Good news: the Biden administration announced in April that student loans are extended AGAIN! Woo hoo! This time through August. Big bonus: it could boost your credit score.
The Department of Education said borrowers who were in default before the coronavirus pandemic will receive a "fresh start" when payments resume, with the black mark removed from their credit reports. An estimated 7.5 million borrowers could have their statuses wiped clean.
The terms of default vary depending on the type of loan borrowers have, but for most federal loans it means that a payment has not been made in at least 270 days. Expunging the status could boost a borrower's credit score by as much as 100 points, says Ted Rossman, senior industry analyst at Bankrate. Exactly how much a borrower's score will rise depends on their individual financial circumstances. "It could be really significant, especially for someone whose only blemish is a missing student loan payment," says Rossman. He adds that the potential credit score boost won't be as dramatic for those with other negative marks in their credit history, like a default on a credit card or auto loan payment.
100 points. Floored.
So far, the Department of Education hasn't released many details on the change, but seemingly it will apply when federal payments restart, currently scheduled for September 1.
Being in default can have serious, negative repercussions throughout a borrower's financial life. A low credit score can impact a consumer's ability to qualify for loans and credit cards and may even make it harder to rent an apartment or get hired for certain jobs. Additionally, they could face wage garnishment and other collections fees for not paying their federal loans. So don’t put yourself in that position. Take ahold of your future and get your credit score in line. Need a hand with that? ASAP Credit Repair has you covered.