If You're Behind on Student Loan Payments, Your Credit Score May Have Already Dropped

More than 9 million student loan borrowers could see a drop in their credit score for late or missed payments now that lenders can report delinquencies, according to the Federal Reserve Bank of New York. 

Borrowers had previously benefited from pandemic forbearance and protections that prevented loan servicers from reporting delinquent borrowers to the credit bureaus. But starting this week, lenders can again begin reporting people who are behind on payments, which could significantly impact borrowers' credit scores.

Credit scores could drop by more than 150 points for some borrowers and will likely result in "reduced credit limits, higher interest rates for new loans and overall lower credit access" for affected borrowers, according to a Federal Reserve Bank of New York report posted Tuesday.

Consumers who have student loan payments at least 90 days past due should expect an impact on their credit, if they haven't seen one already. Missed payments can remain on a borrower's credit report for up to seven years.

Though there are plenty of potential remedies to this situation for affected borrowers, they all require getting back on track with student loan repayment, whether through making up missed payments, entering an administrative forbearance or beginning to make payments on a new repayment plan. 

Why did my student loans cause my credit score to drop?

It might seem like the consequences of missed student loan payments are coming out of nowhere, but we're actually at the tail end of a long list of temporary protections put in place to help borrowers during the pandemic. 

The US Department of Education paused monthly payments on federal student loans and fixed interest rates at 0% in March 2020, and that change stayed in place through the end of September 2023. Following its pause, the Education Department gave borrowers another 12 months to get back on track with loan repayment, during which late payments still weren't reported to the credit bureaus. That period officially ended Sept. 30, 2024.

Because it takes at least 90 days of missed student loan payments before they can be reported as delinquent, servicers started reporting them to credit bureaus only at the beginning of 2025. This explains why borrowers who may not have made student loan payments since March 2020 (and potentially before that) may see credit score impacts for the first time in years.

Delinquent vs. default

When you miss a payment or pay late, your loan becomes delinquent. Though the late payment may not be reported to the credit bureaus for 90 days, the loan is still considered delinquent. If you don't make any payments for 270 days, you'll default on the loan.

If you default on your student loan, the total amount of your loan plus any accrued interest becomes immediately due. You'll also face severe credit damage, potential legal action from your loan servicer, loss of eligibility for federal student aid, and numerous other consequences.

When are payments expected to start?

They already have.

With five years passing since the original pandemic disruption for federal student loans, many borrowers may have simply let their loans fall off their radar. 

However, monthly payments on federal student loans have been due since October 2023, when the original payment pause ended. Payments were due during the 12-month on-ramp period from October 2023 to the end of September 2024, but loan servicers were told not to report late payments and defaulted loans during that time.

Simply put, federal student loan payments are due now and have been for well over a year. Recent credit score impacts are due to loan servicers finally reporting late payments to the credit bureaus for the first time in years.

What about SAVE borrowers?

If you're enrolled in the Saving for a Valuable Education repayment plan, which was blocked by the courts in February, your student loans have been placed in general forbearance and your payments are still on pause. 

Payments are expected to resume by the end of the year, but SAVE borrowers should watch for updates from their loan servicers for more information.

How to prepare for upcoming payments

If you anticipate struggling with upcoming student loan payments, you do have options.

One option is to apply for an income-driven repayment plan, which can potentially help lower your monthly payments. A revised form became available again this week after applications were temporarily paused on the US Department of Education website.

You can also apply to consolidate your loans on the federal student aid website. Consolidating your loans lets you combine multiple loans into a single monthly payment.

How to get back on track if you're already behind on your student loans

If you've seen your credit score drop in the last few weeks, there are a few steps you can take to begin rebuilding your credit. Unfortunately, any missed payments already on your credit report will remain there for seven years -- but that doesn't mean you can't start working to get your score up.

Every path to repairing your credit requires time and effort. Here's what you can do now.

Enter an administrative forbearance

Requesting a forbearance for federal student loans may let you skip monthly payments or make a smaller monthly payment, but it only buys you time (usually up to 12 months at a time for a total of three years). However, interest still accrues on student loans while they're in forbearance, so this option can ultimately cost you more money.

Pay off the defaulted loan in full

Though challenging, if you have the funds to pay off your remaining loan balances, this can stop more negative information from being added to your credit report and give you the chance to rebuild your score. 

We recognize that this option won't be realistic for the majority of borrowers, but even if you can afford to put extra money toward your loans, it'll leave you in a better position down the line.

Consolidate your federal student loans with a Direct Consolidation Loan

This option can help you get your loans out of default and back on track. Before you consolidate, you must agree to repay your loan with an eligible income-driven repayment plan or make three consecutive, voluntary, on-time and full monthly payments on the defaulted loan.

Rehabilitate your student loans in default

Rehabilitating your student loans requires you to work with your loan servicer, and the steps you'll take to complete the process depend on the type of federal student loans you have. 

Once your student loans have been rehabilitated, the defaulted status will be removed from your credit reports and collections activities will stop. However, late payments on student loans will still appear on your credit reports.

How to rebuild your credit if you've seen a drop

Once you have a plan to repay your student loans, the following steps can help you rebuild your credit over time:

• Check your credit reports for errors: Look at your credit reports with all three credit bureaus -- Experian, Equifax and TransUnion -- to search for errors. If you find incorrect information that could be hurting your score, you can take steps to formally dispute it. You can access your credit reports for free at AnnualCreditReport.com.
• Look for other easy ways to build credit: If your credit score is poor (FICO score of 579 or below) or fair (FICO scores from 580 to 669) and you can't seem to get approved for traditional forms of credit, look into secured credit cards and credit-builder loans. Both financial products are easy to get approved for and report to the credit bureaus to help build credit over time.
• Make all monthly payments on time: Making consistent on-time payments on student loans, credit cards and other lines of credit can help your credit score more than anything else. Your payment history contributes 35% to your FICO score, which means it's one of the most important factors making up your score.
• Pay down existing debt: Your credit utilization ratio -- how much of your total credit you're using at one time -- makes up another 30% of your FICO score. If you have revolving debt like credit card debt, paying it down as much as possible can help you maintain a healthy score.