Bailey Schulz, USA TODAY
7 min read
After a roughly five-year hiatus, student loan borrowers are once again seeing their credit scores plunge if they fall behind on payments. Economists say it could be bad news for borrowers and the economy at large.
A report from the Federal Reserve Bank of New York found the delinquency rate for student loans surged from less than 1% in the fourth quarter of 2024 to nearly 8% in the first quarter of this year as a pause on reporting delinquent loans ended. That has sent some credit scores into a free fall, which makes it more difficult for borrowers to secure affordable loans or pull off major purchases.
The Federal Reserve Bank of New York said more than 2.2 million newly delinquent student loan borrowers’ credit scores plunged more than 100 points. More than 1 million had scores drop at least 150 points.
"We could see millions of borrowers potentially locked out of the conventional mortgage market. They could see the cost of a car loan double, they could find it harder to find rental housing," said Aissa Canchola Bañez, policy director at the Student Borrower Protection Center, an advocacy group focused on alleviating student loan debt. "The immediate harm, but also the long-term harm, is just massive."
The federal government’s pandemic-era student loan payment pause lifted in September 2023, but it wasn’t until fall 2024 that payments at least 90 days past due could be reported to credit bureaus. Those delinquencies started appearing on credit reports in 2025.
As of the first quarter, nearly 1 in 4 student loan borrowers required to make payments were behind on their loans, according to the Federal Reserve Bank of New York.
Much of that surge could be driven by confusion around loan payments restarting, according to Beth Akers, a senior fellow who focuses on the economics of higher education at the American Enterprise Institute, a conservative think tank.
The pause – which began under President Donald Trump's first administration – was extended multiple times under President Joe Biden. Meanwhile, online rumors claimed all student loans had been permanently canceled under Biden. Biden did attempt to forgive $400 billion in student debt, but the plan was ultimately struck down by the Supreme Court.
“For a long time, I think borrowers thought their loans were canceled. Or that they'd never have to repay them. And I don’t blame anyone for believing that,” Akers said. “We really confused the heck out of borrowers.”
Other borrowers may not be financially prepared to pay back their loans, especially after falling out of habit with their monthly payments.
