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Will any of this hurt your credit score? It’s hard to know for sure, but any effects aren’t likely to be as punishing as an account that was reported as delinquent. Still, credit scoring companies may pick up on certain factors — say, a student loan balance that isn’t declining — and that could weigh on your credit score depending on how it’s interpreted by their scoring models.
2. You’re more likely to find a payment plan you can afford.
The Biden administration recently opened up its more affordable income-driven repayment plan, SAVE, which pegs the size of your monthly payment to your income and family size. The SAVE plan (see our guide here) is expected to generate the lowest monthly payment for most borrowers, which means it’s likely to be the best option for those in financial distress.
There’s a lot to like about the latest plan, which is more generous than previous programs and replaces the REPAYE plan. Once it is fully in effect next summer, it will cut payments by more than half.
The plan also treats interest differently: If your regular payment isn’t enough to cover the interest owed at that time, the unpaid interest is automatically erased. That means those who religiously make their payments will not see their balances grow over time, which has happened to many borrowers, leaving them discouraged.
There are several other repayment options to consider besides SAVE, including the standard repayment program, which spreads payments over 10 years. Since everyone’s circumstances are different, your first stop should be the loan simulator tool at StudentAid.gov, which can help calculate which plan makes the most sense using your specific loan details.