As the last extension of government-mandated pauses for student loan payments expire, borrowers who don’t make timely payments will likely get hit with negative marks on their credit reports. These delinquencies could make accessing other lines of credit, like a mortgage for a home, more difficult.
Why It Matters
An estimated 7.5 million borrowers are in default for their student loans, according to data from the Department of Education, and defaults may rise with the pause on collections ending. Over 43 million Americans have student loans, and about one-third of borrowers say their loans have delayed them from buying a home, according to Gallup.
First-time homebuyers are at a record low, and student loans can make it harder for people to save enough to afford a home in the current market.
U.S. President Joe Biden is joined by Education Secretary Miguel Cardona (L) as he announces new actions to protect borrowers after the Supreme Court struck down his student loan forgiveness plan in the Roosevelt Room… U.S. President Joe Biden is joined by Education Secretary Miguel Cardona (L) as he announces new actions to protect borrowers after the Supreme Court struck down his student loan forgiveness plan in the Roosevelt Room at the White House on June 30, 2023 in Washington, DC. Extension pauses expiring mean borrowers will have to prepare for repayment, which could hinder plans for things like purchasing a home. More Chip Somodevilla/Getty Images
What To Know
A default on a federal student loan, or any line of credit, can result in a lower credit score and adverse action on a person’s credit report. Negative marks can also stay on a credit report for a long time.
Equifax, one of the three major credit bureaus in the U.S., notes that accounts that have been sent to collection agencies stay on a person’s report for about seven years.
A mortgage loan is often a requirement for securing the funds needed to purchase a home. Negative marks on a borrower’s credit report can make securing a new line of credit more difficult and more expensive.
Alex Beene, financial literacy instructor for the University of Tennessee at Martin, told Newsweek:
Student Loan Change Could Make It Harder for Borrowers to Buy Houses
