Student loan delinquencies dropping credit scores: What to know
Will the 'big, beautiful bill' impact student loans?
Jon Fansmith, SVP of the American Council on Education, joins LiveNOW's Christina Evans to discuss how President Trump's 'big, beautiful bill' might impact student loans.
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.
Here’s what that means, and what to do about it:
Student loan payment pause
The backstory:
Student loan repayments went into a period of leniency during the COVID-19 pandemic. No federal student loans were referred for collection since March 2020, including those in default.
But the Trump administration announced that collection would begin on student loans in default, so delinquencies began appearing on credit reports for the first time earlier this year.
Timeline:
In 2020, President Donald Trump paused federal student loan payments and interest accrual as a temporary relief measure for student borrowers. The pause in payments was extended multiple times by the Biden administration through 2023, and a final grace period for loan repayments ended in October 2024.
Presently:
That means tens of millions of Americans have to start making payments again, and may find themselves in delinquency when that grace period for repayment ended.
And delinquencies are appearing on credit reports for the first time in more than 3 years, affecting credit scores for millions.
Student loans dropping credit scores
FILE - Close up of a bill with "past due" stamp. Getty Images
How it happens:
After 90 days of non-payment, student loan servicers report or past-due, or delinquent, accounts to major credit bureaus, which use the information to recalculate the borrower's score.
By the numbers:
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.
Dig deeper:
The Federal Reserve Bank of New York also reported that millions of people behind on their payments had already seen a significant drop in their credit score.
The Bank said 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.
For context:
Credit scores range typically between 300-850. A "good" or "fair" score is typically seen as anything above 670, but, of course, the higher the better.
Why you should care:
Credit scores are used to determine loan rates for cars, mortgages, credit cards, insurance and other financial services. A higher score will get you lower interest rates and more favorable loan terms, while a lower score makes it harder to borrow.
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Student loan delinquent vs. default
Big picture view:
Delinquent accounts differ from an account that is in default.
A student loan becomes delinquent when a borrower doesn’t make a payment 90 days after its due date. If you continue to be delinquent on your loan for 270 days — or roughly nine months — then your loan goes into default.
RELATED: Student loan collections on defaulted loans restart today: What to know
What you can do
Student loans in default will be sent for collection
The Department of Education will begin collection in May for federal student loans in default, the Trump administration announced. There are currently approximately 5.3 million borrowers in default. The government will be able to garnish wages, pension, and other income to collect those debts. No federal student loans have been sent for collection since March 2020, when the COVID-19 pandemic prompted a pause on student loan payments and interest. Dr. Shaan Patel, CEO and Founder of Prep Expert, joins LiveNOW's Austin Westfall to discuss what Americans can expect when this goes into effect.
First step:
Find out your student loan account status.
If you have student loans and have taken advantage of the non-repayment period during COVID and haven’t made a payment in several months - or years, log in to your account or call your provider to see what your loan status is.
For delinquent accounts:
If your loan is delinquent, begin making payments immediately to avoid default.
You can contact your student loan provider for information on available plans to possibly lower your minimum monthly payment based on your income.
For defaulted accounts:
A defaulted account is more serious, harder to correct and may lead to losing some of your income involuntarily.
The federal government began collecting on defaulted student loans in May, which means they withhold money from paychecks, tax returns or Social Security payments to go towards paying back the loan.
The Education Department is recommending borrowers visit its Default Resolution Group to make a monthly payment, enroll in an income-driven repayment plan, or sign up for loan rehabilitation.
The Federal Student Aid Office also has options on what to do if you’re in default on your student loans, including the aforementioned loan rehabilitation or loan consolidation.
To improve your credit score:
Paying your loans on time, keeping your spending well under your credit threshold, and having a long credit history will improve your credit score. You can get more information from the Consumer Financial Protection Bureau here.
The Source: Information in this article was taken from previous FOX Television Station reportings, The Education Department, the Federal Reserve Bank of New York, the Consumer Financial Protection Bureau, and from a student loan advisor’s conversation with The Associated Press. This story was reported from Detroit.