Medical Debt on your Credit Report?

Negative information on your credit report can hurt you, by making it hard to rent an apartment or a job, OR by making you pay more for a loan or for insurance. When medical debt gets sent to a collection agency, that becomes a negative item on your credit report. One in five American consumers are affected by medical debt on their credit report.

Recent changes by the three major national credit bureaus (Equifax, Experian and TransUnion) will improve this situation for some, but not all, consumers.

Two changes were implemented July 1, 2022:

  1. Medical debts that were in collections for a time, but were then paid in full will be removed from your credit report completely.
    This means that medical debts will be treated differently than other debts. If I get behind on my car payment for a couple of months, but then get caught up, the fact that I was behind for a while will CONTINUE to show up on my credit report.
  2. Medical debts in collections will not appear on a credit report until one full year after the original date of delinquency. Previously, the wait was six months.
    This change helps consumers in situations where the problem lies in a billing error or incorrect insurance processing, rather than in consumer non-payment. A year provides enough time that the dispute will likely be resolved before a debt appears on a credit report.

Beginning in 2023, the third change will kick in:

  • Medical collections under $500 will never appear on a credit report.

These three changes will help many consumers reach a higher credit score, opening up opportunities and reducing costs of borrowing and insurance. Unfortunately, a large number of Americans with unpaid medical debts larger than $500 will not be helped by this change.

The Consumer Financial Protection Bureau issued an analysis of the change last summer. It is hoped that the changes will reduce the number of situations in which consumers feel they MUST pay a medical bill, even if they believe it is incorrect, in order to “avoid ruining their credit.”

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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“Forgive My Student Loan? But I just paid it off!”

Graphic from https:studentaid.gov

The announcement by President Biden last month about the new plan to forgive up to $10,000 (or $20,000, in some cases) of student loan debt has been great news for many Americans, but there may be people who are groaning instead of celebrating. If you are one of those people, I may have good news for you!

Here’s the kind of scenario that may have people groaning:
Jane Doe owed $5,500 on her student loans as of March 1, 2020. Even when the COVID-related “student loan pause” kicked in March 13, 2020, she kept making payments of $215/month, because her income stayed steady and she just wanted to be done with the loan. She made her final payment a month ago and celebrated being out of debt!

But then – on August 24 came the announcement that she would be eligible to have up to $10,000 in student loans cancelled! GROAN…. “Oh if only I hadn’t made those payments – I would have been out of debt anyway, and I could’ve saved that $215/month!”

Here’s the good news: Jane Doe can apply to her loan servicer for a refund of the payments she made voluntarily during the student loan pause! And THEN she can apply for up to $10,000 of loan cancellation. In some cases the refund may occur automatically. Note: she will only be eligible for $5,500 loan cancellation because that’s what her balance was when the pandemic hit. The debt cancellation is “up to” $10,000, but if your loan balance is less than $10,000, the cancellation is limited by the amount of your debt.

Did you continue to make payments on your student loans during the student loan pause (administrative forbearance) that began March 13, 2020?  You can apply to get those payments refunded to you, and if you’re eligible for student loan cancellation, you may WISH to request a refund if those payments brought your loan balance below $10,000. Contact your loan servicer to start that process.

THEN, stay tuned for information on how to apply for the debt cancellation. The government expects the application to open in early October. To verify that you are eligible for the loan cancellation AND to minimize administrative glitches, check step one and follow step two provided by Federal Student Aid.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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The PSLF Limited Waiver Explained

The Public Service Loan Forgiveness (PSLF) Program was established in 2007 to help non-profit and/or government workers with their federal student loan balances. Under the original guidelines, only those with Direct Student Loans – Subsidized, Unsubsidized, PLUS, and Consolidated – would receive credit toward forgiveness. Limitations were also placed on the loan payments themselves. Payments must have been made on-time, in-full, and within the correct repayment plan.

  1. Allowing past payments to Perkins and Family Federal Education Loans (FFEL) to count toward forgiveness – these types of loans were ineligible under the original PSLF Program.
  2. Allowing borrowers to consolidate their federal loans without losing eligibility for forgiveness – previously, borrowers who consolidated individual federal loans (Direct or non-Direct) to a Direct Consolidation Loan would have to restart their eligible payment clock.
  3. Allowing partial payments to count – payments that were made for less than the monthly billed amount would not count toward PSLF.

These changes have allowed many additional borrowers to become eligible for forgiveness under PSLF, and the full list of changes can be viewed on the PSLF Limited Waiver Fact Sheet.

As of now, the October 31, 2022 deadline has not been extended (please note that this differs from the recently announced administrative forbearance extension ending on December 31, 2022), so make sure to contact your lender if you believe you are eligible for forgiveness! You may also contact a Family Wellbeing Specialist, with a focus on Family Finance (https://www.extension.iastate.edu/humansciences/finance) for additional assistance with navigating your student loans.

Ryan Stuart

Ryan is a Human Sciences Specialist in Family Wellbeing and an Accredited Financial Counselor®. He focuses on educating and empowering all Iowans to independently make positive financial decisions throughout their life course.

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