NEW YORK – After three years, the freeze on student loan payments will end at the end of August.

It may seem tempting to simply continue without making payments, but the consequences can be serious, including a hit to your credit score and exclusion from future assistance and benefits.

more than 40 Millions of Americans will have to start paying again their federal student loans by the end of the summer, under the terms of the debt ceiling deal passed by Congress.

Millions are also waiting to find out if the Supreme Court will allow President Joe Biden’s student loan forgiveness plan to go ahead. But the payments will resume regardless of what the judges decide.

This means difficult decisions for many borrowers, especially those in already difficult financial situations.

Experts say late payments and bankruptcy should be options of last resort, and deferment and forbearance — which pause payments, though interest can still add up — are often better in the short term.

WHAT HAPPENS IF I DON’T MAKE THE STUDENT LOAN PAYMENTS?

Once the moratorium ends, borrowers who cannot or do not pay risk default and eventually default. That can seriously hurt your credit rating and make you ineligible for extra help and government benefits.

If you’re having trouble paying, advisors encourage you first to see if you qualify for an income-based repayment plan, which determines your payments based on your expenses. You can check it by visiting the website of Federal Student Aid. If you have worked for a public body or a non-profit organization, you may also be eligible for the Public Service Loan Forgiveness Programwhich forgives student debt after 10 years.

Carolina Rodríguez, director of the Community Service Society of New York Educational Debt Consumer Assistance Program, stresses that anyone temporarily unemployed should be eligible for a $0 payment plan. And many others qualify based on income and family size.

“The repercussions of defaulting can be quite severe,” says Rodríguez. “The federal government can administratively intercept tax refunds and garnish wages. And it can affect Social Security, retirement and disability benefits.” Does it make financial sense at the time? Probably not”.

Rodríguez says that his organization always advises against deferment or forbearance, except when the borrower has exhausted all other options. In the long run, these financing options offer little benefit, as some loans will continue to accrue interest while deferred.

Abby Shafroth, a senior attorney and director of the Student Loan Borrower Assistance Project at the National Center for Consumer Law, said that of the two, deferment is generally a better option.

This is because interest generally does not accrue on Direct Subsidized Loans, the subsidized portion of Direct Consolidation Loansthe Federal Subsidized Stafford Loansthe subsidized portion of the FFEL Consolidation Loans and the Federal Perkins Loans. All other federal student loans that are deferred will continue to accrue interest.

“Forbearance allows you to defer payments without holding it against you, but the interest does add up. So you’ll see your balance go up each month.”

WHAT ABOUT FILING BANKRUPTCY?

For most student loan borrowers, it remains very difficult to have their loans discharged, or canceled, through bankruptcy. Borrowers must prove a very harsh standard of financial circumstances, called “undue hardship.”

“That doesn’t mean people shouldn’t look into it,” Rodriguez said. “But they may not be successful in discharging their loans.”

For borrowers who show that level of financial pressure, they most likely have other options, Rodríguez said.

She advises that borrowers make sure they are speaking with a bankruptcy attorney who understands student loan bankruptcy, which requires a different procedure than other types of bankruptcy.

NCLC’s Shafroth says new guidance on student loan bankruptcy has been coming out in recent years.

“Although it is difficult to obtain loan forgiveness through the bankruptcy process, an increasing number of borrowers are eligible to have their loans discharged that way,” he said. “A lot of people write it off as ‘there’s no way’, it’s impossible.’ But it’s becoming more and more possible.”

WHAT HAPPENS WHEN A LOAN GOES IN DELAY?

When you are 270 days late in paying a loan – approximately 9 months – the loan appears on your credit report as unpaid.

“At that point, it’s not just delayed, it’s charged,” Shafroth explains. “That’s when you’re not eligible for new federal student aid. Many people default because they weren’t able to complete their degree the first time. This prevents them from going back to school.”

Once a loan is delinquent, it is subject to the aforementioned collection processes. That means the government can garnish wages (without a court order) to repay the loan, intercept tax refunds, and garnish portions of Social Security checks and other benefit payments.

WHAT OTHER OPTIONS DO I HAVE IF I CANNOT MAKE THE PAYMENTS?

Shafroth said many borrowers may still be eligible to have loans paid off through a patchwork of programs outside of the Biden administration’s proposed debt relief program.

“If your school closed before you could complete your program, you are eligible for relief. If your school lied to you or misrepresented your enrollment result, you can file a borrower defense petition and ask to have your loan canceled for that reason,” he said. “If you have a disability, sometimes you can get your loans canceled for that reason.”

Shafroth encourages borrowers to look at the Student Aid website to see what their options might be before defaulting.

WHAT HAPPENS IF MY LOANS WERE IN MORATORIUM BEFORE MARCH 2020?

Under the fresh start program of the Biden administration, borrowers on federal student loans who were in moratorium before the pause have a chance to catch up.

Borrowers who were in arrears will not be subject to collection proceedings or have their wages garnished until approximately August 2024, or approximately one year after the payment freeze ends. These borrowers have also been granted permission to reapply for federal student loans to complete their studies. Lastly, these delinquent loans are being reported to the credit bureaus as current.

That being said, borrowers must take action if they want to stay out of default after this one-year forbearance period ends.

To remove your delinquency record, you must contact the Department of Education’s Default Resolution Group online, by phone, or by mail, and ask the group to take loans out of default through the Fresh Start policy. Within four to six weeks, any record of delinquency will be removed from your credit report and the loans will be assigned to a loan servicer. This will also give them access to income-based repayment plans and government loan forgiveness, if applicable.

WHAT HAPPENS IF I WAS BEHIND PAYMENTS OR IN PAST PRIOR TO MARCH 2020?

The Fresh Start program also applies to borrowers who were delinquent before the payment pause. Those accounts will be considered in good standing, and borrowers will have the option of enrolling in income-based repayment plans that can reduce bills to as low as $0, or request deferment, forbearance, or bankruptcy.