End of the Grace Period: Borrowers in Focus

The grace period of the pandemic-related deferral phase for student loans is coming to an end. This week marks a significant change for many borrowers: Delinquencies will once again be strictly penalized and reported to credit bureaus. According to TransUnion, about half of the borrowers utilized the pandemic-related deferral period. However, the moment of truth approaches for around ten million delinquent payers, as highlighted in a report by the Government Accountability Office. Of these, 6.7 million have been in default for over 90 days but were previously shielded from negative credit reports by the deferral. Liz Pagel, an expert on consumer credit at TransUnion, explains that payment behavior will be factored back into credit assessments starting October. Delinquencies over a 90-day period (October, November, and December) will visibly affect credit reports as serious delinquencies by January. Therefore, borrowers should resume payments by October at the latest to avoid negative consequences on their credit scores. Jared Chase of Signature Estate & Investment Advisors warns against the worst option: doing nothing. Strategic planning with a financial advisor or utilizing support programs is recommended. Non-profit credit counselors, like Upsolve, can also assist in creating a repayment plan. President Joe Biden’s new income-driven repayment programs (IDR) and the SAVE plan, designed to offer lower monthly payments, are currently blocked by court rulings. While waiting for legal developments, affected borrowers should at least make minimum payments to prevent credit damage. Ultimately, borrowers should be aware that delinquencies can impact credit scores for up to seven years. Additionally, defaulting on a loan can lead to other severe consequences. To avoid this, Chase advises: “Definitely do not remain idle. Make the minimum payments and adjust the repayment amount according to your financial situation as it improves.”