Student Loan Payments Are Back and Credit Scores Are Falling
If your credit score recently took a hit, you’re not alone. Millions of Americans are seeing their credit scores plummet now that the federal government has resumed collecting on student loans.
After a three-year pause during the pandemic, the U.S. Department of Education officially restarted the debt collection process. Borrowers who have gone 90 days without a payment are now being reported to the major credit bureaus.
The impact has been massive. According to the Federal Reserve Bank of New York:
– 2.2 million borrowers saw their credit scores drop by 100 points or more.
– 1 million borrowers experienced a drop of 150 points or greater.
What Changed?
Federal student loan payments were paused in March 2020 due to the economic uncertainty of COVID-19. Payments resumed in 2023, but the Biden administration granted borrowers a one-year grace period. That ended in October 2024.
Under the Trump administration, the government has fully restarted collections, including wage garnishments and tax refund seizures for those who remain in default.
Why This Matters
A lower credit score can:
– Make borrowing more expensive
– Limit access to credit and housing
– Affect job opportunities in some industries
Lenders, landlords, insurers, and even some employers check credit scores to assess risk. A steep decline can have long-term consequences, especially for young adults still trying to establish themselves.
What You Can Do
If you’ve missed payments or are feeling overwhelmed:
- Contact your loan servicer to discuss options like income-driven repayment plans.
- Look into the “Fresh Start” program to get out of default.
- Monitor your credit report for inaccuracies.
- Seek help from certified credit counselors or nonprofit financial advisors.
The Department of Education says borrowers should be notified of their due dates at least three weeks in advance, but many say they received no warning. Long hold times and recent layoffs in loan servicing departments are making things worse.