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Many federal student loan borrowers could face a significant change this year, as missed payments could begin to affect their credit scores for the first time in almost five years under Donald Trump's government. But what does it actually mean?
The news comes after the end of the federal student loan COVID-19 payment pause; which had previously prevented late payments from being reported to credit agencies, meaning they may now feel the consequences of falling behind.
When the payment pause ended in September 2023, the Department of Education provided a temporary on-ramp to help borrowers adjust. However, this program concluded in October, and late or missed payments will now start to be reported to credit bureaus.
If a borrower has not made a payment since the pause ended, their credit score may take a hit as the missed payments are reflected on their credit reports with one missed payment being enough to classify as a "delinquent".
However, it typically takes 90 days of non-payment before the loan servicer reports the late payments to national credit bureaus.
Once reported, delinquency remains on the borrower's credit report for up to seven years, which can severely affect their ability to secure new credit or loans in the future, including mortgages or credit cards.
How borrowers can protect their credit
For borrowers who are behind on their payments or worried about bills, there are options to avoid further damage to their credit. One solution is enrolling in an income-driven repayment (IDR) plan, which offers reduced monthly payments based on income.
The Department of Education recently reopened two IDR plans, providing lower payments than the standard repayment plan.
Another option, if a borrower still cannot afford the payments under an IDR plan, is to request forbearance from their loan servicer. This will temporarily postpone payments until they are able to make them again.
Borrowers who haven't made payments since October have until June before their loan is considered in default, which could lead to wage garnishments, further credit damage, and other financial consequences.