On August 30, the federal student loan moratorium that has been in effect for the past three years will come to an end.
Come September, millions of debtors will have to resume paying payments, which may not be simple given how expensive everything is these days due to inflation.
Risk Of Student Loan Debt
However, if you miss a payment, your credit score may suffer significantly. What you need to know about how student loan debt impacts credit and what you can do to prevent issues are provided below.
Student loans are treated by credit bureaus the same as other loans.
They maintain a record of your debt and payment history and give it to lenders that ask for information about your credit.
Your credit score is determined by a number of criteria, but payment history is by far the most crucial.
It makes up around 35% of your FICO score, which is the model that lenders most frequently utilize.
Your score could be reduced by tens or even hundreds of points for only one late payment.
Additionally, a lower credit score affects your ability to qualify for loans and credit cards in the future as well as the interest rate you’ll pay.
Read more: Major Supreme Court Ruling Offers Hope For Student Loan Forgiveness
Restoring Loan Status And Credit
Federal student loans won’t inform the credit bureaus that you are late on payments until you are at least 90 days past due, but private student loan lenders normally wait until you are at least 30 days past due before doing so.
Before this, though, you can still be charged a late fee. Federal student loan rehabilitation is a one-time opportunity that allows you to reinstate your loan by making nine timely payments in a row within a 10-month period.
If you succeed in doing so, the lender will stop deducting payments from your paychecks and tax returns and will remove the default from your record.
Read more: Debt Relief Calendar: Highlighting Vital Dates For Student Loan Forgiveness