Millions of Americans Face Credit Score Declines Due to Missed Student Loan Payments

Millions of Americans are experiencing significant drops in their credit scores due to missed federal student loan payments. This issue has intensified following the end of pandemic-era relief measures.

Resumption of Loan Payments

Federal student loan payments, which were paused during the COVID-19 pandemic, resumed in late 2023. A one-year grace period was provided, ending on September 30, 2024. However, many borrowers were unaware that repayments had restarted, leading to defaults and negative impacts on their credit scores.

Impact on Credit Scores

According to the Federal Reserve Bank of New York, as of early 2025, 2.2 million borrowers saw their credit scores drop by over 100 points, with more than 1 million experiencing declines of 150 points or more. These significant drops are comparable to the credit damage caused by bankruptcy.

The average U.S. credit score has fallen to 715, the lowest since early in the pandemic, reflecting growing financial pressure on consumers amid persistent inflation and stagnant wage growth.

Consequences of Lower Credit Scores

Lower credit scores can lead to higher costs for housing, insurance, and borrowing. Many borrowers are finding it more difficult to qualify for loans, and lending rejections are rising across the board.

Government Collection Efforts

The U.S. Department of Education has resumed collection efforts for defaulted federal student loans. Since early May 2025, nearly $100 million has been collected. The government has begun garnishing wages and withholding tax refunds, with plans to resume seizing Social Security payments this summer.

Delays in Income-Driven Repayment Plans

As of April 30, nearly 2 million student-loan borrowers are experiencing delays in the processing of their income-driven repayment (IDR) applications. Only about 79,000 applications were processed in April, with a significant backlog attributed to administrative delays.

Regional Disparities

Student loan delinquency rates are significantly higher in southern U.S. states. Approximately 20% of student loan borrowers nationwide are over 90 days delinquent, but in seven southern states, more than 30% of borrowers fall into this category.

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