Nearly 10 million Americans with student loans face devastating credit score drops in 2025 as pandemic-era payment protections expire, leaving many unprepared for the financial consequences.
Key Takeaways
- An estimated 9.7 million federal student loan borrowers have fallen behind on repayments since pandemic protections ended, putting their credit scores at serious risk
- Superprime borrowers could lose an average of 171 credit score points, while subprime borrowers may see declines of 87 points once delinquencies appear on credit reports in early 2025
- Federal student loan delinquency rates have reached a record-high 15.6%, totaling over $250 billion in delinquent debt
- The Department of Education is reopening income-driven repayment plan applications while simultaneously scaling back operations and cutting nearly half its workforce
- Delinquency damage will remain on credit reports for seven years, affecting borrowers’ ability to obtain loans, credit cards, and housing
Record Delinquency Rates Following Pandemic Relief Expiration
Federal student loan borrowers are facing a financial crisis as payment requirements have fully returned following the end of pandemic-era protections. The temporary reprieve, which began in 2020 and officially ended in September 2023, was followed by a one-year “on-ramp” period during which missed payments weren’t reported to credit bureaus. However, interest continued to accumulate during this transition, leaving many borrowers unprepared for the resumption of full payment obligations.
By the conclusion of this transition period, past-due federal student loans reached an unprecedented 15.6% delinquency rate, representing over $250 billion in delinquent debt. The Federal Reserve Bank of New York now estimates that 9.7 million borrowers have fallen behind on their repayments, creating a looming credit crisis that will materialize in early 2025 when these delinquencies begin appearing on credit reports.
Credit Score Impact Will Vary by Borrower Category
The impending credit score damage will not affect all borrowers equally. According to the Federal Reserve Bank of New York’s analysis, those with the highest credit ratings stand to lose the most. Superprime borrowers could see their scores plummet by an average of 171 points, while borrowers with already-low subprime scores may experience less dramatic but still significant drops averaging 87 points.
“will face significant drops in credit score once delinquencies appear on credit reports in the first half of 2025.” – Federal Reserve Bank of New York
The fallout from these credit score declines will extend far beyond the numbers themselves. Borrowers who experience significant drops will face reduced credit limits, higher interest rates on future loans, and potential difficulties securing mortgages, auto loans, or rental housing. The damage from these delinquencies will persist on credit reports for seven years, creating long-term financial obstacles for affected individuals.
Education Department Changes and Mitigation Efforts
As millions of borrowers struggle with resuming payments, the Department of Education is undergoing significant operational changes. The department is scaling back operations dramatically, cutting nearly half of its workforce with plans to eventually dissolve and shift oversight responsibilities to individual states. This restructuring comes at a critical time when borrowers need more support, not less.
“Given these estimates, we expect to see more than nine million student loan borrowers face substantial declines in credit standing over the first quarter of 2025.” – Federal Reserve Bank of New York
In an effort to mitigate the financial strain on borrowers, the Education Department has reopened online applications for several income-driven repayment plans. These programs can substantially reduce monthly payment obligations by tying them to the borrower’s income and family size. However, the Biden administration’s newer SAVE plan remains unavailable for new applications. Financial experts recommend borrowers contact their loan servicers immediately to explore available options before their accounts fall further behind.
Sources:
- Almost 10 Million Student Loan Borrowers at Risk of Significant Credit Score Drops, Fed Warns
- 9 million student loan borrowers are about to see their credit scores drop
