More than 9 million borrowers are seeing their credit scores lowered
May 6, 2025
- Missing student loan payments can lower credit scores by varying amounts depending on a borrower’s credit.
- Reduced credit scoreslowercredit limits and raiseinterest rates.
- Student loan borrowers with the best credit who miss payments cansee their scores drop the most.
Collections restarted on millions of defaulted student loans this month, but millions of other student loan borrowers are at risk of default and will see their credit scores lowered.
Missing a monthly student loan payment makes the borrower delinquentand after 90 days of not making a payment, the borrower is at risk of default and will be reported to credit bureaus, according to Federal Student Aid.
The impact is already widespread: More than 9 million student loan borrowers of the nation’s nearly 43 million are expected to have seen “substantial declines” in their credit in the first three months of 2025, according to the Federal Reserve Bank of New York.
“This would result in reduced credit limits, higher interest rates for new loans, and overall lower credit access,” The New York Fed said.
A student loan borrower who has missed a payment for 90 days or more can see their credit scores drop by as little as an average of 42 points to as much as 175 points, depending on their current creditworthiness, according to a May report from credit bureau TransUnion.
Student loan borrowers with the best credit are the hardest hit.
For example, a student loan borrower with “subprime” credit would see their credit score drop by an average of 42 points, buta “super prime” borrowerwould see their credit score fall 175 points.
Still, TransUnion said that it is mostly student loan borrowers with poor credit that are at risk of defaulting and will see their credit scores lowered.
Nearly 51% of student loan borrowers with “subprime” credit were at risk of seeing their credit scores drop for not making a payment for 90 days or more, TransUnion said.
Student loan debt and borrowers at risk of default haveballooned in recent years after payments have been missed and more loans have been taken out.
Around 21% of student loan borrowers were 90 days or more late on their payments in February 2025, compared with around 12% a year prior, TransUnion said.
And student loan debt grew to around $1.77 trillion at the end of 2024, up from around $960 billion in 2011, according to the Education Data Initiative.
There is nowmore student loan debt than credit card orauto loan debt, the Education Data Initiative said.
What happens if a student loan goes into default?
After 270 days of not making a student loan payment, the borrower goes into default, according to Federal Student Aid.
The first Trump administrationpaused the collections of defaulted student loans during the pandemic in March 2020, a pause the Biden administration extended that was restarted on May 5, 2025 under the second Trump administration.
More than 5 million student loan borrowers haven’t made a payment in more than 360 days, according to the Education Department.
Federal Student Aid said these are the consequences for defaulted student loan borrowers:
- Loan acceleration:The entire unpaid balance of your loan and any interest you owe will become due immediately.
- Wage garnishment:We can begin collecting on your loan by taking money from your wages.
- Treasury offset:Your tax refunds and federal benefit payments will be withheld and applied toward repaying your loan.
- Loss of options:You will no longer be able to change repayment plans and will no longer be eligible for temporary relief options such as deferment or forbearance.
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