July 1, 2024.)

Each of these plans can reduce your monthly payment to 10% to 20% of your discretionary income. That way, you don't have to worry about the end of a forbearance plan creeping up on you and being right back where you started. Income-driven repayment plans also extend your repayment plan up to 20 or 25 years, after which any remaining balance is forgiven.

Keep in mind that for some borrowers, an income-driven repayment plan could lower payments to as a low as $0 a month. You can use the StudentAid.gov loan simulator tool to estimate what your payments would look like under various repayment plans based on the specifics of your financial situation.

Learn more >> How to Choose the Best Student Loan Repayment Plan

2. Make a Budget

If you don't already have one in place, create a budget to help you understand exactly where all your money is going. Your budget will help you make sure you have enough cash flow for your student loan payment, along with your other expenses.

Start by writing down your income and expenses from the past few months. Consider using a budgeting app to make automatically tracking and sorting your spending easier.

Once you have a clear view of your current financial situation, start planning how you want (and need) to spend your money for the upcoming months. Be sure to include your student loan payment. Check with your loan servicer to confirm your exact payment amount, as it may have changed.

Learn more >> How to Make a Budget

3. Find Places to Cut Back

It's been a long time since the student loan moratorium first went into effect. If you've started using the money that would have otherwise gone to student loan payments for other purposes, you may have to cut back in certain areas of your budget.

On the other hand, if you've improved your financial footing, you could consider putting more toward your student loans than is required. Even a little extra every month can shave off months of repayment and hundreds or even thousands of dollars in interest.

As you look for areas to cut back, be honest with yourself but also reasonable, so you can achieve your debt payoff goals while also being able to pay your other bills on time.

Learn more >> Ways to Reduce Expenses

4. Look for Ways to Boost Your Income

If you have the time, you might also look into opportunities to earn more income. This may include working overtime at your current job, taking on a second, part-time job or starting a side hustle.

If you're thinking about getting a side hustle, opportunities are plentiful, so do some research based on what you enjoy doing or what you're good at to find the right fit. Here are some potential options:

• Driving for Uber or Lyft
• Delivering food or groceries for apps like DoorDash and Instacart
• Buying and selling used items online
• Renting a room on a short-term rental website
• Performing odd jobs on Craigslist, Mechanical Turk or Thumbtack
• Tutoring young students
• Becoming a mystery shopper
• Walking dogs

Take some time to consider several options, including the time requirement, flexibility and pay, to find the best one for you.

Learn more >> Side Hustles That Can Help You Pay Off Debt

5. Be Cautious About Refinancing

Student loan refinancing can be another way to reduce your monthly payments. When you refinance your student loans, you take out a private student loan and use it to repay your federal loans. Then, you repay the private loan over time. This can be advantageous in some cases, such as if you have good credit and can qualify for a private loan with a competitively low interest rate.

That said, private lenders typically don't offer income-driven repayment plans, and their forbearance options are often less generous than what the federal government provides. So while it's worth considering in some cases, be sure to weigh other options and consider the long-term impacts before you decide to refinance your student loans.

6. Contact Your Lender if You Can't Afford Your Payments

If you've reviewed the strategies above and still believe you may be unable to make payments, contact your student loan servicer right away to understand your options.

For example, the federal government offers forbearance and deferment for people experiencing financial difficulties. Your eligibility may depend on your situation, so contact your student loan servicer directly for more information. These options can provide immediate relief and potentially help you get to where you need to be financially to continue paying down your student loan debt.

Learn more >> Options if You Can't Pay Your Student Loans

Monitor Your Credit as You Pay Down Your Debt

As you begin to make payments again, it's also important to keep track of your credit. With Experian's free credit monitoring service, you can keep track of your FICO^® Score^☉ and regularly review your Experian credit report to understand what impacts your score and to address issues as they come up.

You'll also get real-time alerts when changes are made to your credit report, such as a new account or inquiry. As you monitor your credit, you'll be better positioned to build a strong credit history and prevent potential negative items from doing damage to your credit score.