Many Americans are waking up to substantial declines in their credit scores as delinquent student loans begin impacting them for the first time since the pandemic-era repayment pause ended.
The New York Fed estimates that more than 9 million student loan borrowers will experience significant credit score drops in the first half of 2025. The report also finds that over 15% of all student loan holders are now likely behind on their payments. This news comes amid rising delinquency rates in other borrowing sectors, such as auto loans.
A Slow-Rolling Process
As the country emerges from the pause on federal student loans, repayment requirements have been slowly rolling out, catching many borrowers unaware.
After three and a half years, the payment pause officially ended in September 2023, marking the beginning of a one-year on-ramp phase during which loan servicers were not allowed to report late or missed payments to credit agencies.
Although this grace period has passed, overdue loans are not yet considered delinquent. Servicers cannot report a loan as delinquent until it is 90 days past due, meaning that late payments are just now beginning to show up on credit scores.
In a sense, the rising credit scores represent a return to the landscape that existed prior to the pause. When repayments were paused, all delinquent loans were marked as current, leading to a jump of 74 points in the median credit score between Q4 2019 and Q4 2020. By the end of 2024, borrowers with loans in delinquency had scores that were on average 103 points higher than at the end of 2019.
Repayment Options Are Returning
The good news for those seeing their credit scores decline is that the Trump administration has reinstated several Biden-era programs to help individuals get creative about repaying student debt. A court injunction issued last month had directed the Department of Education to cease initiatives like the Saving on a Valuable Education (SAVE) Plan.
However, recently, the U.S. Department of Education’s Office of Federal Student Aid reopened the online income-driven repayment plan, which caps borrowers’ monthly payments at a percentage of their earnings.
