Millions of Americans owe money in student loan form. And when the Supreme Court shot down efforts to forgive loan balances, it was a major blow to borrowers on the hook for that money.
We're now nearing the point where student loan payments will start coming due after a multiyear pause. And many borrowers are no doubt worried about making their payments.
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The good news is that the Department of Education understands that having to pay loans every month is a big adjustment for those who haven't done so for more than three years. And it also recognizes that financially vulnerable borrowers might quickly start to fall behind on payments.
As such, the Department of Education has directed loan servicers to not report late payments to the credit bureaus until Sept. 30, 2024. Generally, a single late payment of 30 days or more has the potential to cause major damage to your credit score. But if those late payments aren't reported for the next year, you may not run into credit score issues.
While the Department of Education is definitely throwing student loan borrowers a bone on the credit score front, the reality is that there's another big reason not to miss student loan payments once they start coming due. And it's a reason that could impact your finances in a very big way.
You don't want to rack up more interest
Credit score damage can hurt you financially because the lower your score, the harder it becomes to borrow money affordably. Someone applying for a loan with poor credit could face much higher borrowing costs than someone with great credit.
Let's say you miss a student loan payment or two in the next year. That may not cause your credit score to go down in any way, so that's a good thing. What's not a good thing is that you'll still accrue interest on missed payments. And that interest will be added to your balance so that you eventually owe more money over time.
It's for this reason that options like forbearance, where you pause your loan payment for a period of time without being flagged as delinquent on that debt, aren't good. Interest on student loans commonly accrues while those payments are paused, leading to more interest paid all in.
An alternative to missing payments
You may be worried about keeping up with your monthly student loan payments come October. In that case, you can look into your options for switching your repayment plan.
Doing so might still result in more accrued interest on your student debt over time. But that way, you're making some sort of payment every month instead of skipping payments.
Remember, too, that you don't want to get into the habit of not making loan payments. You may get a reprieve from credit score damage for the next year, but beyond that, it's hard to know what'll happen if you're late. So it's best to get yourself into a payment plan that's sustainable and manageable for you until your student loans are paid off for good.
