Does Student Loan Forbearance and Deferment Impact My Credit?

With the COVID-19 pandemic forcing millions of Americans into debt, the U.S. government provided crucial assistance with repayment suspensions on current public student loans. The Biden administration has also floated the idea of eliminating some portion of student loan debts in the future. Under the CARES Act, all interest and payments for federal student loan borrowers are suspended. Additionally, student loan payments and interest deferment on federal student loans have been extended until September 30, 2021.

Struggling consumers have two options to mitigate student loan payments: forbearance and deferment. Although both programs pause federal student loan repayments for a specific period of time, borrowers still need to monitor their credit scores to track potential changes.

Prior to the CARES act, the handling of payments on differed loans can be different depending on whether the loan is subsidized or unsubsidized. If the loan is subsidized, you usually wouldn’t be responsible for paying interest during deferment. With unsubsidized loans, you must make payments on the interest that accrues throughout the deferment period. Similarly, forbearance on both subsidized and unsubsidized loans requires payments towards the interest.

Although loan deferment and forbearance will be reflected on your credit report, they shouldn’t impact your credit score. If you want to make sure there won’t be a negative impact on your credit, you should wait until you have received a written notice of the forbearance agreement before you stop making payments.

When you check your credit report during the forbearance or deferment period, make sure you pay close attention to the exact terms and language in the report. The account status you see on your credit report should show if the line of credit is open or closed and should also include any relevant behavior on the account. Statuses on the report like “Pays as Agreed,” “Paid/Closed Never Late,” or “120 Days Past-Due” can impact your credit score.

If you have student loans in forbearance or deferment and find it has impacted your credit score, please don’t hesitate to get in touch with Boss Law at (727) 877-3188 to discuss your options and what we can do to help protect your best interests. Request a consultation today!

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