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A key protection for student-loan borrowers is ending this month. It could jeopardize their financial standing.
On September 30, the on-ramp period for federal student-loan borrowers is coming to an end. Put in place last October, the Education Department established a 12-month period during which any missed payments would not be reported to credit agencies, giving borrowers some leeway if they could not afford payments or chose to skip them for any reason.
"This 12-month on-ramp period protects borrowers from the worst consequences of missed, late, or partial payments, including negative credit reporting for delinquent payments," the department wrote in its guidance.
However, the department is not extending the on-ramp, meaning that in two weeks, borrowers who miss their payments will be marked as delinquent and reported to credit agencies, and their credit scores could take a hit.
Additionally, missed payments typically wouldn't count toward forgiveness progress through programs like Public Service Loan Forgiveness and income-driven repayment plans, pushing back borrowers' timeline to see a full or partial reduction to their balances.
A recent report from the Government Accountability Office found that just 40% of borrowers with payments greater than $0 were current on their payments as of January 2024, likely reflecting borrowers' participation in the on-ramp period. Additionally, a report from the Congressional Budget Office found that in the years leading up to the pandemic, borrowers made payments greater than $10 in only 38% of the months in which they had a payment due, reflecting challenges in making payments before the on-ramp began.
Along with the on-ramp period ending, the Fresh Start program, which began in 2022 to return over 7 million borrowers in delinquency or default to good standing before they enter repayment, is also ending on September 30. The New York Federal Reserve found the program worked — while 1.05% of balances were more than 90 days delinquent in the first quarter of 2022, that declined to 0.94% in the first quarter of 2023.
However, the program ending means that borrowers who fall into delinquency or default will not only take hits to their credit scores, but they could also suffer the consequences of missing payments, which include wage garnishment and seizure of federal benefits like Social Security.
The Education Department has not announced any further protections for missed payments, but it's working to carry out different forms of relief. For example, it implemented the SAVE income-driven repayment plan last summer, intended to make payments cheaper with a shortened timeline for loan forgiveness.
But that plan is blocked in court as a result of lawsuits filed by GOP state attorneys general, pending a final legal decision. Additionally, President Joe Biden's second attempt at broader student-loan forgiveness is also already facing a lawsuit, delaying the timeline for millions of borrowers to get debt relief.
The legal challenges, along with the conclusion of the on-ramp period, present a challenging time for student-loan borrowers as the year comes to a close.
