CORA LEWIS
Updated 6 min read
NEW YORK (AP) — Millions of Americans are seeing their credit scores suffer now that the U.S. government has resumed referring missed student loan payments for debt collection.
After 90 days of non-payment, student loan servicers report delinquent, or past-due, accounts to major credit bureaus, which use the information to recalculate the borrower's score. Falling behind on loan payments therefore can affect an individual’s credit rating as severely as filing for personal bankruptcy.
A lower credit score makes it harder or more expensive to obtain car loans, mortgages, credit cards, auto insurance and other financial services at a time when inflation, high interest rates, and layoffs have strained the resources of some consumers.
The Federal Reserve Bank of New York reported that in the first three months of 2025, 2.2 million student loan recipients saw their scores drop by 100 points, and an additional 1 million had drops of 150 points or more.
Declines that steep may mean the difference between a manageable credit card interest rate and an unmanageable one, or approval or rejection of an application to rent an apartment.
The U.S. Department of Education paused federal student loan payments in March 2020, offering borrowers relief during the economic chaos of the coronavirus pandemic.
Though payments technically resumed in 2023, the Biden administration provided a one-year grace period that ended in October 2024. Last month, the Trump administration restarted the collection process for outstanding student loans, with plans to seize wages and tax refunds if the loans continue to go unpaid.
According to the Federal Reserve Bank of New York, about 1 in 4 people with student loan accounts were more than 90 days behind on payments at the end of March.
Kat Hanchon, 33, who works in marketing and higher education in Detroit, was one of them. Hanchon said her score dropped by 57 points as a result of her loans falling delinquent this year. That put her score below 600, or subprime.
When Hanchon received her statement from her loan servicer, her expected monthly payments were higher than before the pandemic-era pause, even though she had enrolled in a repayment plan that takes a borrower's full financial situation into account.
“They said I now have to pay $358 per month," she said. "I'm not going to be able to pay that. ... But I'm not unusual in the world we're living in right now."
Hanchon said she's had to prioritize paying medical expenses — for a dental crown, a root canal, and an endoscopy — before she'll be able to consider putting money toward the loans. While her housing situation is secure for the moment, she worries about the annual percentage rate for her credit cards fluctuating.
