An alarming percentage of Americans failed to make their student loan payments in October—and the jury is still out on how it’ll impact their credit scores.

According to the Department of Education, 40% of student loan borrowers with payments due in October failed to make payments by mid-November. The agency said 22 million borrowers had payments due, and only about 13 million settled their bills.

The situation is far worse than before the pandemic when roughly 26% of borrowers in October 2019 failed to make payments.

The report is alarming because October marked the resumption of student loan payments following a three-year grace period triggered by Covid. As Creditnews reported in September, the end of student loan forbearance was expected to hit the average American family hard, potentially exposing far more people to delinquency.

But nobody expected four out of ten borrowers to miss their first payment.

The government assured student loan borrowers that missed payments wouldn’t be reported to credit agencies in the first 12 months of repayment.

“This on-ramp period protects borrowers from having a delinquency reported to credit reporting agencies,” reads guidance from the Education Department.

But the guidance has an important caveat that some borrowers may have glossed over: “We don’t control how credit scoring companies factor in missed or delayed payments,” the agency wrote.

In other words, missed, delayed, or partial payments could still show up on credit bureau reports.

As is often the case, the devil is in the details.

“Forbearance” could still affect credit scores

Under the Biden administration’s 12-month on-ramp period, missed payments will be reported as “forbearance,” with skipped payments added to the loan term.

But the problem for borrowers is that interest will continue to accrue on missed payments, potentially increasing the loan balance. And a higher loan balance could lead to a lower credit score.

“In a scenario where the loan is not being paid down and interest is accruing, if the increasing outstanding balance on that loan is reported to the credit bureaus, that could result in a modest negative impact to the score,” Ethan Dornhelm, an executive at FICO, told The New York Times.

In the case of FICO and VantageScore—two of the leading credit score companies—payment history is the most important category for determining credit score, followed closely by the borrower’s overall debt load.

Missed payments pose another problem: As interest continues to be tacked onto the borrower’s balance, their next payment will be applied to the accrued interest until it’s fully paid off. That means monthly bills may increase in some cases, according to Scott Buchanan, the executive director of the Student Loan Servicing Alliance.

Financial hardship on the rise

The resumption of student loan payments was a big part of the “quadruple shock” economists warned about several months ago. Now that forbearance has ended, Americans are being forced to choose between making loan payments or buying groceries.

According to a survey from Credit Karma, 56% of borrowers face this dilemma. This figure is as high as 68% for borrowers earning less than $50,000 annually.

There’s growing evidence that Americans are taking on more debt just to make ends meet.

Even before student loan payments resumed, one in four Americans went deeper into credit card debt each month, according to a survey from Clever Real Estate. About 14% of credit card borrowers reported missing payments this year alone.