It’s Time to Pay Your Student Loans. What Happens if You Fall Behind? (2024)

With federal student loan payments due again for the first time in nearly four years, financially stretched borrowers may be concerned about the consequences of missed payments.

Many student loan borrowers have taken on more debt during the payment pause, and their total monthly obligations — even without their student loan bill — now exceed what they were paying before March 2020, when the payments were put on hold, according to an analysis by TransUnion, one of the Big Three credit-reporting companies.

“Adding the new payments to the mix will be a noticeable payment shock,” said Liz Pagel, senior vice president of consumer lending at TransUnion. “Many consumers do have the excess funds to make these payments, but some could struggle.”

Thankfully, there are some safeguards for those at risk: Borrowers who fail to make timely payments should see relatively minimal changes to their credit standing, at least for the year after repayment begins. And there’s a bright spot for those who begin chipping away at their debts again: Their credit scores may tick slightly higher.

In ordinary times, missed payments on federal student loans are reported to the Big Three credit-reporting companies after 90 days of nonpayment. But through Sept. 30, 2024, the Biden administration has loosened the rules: Missed payments will not be reported to the credit-reporting companies as delinquencies, nor will borrowers be considered in default. Instead, missed payments will be reported as a forbearance, and any skipped payments will be tacked onto the end of the loan term.

Nevertheless, interest will generally continue to accrue on missed payments, and the loan balance won’t decline and may even rise. That’s why skipping payments may still pose a slight drag on your credit score, though the precise effect will depend on your circ*mstances.