More than 9 million student loan borrowers could see a big drop in their credit scores this year
Source: Aol/Fortune
Updated Wed, March 26, 2025 at 11:38 AM EDT
Federal student loan borrowers have dealt with a chaotic five years of policy changes, inaccurate payment information, and unfulfilled promises of loan forgiveness. And now, as further uncertainty abounds, many are seeing their payments spike and their credit scores crater. In fact, more than 9 million borrowers "will face significant drops in credit score once delinquencies appear on credit reports in the first half of 2025," the Federal Reserve Bank of New York reported Wednesday.
This is a major change from the early days of the pandemic, when policies put in place by the federal government helped many borrowers stay financially afloat in an economically perilous time. For example, monthly payments and interest accumulation were paused for more than three years, allowing some borrowers to make significant inroads toward paying off their debt for the first time, while the delinquency rate on student loans fell below 1%. As a result, the median credit score for borrowers increased by 11 points from the end of 2019 to the end of 2020.
A big part of that improvement came from borrowers getting out of delinquent status. Pandemic policy marked all delinquent loans as current, which led to a 74-point surge in the median credit score for those borrowers by the end of 2020, from 501 to 575, according to the Fed. And once President Joe Biden's so-called Fresh Start program, which marked all defaulted loans as current, went into effect in 2022, the median score for those with a default increased by 44 points.
"By the end of 2024, those borrowers with loans in delinquency or in default saw scores that were 103 and 72 points higher, respectively, than at the end of 2019," the Fed reports.
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