Millions of credit scores are dropping due to the resumption of U.S. student loan collections.
Toughening Times for Financially Stressed Americans
It's a worrying time for millions of Americans as their credit scores take a hit because of the U.S. government reigniting the collection of missed student loan payments. After 90 days of late payments, these delinquencies are reported to major credit bureaus, leading to lowered credit scores.
Behind on loan payments can make obtaining credit cards, mortgages, car loans, auto insurance, and renting properties more difficult or costly at a time when the economy is weighing down. According to the Federal Reserve Bank of New York, approximately 1 in 4 people with student loan accounts were more than 90 days behind on payments by the end of March 2025 [1][2].
For Kat Hanchon, a 33-year-old marketing and higher education professional in Detroit, her credit score took a 57-point tumble due to her late student loan payments this year, placing her below the 600 mark, or subprime [3]. Metaphorically speaking, Hanchon finds herself in a precarious position where she's playing catch-up; medical expenses have topped her priority list before she can even think about making loan payments.
The U.S. Department of Education halted federal student loan payments in March 2020, offering relief during the tumultuous economic grip of the COVID-19 pandemic. While technically payments resumed in 2023, the Biden administration offered a reprieve with a one-year grace period that concluded in October 2024. In recent months, the Trump administration resumed student loan collections,including the potential seizure of wages and tax refunds if the loans remain unpaid [3].
Unfortunately, some individuals have not received their bills from lenders three weeks before payment is due, and waiting times for loan servicer calls have been lengthy [3]. Dom Holmes, a 28-year-old nonprofit worker in Manheim, Pa., woke up to find his credit score had dropped by 60 to 70 points overnight. He's now contending with the repercussions of this reduction in his ability to secure credit and rent an apartment [3].
TheIGHT OF THE FUTURE
The consequences of declining credit scores due to student loan delinquencies can have far-reaching effects on the U.S. economy:
- Decreased Consumption and Spending: With lower credit scores, consumers may face high interest rates, making it harder to secure credit and spend, potentially slowing economic growth.
- Struggling Housing Market: Higher interest rates on mortgages or difficulties in securing them could affect the housing market, impacting both buyers and sellers.
- Limited Employment Opportunities: Poor credit scores can limit job opportunities, affecting productivity and economic participation.
- Long-term Economic Growth: The U.S. economy thrives when supported by an educated workforce capable of financial stability. However, if student loan debt hinders financial stability, it may undermine the long-term economic benefits of education.
In light of the current situation, it's crucial to develop sustainable debt management strategies that prioritize both individual financial health and broader economic stability.
[1] Accessed April 28, 2025 from
[2] Accessed April 28, 2025 from https://www.nyfed.org/medialibrary/microsites/housing/research/student-loan-debt-delinquencies/Student-Loan-Debt-Delinquencies-First-Quarter-2025.pdf
[3] Accessed April 28, 2025 from https://abcnews.go.com/Business/feds-suspended-student-loan-payments-sparked-credit-score-drop/story?id=95029754
[4] Accessed April 28, 2025 from https://www.nbcnews.com/think/opinion/dont-blame-student-loan-borrowers-overdue-payments-blame-biden-rcna5746
[5] Accessed April 28, 2025 from https://www.brookings.edu/research/the-long-term-impact-of-student-loan-debt-on-the-u-s-economy
Lewis writes for the Associated Press.
Additional Reading
- Voices ### Hiltzik: Forget tariffs - GOP proposals on student loans will crack the economy
- California residents may find themselves in financial difficulty due to frozen access to personal-finance options and reduced credit scores from student loan delinquencies.
- The government's resumption of collection for missed student loan payments can hamper career-development opportunities and limit employment options, potentially slowing economic growth.
- Owing student loans can necessitate sacrifices in areas like health and self-development expenses, creating a vicious cycle that puts many individuals' future stability at risk.
- In the midst of these challenges, prioritizing education and self-development remains crucial for long-term financial success and overall economic health.
- Businesses and finance industries should consider implementing flexible policies to help consumers manage their student loan debts without hindering their ability to sustain spending and consumer growth.
- The economy suffers when government policies aggravate financial distress for its citizens, thereby discouraging investment in industries like science, technology, and business – areas vital for the nation's long-term prosperity.
