Introduction :
If you are a student loan borrower, this time can be a little difficult for you. Student loan repayment was temporarily suspended during the pandemic in America. But now that payments have resumed, the credit score of about 9 million borrowers is going to fall. This can be a very big financial crisis, which can affect your future financial stability. In this blog, we will know why this issue is happening, how it can be avoided, and what solutions are available.
Real Reason for Student Loan Crisis :
During the pandemic, the US government had stopped student loan repayments so that people do not face financial burden. But now this moratorium is over, and borrowers will have to start repaying their loans.
Key Points:
Federal student loan repayments have started again from October 2023.
9 million borrowers have already reached the stage of delinquency (late payment).
The credit score of these people can fall significantly. :
Borrowers who have not started their payments again, their credit report can be negatively impacted. The direct meaning of falling credit score is that it may be difficult to get loans in future, or it will be available at higher interest rates.
What will be the impact of credit score? :
Credit score is a financial indicator that shows your repayment ability. When you do not pay loan or credit card on time, your score falls. In case of student loans, if you miss your payment then it is reported to the credit bureaus, which negatively impacts your credit score.
Effects of Low Credit Score :
It will be difficult to get new loans – Banks and lenders hesitate in giving loans to people with low credit score.
Interest Rates Will Be High – Even if you get a loan, the interest rates will be high.
Credit Card Approvals Will Decrease – Having a low score can make it difficult to get new credit cards. Housing and Rental Issues – Landlords also check your credit score, so if the score is low, rental applications may get rejected.
Effect on Job Opportunities – Credit history is also checked in many jobs.
Will your Credit Score fall? :
If you have not started your loan repayment again, or the payment is late, then you will have to face the impact. But if you are making payments on time, then you are safe.
Some borrowers are opting for income-driven repayment (IDR) plans, which may be a better option as it offers lower monthly payments based on your income. If you haven’t applied for IDR yet, it’s best to do so soon.
How to save your credit score? :
Now the question is how can you keep your credit score safe. Here are some practical tips that may help you:
Set up auto-pay – so that your payments are automated and you don’t face the risk of late payment.
Join Income-Driven Repayment Plans – If you don’t have the money to make the full payment, this plan can provide you relief.
Check Loan Forgiveness Options – There are many government programs that forgive student loans, such as Public Service Loan Forgiveness (PSLF).
Do Credit Monitoring – Regularly check your credit score so that any mistakes can be identified.
Find Extra Income Sources – If possible, do a side job or freelancing, so that you can make your payments on time.
Consider Debt Consolidation – Sometimes it is better to combine loans into a single loan, which is available at a low interest rate.
Talk to lenders – If you are facing difficulty in repayment, contact lenders and talk to them for alternative repayment options.
What are the government and financial experts saying?
The government and financial institutions are trying to find a solution to this crisis. The White House and the Department of Education have introduced some new repayment programs and forgiveness plans, but not all borrowers get the benefit of these. Financial experts say that borrowers should proactively explore their options and do financial planning in the right way.
Can we get more relief in the future? :
At present, no new moratorium or loan cancellation plan is on the government’s agenda. But, if economic conditions worsen, the government may bring in some new relief measures. Until new plans are in place, borrowers will have to take their own financial responsibility.
Conclusion :
This time can be challenging for 9 million borrowers, but if you do smart financial planning, you can minimize the damage to your credit score. The most important thing is that you make your payments on time Explore financial aid options, and contact lenders if you are facing difficulty in repayment. The more proactive you are, the more you will be able to maintain your financial stability.
If you found this blog helpful, do share it with your friends and family who are repaying student loans. Do share your thoughts and suggestions in the comments below!