Millions of Americans are experiencing a negative impact on their credit scores as the U.S. government has recommenced debt collection for missed student loan payments.
After an account is overdue for more than 90 days, loan servicers report the delinquency to major credit bureaus. This can substantially decrease a borrower’s credit score, mirroring the effects of personal bankruptcy.
A decreased credit score complicates and makes it more costly to secure car loans, mortgages, credit cards, and other financial services, especially in light of current high inflation, interest rates, and job layoffs that strain consumer resources.
In early 2025, the Federal Reserve Bank of New York identified that approximately 2.2 million student loan holders witnessed their scores plummet by 100 points, while another million faced reductions of 150 points or more.
Such decreases can shift a financial situation from manageable to overwhelming, potentially influencing decisions such as renting or being approved for a new credit card.
The U.S. Department of Education had initially paused federal student loan payments from March 2020 to alleviate pandemic-induced economic struggles. The payment requirement technically resumed in 2023, but the Biden administration allowed a year-long grace period ending October 2024. Following this, the Trump administration restarted collection activities, including plans to garnish wages and seize tax refunds for unpaid loans.
Reports from the Federal Reserve Bank suggest that around 25% of student loan holders lagged more than 90 days behind in payments as of March 2025.
Kat Hanchon, a 33-year-old professional from Detroit working in marketing and higher education, found herself among those adversely affected. Her credit score fell by 57 points, into the subprime range, due to late student loan repayments this year.
Hanchon shared that her repayment requirements were higher than before the pandemic despite being on an income-driven plan. She faces a challenging choice, prioritizing medical expenses over loan payments. Her immediate accommodation situation is stable, but she has concerns about credit card interest rates fluctuating.
Credit scores are extensively used by lenders, landlords, and other institutions to assess a consumer’s reliability in making timely payments. A high score facilitates more favorable loan terms, while a lower one complicates access to credit.
The Education Department claimed borrowers would receive notices from lenders weeks before payments are due, though some borrowers have reported otherwise. High call volumes to loan servicers and department staff reductions, as reported by consumer advocates, have contributed to service delays.
Dom Holmes, a 28-year-old nonprofit worker in Pennsylvania, found a sudden 60-70 point drop in his score without prior notice. This unexpected change has prompted him to appeal and reevaluate his housing prospects due to credit-impact concerns.
Holmes, a first-generation college graduate, still manages Parent Plus loans, aiming to keep them from affecting his parents’ credit. He highlights economic challenges faced since graduating shortly before the pandemic.
Kevin King, of LexisNexis, anticipates that changes in student loan collection practices will significantly affect the economy. He notes that previously, with discussions around loan forgiveness, repaying student loans didn’t seem urgent.
King predicts a shift in payment priorities, as loan payments might rank higher in the “payment hierarchy” due to government enforcement measures like tax refunds seizure.
The New York Federal Reserve study also highlighted that older borrowers, particularly those over 40, were most prone to falling behind on payments.
Andrew McCall, aged 58 from Idaho, carries a remaining loan balance of $30,000 for his computer science education. Monthly payments ranging between $250-300 pose a financial challenge, raising concerns about comprehensive life implications if his credit score suffers.
In a credit-driven economy, maintaining a favorable score is crucial, impacting even basic financial decisions like car and house payments.