Blogging for Change

Penalties for Missing Student Loan Payments Set to Resume

by Jesse Campbell on
9/3/2024
in Managing Student Loans
Mother holding child while reviewing finances.

A brief recap for all federal student loan borrowers:

  • March 2020 – Payments for federal student loans are temporarily suspended due to the COVID-19 pandemic. Interest rates for these loans are set to 0% and all collection efforts are halted. Borrowers don't have to make payments, aren't punished in any way for not making payments, and aren't charged any interest during this period of non-payment.
  • June 2023 – After multiple extensions to the original payment pause, Congressed passed a law preventing any further extensions. 
  • October 2023 – The federal student loan payment pause officially ends and payments resume.

However, if you weren't able to start making payments immediately last October, there was an additional grace period: a 12 month "on-ramp" where borrowers could skip payments without penalty. Now, on September 30, 2024, that on-ramp period ends. Here's what that means for you.

What was the federal student loan on-ramp?

While payments on most federal student loans once again came due in October 2023, the special on-ramp allowed borrowers to miss payments if needed, for up to 12 months.

Most crucially, this meant that those student loan accounts wouldn't become delinquent because of missed payments. There would be no negative impact on your credit score and no collection activity.

Unlike the multi-year pause that preceded the on-ramp, however, interest charges would be added every month. So while there would be no immediate harm in skipping payments, your debt would grow as interest continued to accrue. That accrued interest will need to be paid down before any new payments are directed toward your principal.

What happens when the student loan on-ramp period ends?

Once the on-ramp period ends, any missed payments will be treated the same as they were before the pandemic. Interest will be charged and your account will become delinquent. Delinquent loans are typically reported to the credit bureaus once they hit 90 days past due. Loans are defaulted on after 270 days of missed payments.

Defaulting on a student loan can be costly and have impacts that limit your financial options for years or even decades. 

If you haven't been making student loan payments for the past 12 months (or longer), then that payment can come as a shock to your budget.

Exception for those on the SAVE plan

A recent change introduced by the Department of Education to help struggling loan borrowers was the creation of the new Saving on a Valuable Education (SAVE) Plan. The SAVE Plan is an income-driven repayment plan that lowers payments for most participants because the payments are based on a smaller portion of the borrower's adjusted gross income (AGI).

The SAVE Plan was immediately popular and over 8 million borrowers have signed up since the launch. Unfortunately, the SAVE Plan is in legal limbo right now. Lawsuits have prevented the plan from going into effect. 

Because of the legal battle surrounding the plan, all borrowers who successfully enrolled in the SAVE Plan have been placed in a temporary interest-free forbearance. If that forbearance lasts past September 30, 2024, those borrowers may continue to be able to miss payments without consequence.

What if I can't afford my payments?

If you're worried about your student loan payments, the first step is to make sure that you're on the absolute best repayment plan for your situation. There are a lot of repayment plans available for federal student loans, but knowing which is right for you can be complicated.

One option? Student loan counseling. MMI offers free online student loan counseling, including a breakdown on all the repayment plans available to you and which one best aligns with your goals. And if you need help managing the application process, we also offer additional support for a fee.

Depending on your circumstances, you may also want to contact your servicer to see if you qualify for any additional deferment or forbearance options.

If you've been ignoring your student loans, now's the time to take action, or else Halloween won't be the only thing scary about this October.

Tagged in Student loan options, Advice for students, Navigating change

Jesse Campbell photo.

Jesse Campbell is the Content Manager at MMI, with over ten years of experience creating valuable educational materials that help families through everyday and extraordinary financial challenges.

Recommended Articles

College girl on a laptop
Student Loan Counseling
Need more help tackling your student loan debt? MMI offers student loan counseling for any borrower in need of information and advice.
Learn More
Learn more
  • Better Business Bureau A+ rating Better Business Bureau
    MMI is proud to have achieved an A+ rating from the Better Business Bureau (BBB), a nonprofit organization focused on promoting and improving marketplace trust. The BBB investigates charges of fraud against both consumers and businesses, sets standards for truthfulness in advertising, and evaluates the trustworthiness of businesses and charities, providing a score from A+ (highest) to F (lowest).
  • Financial Counseling Association of America Financial Counseling Association of America
    MMI is a proud member of the Financial Counseling Association of America (FCAA), a national association representing financial counseling companies that provide consumer credit counseling, housing counseling, student loan counseling, bankruptcy counseling, debt management, and various financial education services.
  • Trustpilot Trustpilot
    MMI is rated as “Excellent” (4.9/5) by reviewers on Trustpilot, a global, online consumer review platform dedicated to openness and transparency. Since 2007, Trustpilot has received over 116 million customer reviews for nearly 500,000 different websites and businesses. See what others are saying about the work we do.
  • Department of Housing and Urban Development - Equal Housing Opportunity Department of Housing and Urban Development
    MMI is certified by the U.S. Department of Housing and Urban Development (HUD) to provide consumer housing counseling. The mission of HUD is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD provides support services directly and through approved, local agencies like MMI.
  • Council on Accreditation Council On Accreditation
    MMI is proudly accredited by the Council on Accreditation (COA), an international, independent, nonprofit, human service accrediting organization. COA’s thorough, peer-reviewed accreditation process is designed to ensure that organizations like MMI are providing the highest standard of service and support for clients and employees alike.
  • National Foundation for Credit Counseling National Foundation for Credit Counseling
    MMI is a longstanding member of the National Foundation for Credit Counseling® (NFCC®), the nation’s largest nonprofit financial counseling organization. Founded in 1951, the NFCC’s mission is to promote financially responsible behavior and help member organizations like MMI deliver the highest-quality financial education and counseling services.