What happens to student-loan borrowers who miss payments starting next month

People gather during a protest in support of student debt cancellation as the Supreme Court begins oral arguments outside of the Supreme Court of the United States in Washington, D.C., on Tuesday February 28, 2023.

Sarah Silbiger for The Washington Post via Getty Images

• Federal student-loan payments are starting up again beginning next week.
• There are a few options for borrowers who can't, or won't, make those payments.
• Still, there are consequences to falling behind on payments that could begin next year.

Millions of student-loan borrowers are about to face another monthly bill — and they might not be able to afford it.

On October 1, borrowers will begin receiving bills for their federal student-loan payments. The pandemic payment pause officially ended on September 1 when interest began accruing again on borrowers balances, and bills will start becoming due in October after over three years of relief. 

The bill to raise the debt ceiling that President Joe Biden signed at the end of June codified the end of the student-loan payment pause, meaning Biden cannot issue a further extension in connection to COVID-19. While it preserves the right for a president to implement a pause in the event of a different national emergency, pandemic relief for federal borrowers is nearing an end — and their balances have started to grow once again.

However, there are some options for borrowers who find they cannot afford to make those payments, or decide they just don't want to. Here's what borrowers should be aware of, along with the potential consequences of missing a payment starting next month.

On-ramp period

The Education Department announced some temporary relief for borrowers if they find they cannot afford payments next month. It will implement a 12-month "on-ramp" period beginning in October during which the department will not report any missed payments to credit agencies.

But there are a couple catches: interest will still accrue during this period, so once the on-ramp is over, borrowers who did not make any payments over the course of the next year might find their balance is larger due to the interest that builds onto the borrower's principal every day. Additionally, the department's guidance stated that while it will not actively report missed payments, it does not have control over credit scoring agencies.

"We don't control how credit scoring companies factor in missed or delayed payments," the guidance said.

After the on-ramp

Once the on-ramp period is over, normal practices surrounding student-debt delinquency and default will ensue. The first day a borrower misses a payment, their loan becomes delinquent, and it will remain in delinquency until the borrower repays the past-due amount, or enters deferment or forbearance. If a borrower is delinquent for more than 90 days, the borrower's loan servicer will report the late payments to a national credit bureau, where it can go into default.

The point at which a loan defaults depends on the type of loan a borrower has — loans within the federal direct program or Federal Family Education Loan program will enter default if a borrower fails to make a payment for at least 270 days. Loans within the Perkins Loan Program can be declared in default if a payment isn't made by the scheduled due date. 

The consequences of a default can be severe. Borrowers in default are no longer able to receive deferment or forbearance, their credit ratings will be damaged, wages could be garnished, and federal benefits like Social Security could be withheld. 

Boycotting payments

An August survey from Intelligent, a higher education research platform, found that out of 1,000 federal borrowers, 62% of them said they are likely to boycott payments, and half of the sampled borrowers believe a boycott could lead to total loan forgiveness. 

However, the future of broad debt relief is unclear — after the Supreme Court struck down Biden's first plan for relief, the Education Department announced it is trying again using the Higher Education Act. Still, that route will take time due to the negotiated rulemaking process, which requires a series of negotiations and public comment, and the department has previously recommended that borrowers who are able to make payments do so to avoid the consequences of a missed payment down the road.

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