CINCINNATI — The 12-month grace period for student loan borrowers ended this month.
The grace period was implemented to ease the transition after three years of no payments due to the pandemic. While borrowers were encouraged to make payments during the “on-ramp” period, they were not penalized if they did not.
If you haven’t made a payment in years, financial wellness coach Al Riddick breaks down what you need to know.
“One of the first things people will experience is shock,” he said. “You have to imagine — you haven't had to pay a student loan for quite some time, so obviously this new expense is going to throw a wrinkle in your financial plan.”
Riddick said one of the first things you should do is review your loan status and terms.
“Make sure that you look at your loan balances, your interest rate, as well as your repayment terms,” Riddick said.
If you don’t make your payments, it can negatively impact your credit score.
“If you do not make your payments with your loans for about three months, they aren’t going to report you to one of the three major credit bureaus,” Riddick said. “At that three-month time span, that’s when you get reported.”
Once you hit eight months without payments, you will be considered delinquent.
“The nine-month period is very special because that’s when you’ll be considered default,” he said. “And that’s when your whole world gets turned upside down.”
Default status can hurt your credit score and make you ineligible for additional assistance.
If you’re struggling to afford payments, you should start looking at all your options.
Riddick said you should take advantage of employer benefits.
“A lot of corporations are now providing student loan assistance to employees,” Riddick said. “So if that is a benefit your employer offers and you don't take advantage of, shame on you.”
Riddick said it’s important to understand your repayment options: “You also have opportunities for the income-driven repayment plan, or the graduated repayment plan as well”
With an income-driven repayment plan, your monthly payments are based on your personal earnings.
Riddick also said some people don’t realize student loan interest can be tax deductible.
“Once you get ready to file your taxes for 2024 if you can deduct up to about $2,500 of course, that's assuming your income doesn't exceed a certain amount,” Riddick said. “Seek professional advice when it comes to taxes, but those are a couple of little things that most people don't think about when it comes to repaying or paying student loan debt.”
"Don't Waste Your Money" is a registered trademark of Scripps Media, Inc. ("Scripps").
Follow John:
- Facebook:John Matarese Money
- Instagram: @johnmataresemoney
- X/Twitter: @JohnMatarese
Follow Taylor:
- Facebook: Taylor Nimmo
- Instagram:@tnimms
- X/Twitter: @tnimms
For more consumer news and money-saving advice, go to www.dontwasteyourmoney.com.
