A student works in the library on the campus of American University in Washington, D.C., U.S., March 20, 2025.
Nathan Howard | Reuters
The more than 9 million student loan borrowers who are estimated to be late on their payments could experience “significant drops” in their credit scores during the first half of 2025, the Federal Reserve Bank of New York warns.
Some people with a student loan delinquency could see their scores fall by as much as 171 points, the Fed writes in a March 26 report. Credit scores, which impact people’s ability and costs to borrow, typically range from 300 to 850, with around 670 and higher considered good.
The expected drop was highest for borrowers who start with the best scores. Among those with scores under 620, the reported new delinquency could lead to an average 87-point decline.
“Although some of these borrowers may be able to cure their delinquencies,” the Fed writes, “the damage to their credit standing will have already been done and will remain on their credit reports for seven years.”
It’s been a long time since federal student loan borrowers have needed to worry about the consequences of missed payments, which can also include the garnishment of wages and retirement benefits. That’s because collection activity was suspended during the pandemic and for a while after. That relief period officially expired on Sept. 30, 2024.
As student loan delinquencies appear on credit reports again this year, borrowers are likely to face a cascade of financial consequences, said Doug Boneparth, a certified financial planner and the founder and president of Bone Fide Wealth in New York.
“This credit score penalty restricts their access to affordable financing, locking them into a cycle of elevated borrowing costs and fewer opportunities to rebuild their financial stability,” said Boneparth, who is a member of CNBC’s Advisor Council.
Student loan borrowers can protect their credit
Student loan borrowers struggling to make their payments have options to stay on track and protect their credit, consumer advocates say.
For one, finding an affordable repayment plan can lower your chances of falling behind on your bills. Borrowers can apply for an income-driven repayment plan, which will cap their monthly bill at a share of their discretionary income. Many borrowers end up with a monthly payment of zero.
The Education Department recently re-opened several IDR plan applications, following a period during which the plans were unavailable.
Borrowers can also apply for a number of deferments or forbearances, which can pause your payments for a year or more. It may show up on your credit report that you’re not currently making payments on your loan, but you shouldn’t be flagged as late, said higher education expert Mark Kantrowitz.
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Additionally if you’re already in default on your loans, you should consider rehabilitating or consolidating your debt to return to a current status, experts said.
Rehabilitating involves making “nine voluntary, reasonable and affordable monthly payments,” according to the Education Department. Those nine payments can be made over “a period of 10 consecutive months,” its website notes.
Consolidation, meanwhile, may be available to those who “make three consecutive, voluntary, on-time, full monthly payments.” At that point, they can essentially repackage their debt into a new loan.
If you don’t know who your loan servicer is, you can find out at Studentaid.gov.
Experts also recommend that you check your credit reports regularly for free at AnnualCreditReport.com to make sure all three credit rating companies — Experian, Equifax and TransUnion — are showing your correct student loan balance and payment status.