Student borrowers could see credit scores drop for late loan payments

• Nearly 9.7 million student loan borrowers face significant drops in credit scores. This follows the end of the pandemic-era pause on payments.
• The impact on credit access depends on which borrowers are missing payments.
• The Federal Reserve anticipates a significant increase in student loan delinquencies in the first quarter of 2025, though the exact extent of the impact remains uncertain.

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The pandemic has upended the student loan landscape, affecting loan growth, repayment rates, and delinquency rates. Now, the Federal Reserve Bank of New York warns that these changes are significantly impacting borrowers’ credit scores.

Debt reaches pre-pandemic levels

Nearly 9.7 million borrowers hold about $250 billion in delinquent debt, a number that has climbed back to pre-pandemic levels after student loan payments resumed. According to the Federal Reserve, this same group of borrowers is expected to see substantial drops in their credit scores, with some facing declines as steep as 150 points by the first quarter of 2025.

With the end of the COVID-era pause on student loan payments, borrowers no longer have the shield protecting them from the financial consequences of missed payments. The impact on credit access will depend largely on which borrowers are falling behind.

If it’s mostly those with lower credit scores, the effect will be less pronounced since these borrowers already have limited access to credit. However, if higher-credit borrowers miss payments, the consequences could be far more significant, with lower credit limits, higher interest rates and reduced access to credit overall.

End of relief period

The pandemic forbearance had a significant impact on borrowers’ credit scores, especially for those who were already delinquent or in default. As borrowers begin to miss payments again, delinquencies will appear on credit reports once payments hit 90 days past due.

The ban on negative credit reporting for student loans ended in September 2024, signaling the close of the relief period under the Biden administration.

The Federal Reserve is expecting to see a notable increase in student loan delinquencies in the first-quarter 2025 report on household debt and credit. However, it’s still difficult to predict exactly how significant the spike will be.