Student Loan Borrowers Face Critical Deadline as Default Protections End

Today marks a critical deadline for student loan borrowers who now run the risk of falling into default.
President Joe Biden approved what was called an “on-ramp period” for federal student loan borrowers when payments resumed last year. The pandemic sparked a payment pause, which allowed borrowers to stop paying their loans back without falling into default.
But as the on-ramp period ends Monday, borrowers will now face the credit consequences of their missed payments. Once the on-ramp period is over, student loan servicers will once again report missing or late payments to credit bureaus.
“When student loan payments resumed, borrowers were offered a 12-month period that assisted them if they missed a payment,” Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek.
“This on-ramp period essentially protected them from the negative consequences associated with missing a payment. However, with that grace period ending, student loan holders are going to have to make sure they’re making these payments on time going forward.”
Currently, only around half of borrowers have been making payments over the past year, according to TransUnion, indicating many have opted to take advantage of the on-ramp period and may struggle to make payments now that credit scores will be impacted.
Student loan servicers typically alert credit bureaus if borrowers are late on a payment for more than 90 days after its default, and borrowers also go into default after around nine months of refusing a payment.
Those in default are barred from getting deferment or forbearance and will also no longer be eligible for future federal student loan help.
If your credit score is impacted, you may have greater difficulties buying a house or car in the future, and the government may choose to withhold part of your tax refund or paycheck.
“It was never a good thing to miss a payment, but at least the measures put in place shielded borrowers from hurting their credit score,” Beene said. “Going forward, these students who were protected are going to have to make these monthly payments to ensure their credit score isn’t negatively affected.”
Michael Lux, an attorney who founded The Student Loan Sherpa, still said it was a “costly error” to use the on-ramp period at all.
“Using the on-ramp as an excuse not to make payments is a bad idea for many borrowers,” Lux told Newsweek previously. “Many of the struggling borrowers who have been using the on-ramp to avoid payments could have taken advantage of the SAVE plan and its interest subsidy.”
“Put simply, the on-ramp exists so that mistakes don’t hurt too much. Using it as a snooze button to avoid the student loan restart could be a costly error.”
Biden’s student loan repayment plan, SAVE (Saving on a Valuable Education), is also still in precarious waters, as federal courts ruled to put it on hold until a higher court decides whether to block or preserve the program.
SAVE is scheduled to have a hearing for the 8th US Circuit Court of Appeals on October 15. Before the final decision is released, borrowers enrolled in SAVE have been able to avoid their monthly student loan payments but could face higher monthly payments if it is struck down by the court.
Last year, the Supreme Court also struck down Biden’s original student loan forgiveness program, which offered $20,000 in loan forgiveness to low- and middle-income Americans.
Still, the Biden administration has been able to cancel roughly $169 billion in student loan debt for 4.8 million borrowers through the current forgiveness programs available.
Generally, full forgiveness has been limited to public service workers who have already made 10 years of payments as well as those who were scammed by their colleges or are deemed permanently disabled.
Those who are seeing their loan payments affected by the end of the on-ramp period need to adjust their behavior immediately or face potential financial consequences down the line, experts say.
“If you’ve been relying on these programs, it’s time to pay attention,” Michael Ryan, a finance expert and the founder of michaelryanmoney.com, previously told Newsweek. “The safety net is being pulled away, and you don’t want to be caught off guard.”