Federal student loan borrowers who fall behind on their bills will once again face financial consequences.
After the Covid pandemic-era pause on the payments expired in September 2023, the Biden administration offered borrowers another year in which they would be shielded from the impacts of missed payments.
With that grace period now over, those who don’t pay their student loan bills are at risk of collection activity.
Here’s what borrowers need to know.
Borrowers should ‘not let it get this far’
Borrowers should receive numerous notices from their student loan servicers before they go into delinquency or default, said higher education expert Mark Kantrowitz.
Usually, your payment has to be around 90 days late for it to be reported to the credit rating companies, Kantrowitz said. It takes somewhere between 270 days and 360 days for you to face the consequences of default, he added.
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Those include possible garnishment of your wages and Social Security benefits, up to 15%, Kantrowitz said. Defaulted federal student loan borrowers can also lose eligibility for a mortgage from the Federal Housing Administration or the U.S. Department of Veterans Affairs.
“Borrowers should not let it get this far,” Kantrowitz said.
Options for student loan borrowers who can’t pay
Struggling student loan borrowers can see if they qualify for a deferment or forbearance, experts say.
If you’re out of work, you can request an unemployment deferment with your servicer. If you’re dealing with another financial challenge, meanwhile, you may be eligible for an economic hardship deferment. Those who qualify for a hardship deferment include people receiving certain types of federal or state aid.
Other, lesser-known deferments include the graduate fellowship deferment, the military service and post-active duty deferment and the cancer treatment deferment.
Student loan borrowers who don’t qualify for a deferment may request a forbearance.
Under this option, borrowers can keep their loans on hold for as long as three years, according to the U.S. Department of Education. However, because interest accrues during the forbearance period, borrowers can be hit with a larger bill when it ends, advocates warn.
Income-driven repayment plans can be a great option for borrowers who are worried they won’t be able to afford their bills for a longer period. Those plans cap your monthly payments at a percentage of your discretionary income and forgive any of your remaining debt after a certain number of years. Some people wind up with a $0 bill.
It’s best to explore these options sooner rather than later.
Once a borrower is in default, they have to take certain steps before they can benefit from an affordable repayment plan, deferment or forbearance. That process, called a loan rehabilitation by the U.S. Department of Education, can take several months to complete.