Workers with federal student loans will then face dings to their credit scores for missed or incomplete payments, for the first time since March 2020, with significant implications for your people and for your organization.
Dametria Douglas, senior financial coach, TrustPlus:
“It’s probably 50–50 between my clients who are and aren’t paying on their loans. And of the ones who are not paying, only 20% of them know that the on-ramp is closing on September 30, with negative credit score impacts on the horizon.”
Workers who you care about should know: the federal student loans repayment “on-ramp” closes on September 30.
Starting October 1, student loan servicers will again be able to report missed or incomplete payments to borrowers’ credit agencies, for the first time since March 2020.
In other words, borrowers should buckle up as they return to the superhighway of crushing student loan debt which is harming people, organizations, and the U.S. economy as a whole.
That’s before they crash into the barricades to financial health, freedom, and opportunity that are plummeting credit scores, dragging their well-being and productivity and your profits and impact down with them.
Hyperbolically metaphorical?
Perhaps, but the stakes are significant for your workers and for your organization, amidst the pregnant credit score, debt collections, and student loan forgiveness implications on the horizon.
What’s the student loan repayment on-ramp?
Given the headlines that have been flying around about student loan forgiveness, consolidation, Supreme Court cases, and on-ramps, millions of borrowers are understandably confused.
The student loans repayment moratorium was extended, repeatedly, for years.
Borrowers were not required to make monthly payments and interest did not grow on their loans.
That is until last fall when interest returned in September 2023.
Collections of monthly payments resumed the following month.
But under the administration’s student loan payment “on-ramp” period, student loan servicers have not been reporting missed payments to credit agencies.
This is about to change.
Are your workers prepared, are your financial wellness benefits?
Workers should be in an income-driven repayment plan or forbearance
Employers can help workers and yourselves by making sure that your people with federal student loans know the on-ramp is closing and that they have a plan.
This way, their credit scores will be protected, and poised to improve, along with their financial health and the organizational performance of your organization.
Here’s what your workers should know, to mitigate rising employee financial stress, which is bad for your people, business, and mission delivery.
What workers should know about closing of student loans repayment on-ramp:
Time to act is now on federal student loan payments
The federal student loans repayment “on-ramp” closes on September 30.
Starting October 1, student loan servicers will again be able to report missed or incomplete payments to borrowers’ credit agencies, for the first time since March 2020.
So, the time to act on federal student loans is now, if you haven’t been making payments during the on-ramp period.
But many borrowers don’t know this to be the case, given the onslaught of headlines on Supreme Court cases and loan policy politicking underway on all sides.
TrustPlus Senior Financial Coach Dametria Douglas:
“It’s probably 50–50 between my clients who are and aren’t paying on their loans. And of the ones who are not paying, only 20% of them know that the on-ramp is closing on September 30, with negative credit score impacts on the horizon.”
Education Department data tell us roughly 7 million borrowers were at least 30 days late on their federal student loans at the end of March, per CNBC.
Borrowers who hadn’t paid their loans were automatically transferred into forbearance after three missed payments.
What does it mean when student loans are in forbearance?
“With forbearance, you won’t have to make a payment, or you can temporarily make a smaller payment. However, you probably won’t be making any progress toward forgiveness or paying back your loan. As an alternative, consider income-driven repayment,” says studentaid.gov.
Borrowers are still responsible for the interest that accrues while not making payments.
After forbearance ends, borrowers pay off accrued interest through normal monthly payments.
Thankfully, for most loan types, interest won’t capitalize at the end of a forbearance.
What’s an Income-driven repayment plan?
Income-driven repayment (IDR) plans base your monthly payments on your income and family size, with payments as low as $0 per month.
For some borrowers, finding a new, more affordable government payment plan may be difficult right now, writes Medora Lee in USA Today:
“New applications for Biden’s new income-driven repayment (IDR) programs that offer lower monthly payments are currently paused with Biden’s Saving on a Valuable Education (SAVE) plan mired in the courts. Federal courts blocked Biden’s full implementation of the SAVE plan and other IDR plans and it’s unclear what will happen.”
It’s a cluster…
So, if you’re confused and worried about making your payments, then contact your federal student loan servicer asap.
What if I can’t make my federal student loan payments?
If you don’t expect to be able to make payments on your federal student loans starting in October, you’re not alone.
Call your student loan servicer now to familiarize them with your financial situation and to discuss options available to you.
The sooner the better. Find your federal student loan servicer here.
Why does improving my credit score matter?
Why does improving my credit score matter?
Because prime credit scores can save you hundreds of thousands of dollars (or more!) on everything from mortgages and credit cards to insurance and mobile phones.
High credit scores can mean the difference between affordable access to financial products and services that strengthen financial wellness as an on-ramp to wealth creation, and being trapped in a cycle of destructive debt from which there’s little hope of escape.
So, set yourself up for success by taking action today, to make sure the on-ramp closing doesn’t become a detour off your road to financial health and freedom.
Schedule a time to speak with TrustPlus about strengthening your financial wellness benefits.
