ATLANTA, Ga. (Atlanta News First) - Millions of Americans are facing the harsh financial reality: student loan defaults are destroying their credit scores.

This week, the US Department of Education (DOE) issued a two-week warning for borrowers to resolve their overdue balances. For those unable to pay, the consequences are severe and swift.

“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” US Secretary of Education Linda McMahon said. “The Biden Administration misled borrowers: the executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear. Hundreds of billions have already been transferred to taxpayers.

“Going forward, the Department of Education, in conjunction with the Department of Treasury, will shepherd the student loan program responsibly and according to the law, which means helping borrowers return to repayment—both for the sake of their own financial health and our nation’s economic outlook,” McMahon said.

Unlike credit cards - which can ding your credit by 40 to 50 points after a single 30-day late payment - federal student loans typically aren’t reported as delinquent until 90 days past due. But once they are, the impact can be catastrophic, especially if they hit the 120-day mark.

A 120-day late student loan payment can lower your score by 130 points. One borrower’s account went into default, and her score dropped 175 points overnight.

The DOE has confirmed more than five million borrowers are currently in default. That number could reach 10 million in the coming months. With collections resuming, consequences include wage garnishment and tax refund seizures.

Is there a way out?

Borrowers can exit default by making nine reasonable monthly payments within 10 months, according to StudentAid.gov.

Whether or not you’re in default, now’s the time to safeguard your credit. Autopay is recommended for car payments, other loans, and the minimum amount due on credit cards.

The minimum payment avoids fees and late payment reporting that will impact your credit for seven years. Still, if possible, borrowers should always pay as much as they can afford, starting with the highest interest rate cards first.

Know your credit score(s)

Most people think they have one credit score, but in reality, everyone has several. Each of the major credit bureaus calculates your score differently. You can check yours for free at:

• Experian
• TransUnion
• Equifax
• FICO

If you’ve defaulted on your student loans, staying current on your other bills and tracking your credit regularly is more important than ever.

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