What student loan borrowers should know about their credit as bills restart

Personal finance

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Federal student loan bills resumed in the fall after a pause of more than three years. Borrowers should monitor how that financial change affects their credit, experts say.

Here’s what to know.

On-ramp period should protect your credit

Generally, failing to make timely payments on debts, including your student loans, can damage your credit. Payment history accounts for 35% of your score, according to FICO.

Typically, “missing just one payment can cause your credit score to drop by 50 to 100 points, or more,” said higher education expert Mark Kantrowitz.

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But before federal student loan bills resumed in October, the Biden administration announced that it would implement a 12-month “on-ramp” to repayment, during which borrowers would be shielded from most of the consequences of late or missed payments.

As a result, throughout this relief period, set to expire Sept. 30, 2024, borrowers who aren’t making payments shouldn’t see negative marks related to their student loans on their credit reports, Kantrowitz said.

The Education Department recently sent a letter to credit reporting and credit scoring companies reminding them that borrowers’ current activity is not necessarily indicative of an inability or unwillingness to make payments.

Nonpayment will likely be reported to the credit reporting agencies as “an authorized forbearance,” Kantrowitz said: “It doesn’t hurt the borrower’s credit, but it doesn’t help, either.”

That doesn’t mean you shouldn’t make payments if you can afford to, said Ted Rossman, senior industry analyst at Bankrate.

“Negative information shouldn’t be reported during the 12-month on-ramp period, but positive information should be included,” Rossman said.

Kantrowitz agreed.

“If a borrower is trying to improve their credit, they should make all of their required payments on time, by the due date,” he said. “Doing this every month consistently eventually leads to a better credit score.”

Still, check for errors on your credit report

Student loan borrowers should regularly check their credit reports to make sure the information is accurate, Kantrowitz said. You can get a free weekly copy of your credit report from each of the three major bureaus — Equifax, Experian and TransUnion — at Annualcreditreport.com.

If your loan servicer makes an error, such as reporting your loan as delinquent during the on-ramp period, you’ll want to bring it to their attention quickly, he said.

Creditors typically have 30 days to investigate your complaint, he said. In this case the creditor would be your student loan servicer, on behalf of the U.S. Department of Education.

Rossman also recommends filing a complaint with each credit bureau that is showing the wrong information.

“The easiest way to file disputes is on the credit bureaus’ websites,” he said.

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