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Student Loan Forbearance, Deferment and Credit Reports

Many times, people who have student loans find themselves in difficult financial circumstances. 2020 increased those issues for millions of individuals. Deferments and Forbearances have been available for decades, but the Covid-19 CARES Act gave more options to borrowers that have not been available in the past. Recently, Secretary DeVos has extended the CARES Act until January 31st of 2021. What does this mean for the millions of people affected?

"The coronavirus pandemic has presented challenges for many students and borrowers, and this temporary pause in payments will help those who have been impacted," said Secretary DeVos. "The added time also allows Congress to do its job and determine what measures it believes are necessary and appropriate. The Congress, not the Executive Branch, is in charge of student loan policy."

According to the US Department of Education, FSA is now working with federal student loan servicers to notify borrowers that the current relief measures will continue until the end of January. In March 2020, Secretary DeVos instructed employers to halt wage garnishments for borrowers with defaulted federal student loans. That instruction remains in place, and any defaulted borrowers who continue to have their wages garnished will receive refunds.


March 13, 2020, a declaration of a national emergency resulting from the COVID-19 pandemic, set all federal student loan interest rates to zero and automatically entered borrowers into administrative forbearance. This administrative forbearance allowed them to defer payments without financial penalty. On August 21, Secretary DeVos extended the CARES Act borrower benefits until December 31, 2020 and has now extended it a second time to January 31, 2021.


Deferrals and forbearances have no impact on your credit report, so borrowers should have no hesitation in using these, particularly during this time of zero interest and especially if there is a financial need. However, the converse is also true. If there is not a financial need to defer payments, you can continue to pay during this time of zero interest. Continuing your payments will help pay down that principle much faster and give borrowers a leg up for when things return to normal.


When you are looking at your credit report to see what impact the student loans are having, you should check the Account Status. Account Status will allow you to see if the account is open or closed, as well as your payment behavior at the time of the last update reported by the lender or creditor. During times like these, you might notice an AW code on your account. This AW code means that your account has been affected by a natural disaster. You might also see a C code, which means your account is a credit line.


Learning to read your credit report is important. Understanding the codes and what they mean can help you detect errors, and correct them quickly, before you need your credit to purchase a home, car or refinance a current loan. You are entitled to a free copy of your report each year or anytime you are declined for credit based on something in your report. Take advantage of these reports to make sure your credit report is up to date and correct.


If you do discover an error, you can dispute it. To do that, you will need to send a letter to the credit reporting agency with any proofs you have of the error and be specific. You should also contact the creditor who reported the error and notify them with details as well as requesting that the information be removed. Sometimes you have to be patient and request this more than once before it is removed, but be persistent and check monthly until it is cleared up.


Your student loans will remain an important part of your overall financial picture until they are paid in full. Until then, use the resources that are being offered wisely and be aware of the impact of your decisions regarding the loans on your credit report.





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