The US Government has taken action to check student loan repayment for those who have missed their due date. Due to this action, many Americans have started facing issues in their credit scores and thus, are raising their voices on this issue. As per the Government, if a person fails to cover up the dues by 90 days after the due date, his/her account will be used to calculate their revised credit scores. In such a situation, the credit scores will be affected very deeply and can also be stated as personal bankruptcy in severe cases.
As the credit scores decline, it will make it difficult for the common people to apply for loans such as car loans, mortgage loans, etc. It is a straining situation as many households are affected by inflation, high interest rates, and layoffs, and may require loans to meet their needs. However, if their credit scores fall, they will face issues getting one.
Student Loan Statistics in the US
As per the Federal Reserve Bank of New York, there is a decline in credit scores in the accounts of 2.2 million students till March. The aftermath is about 1 million accounts having a drop of average 150 points in their credit score.
This is a huge decline in credit score, which can lead to high interest rates on the loan and uncertainty in the acceptability of the rental apartment application of the students. During 2020, when the coronavirus outbreak happened, the Federal Reserve Bank paused the loan repayments as a step in supporting families in difficult times. However, it was never revoked until 2023.
Action to be Taken if the Student loan goes unpaid
In 2023, Joe Biden’s administration gave the students a grace period of 1 year to manage the repayment fee. This period ended in October 2024 but the loans still went unpaid. After the Trump administration moved in, this repayment procedure was started once again. Furthermore, he has made it clear that if the loans still go unpaid then they are planning to seize the wages and tax refunds of the individuals.
According to the Federal Reserve Bank of New York, around 25% of students were found with a loan repayment due date ahead of 90 days at the end of March. One of the witnesses is Kat Hanchan who is currently working in Marketing and Higher education in Detroit and had her credit scores dropped by 57 points. She also revealed that her monthly repayments were increased by her loan servicers even after taking a repayment plan which adjusts with the individual’s financial stability.
Why is a Decrease in Credit Scores a reason to Worry?
A high credit score ensures that the borrower is consistent in repayment of the loans he has taken in the past. This credit score is reviewed by lenders, landlords, credit card companies, employers, or utility companies before extending the loan to the borrower. If the borrower has a high credit score, there are chances that the interest rate will be reduced, and several privileges will also be granted to them. However, if a borrower has a lower credit score, he/she can have difficulties in getting a loan or get contradictory loan conditions.
Conclusion
The public is facing a lot of issues in the repayment of student loans especially when their monthly repayments have been increased. It is making it difficult for them to manage their regular expenses or is leading to a decline in their credit score which is equally devastating. The government had been giving grace to the public for a long time but this time, their actions are strict.
