Associated Press, by Cora Lewis
NEW YORK (AP) – Millions of Americans see their credit scores as they resumed with reference to the US government missed out on student loan payments for debt collection.
After 90 days of non-payment, the student loan servicer will report accounts to the main credit bureau of late or past assignments. Therefore, delays in paying your loan can have a serious impact on your individual’s credit rating, just like an individual’s bankruptcy filing.
A low credit score makes it difficult and more expensive to get auto loans, mortgages, credit cards, auto insurance and other financial services at a time when inflation, high interest rates and layoffs put a strain on some consumer resources.
The Federal Reserve Bank of New York reported that 2.2 million student loan recipients had 100 points drops in scores, with another 1 million people having 150 points or more drops in the first three months of 2025.
A steep slope rejects the difference between manageable credit card and unmanageable interest rates, or the possibility of accepting or rejecting an application to rent an apartment.
The U.S. Department of Education suspended federal student loan payments in March 2020, providing borrowers relief during the economic turmoil of the coronavirus pandemic.
Payments were technically resumed in 2023, but the Biden administration provided a one-year grace period that ended in October 2024. Last month, the Trump administration resumed its unpaid student loan collection process and planned to grab wage and tax refunds if the loan continues to fall behind.
According to the Federal Reserve Bank of New York, about one in four people with student loan accounts were more than 90 days behind their payments at the end of March.
One of them was Kat Hancheong (33), who works in marketing and higher education in Detroit. Hancheong said her score has dropped by 57 points as a result of her falling behind this year. That put her score below 600, or subprime.
When Hancheong received the statement from the loan servicer, her expected monthly payments were higher than before the pandemic-era suspension, despite her signing up on a repayment plan that took into account the borrower’s full financial situation.
“They said I had to pay $358 this month,” she said. “I can’t pay for it…but it’s not uncommon in the world we live in now.”
Hanchon said that before considering spending money on the loan, he must prioritize paying medical expenses for dental crowns, root canals and endoscopy. Her housing situation is safe for now, but she is worried that her annual credit card rate will fluctuate.
Lenders, landlords, credit card companies, employers and utility companies all look to consumer credit scores to measure the likelihood that borrowers can make recurring payments. A higher score usually results in lower interest rates and more favorable loan terms, while a lower score makes it difficult to access credits.
The education department says borrowers should receive an invoice from lenders three weeks before payments expire, but some people have reported that they have not been notified.
Consumer advocates say high waiting times for calls with loan servicers and the Ministry of Education’s layoffs are likely to contribute to service delays.
Dom Holmes, 28, who works for a nonprofit in Manheim, Pennsylvania, said he woke up in early May and found his credit score dropped 60 or 70 points.
“All of a sudden, I was in arrears despite never receiving a notification,” he said.
Holmes has begun a process of appealing to reduce his credit score, he said. He added that he is considering the move for professional reasons and is worried that it might be difficult to rent a place to live with the score.
“It’s an ideal time to start a family and buy a home,” he said. “When you destroy me financially, what is the possibility that I can do that, is it viable for me?”
Holmes, the first person in his college-graduated family, said he still has excellent parents and loans.
He graduated in 2019 shortly before the pandemic and said he can see how his generation is having difficulty paying off debt.
“The world really stopped when I was in the workforce,” Holmes said. “For a long time, things have been really bad for a lot of people. We’re still coming out of there. And all of a sudden, the Switch came back overnight.”
Kevin King, vice president of credit risk at Data and Analytics Company LexisNexis, said he hopes the impact of the reopened student loan collection will ripple the US economy in the coming months.
“There were years of years when paying student loans was probably a bad financial strategy,” he said. “Many consumers were confused as various governments (forgiveness policies) were passed and rejected.”
King predicts student loan payments will be higher with what is called “payment tiers” or orders made by consumers, as the government plans to use “lovers” such as wage decorations and tax refund seizures.
“What bill will you pay first and at all?” the king said. “Historically, student loans are really under the list. But governments are rather offensive when pursuing payment activities in ways that could shift tiers. Consumers may be willing to go to arrears or default on things like credit cards or installation loans.”
A New York Federal Reserve survey found that borrowers over the age of 40 are most likely to be postponed for their loans.
Andrew McCall, 58, of Boise, Idaho, said he has about $30,000 left in his unpaid loan due to his computer science degree. He says he can’t afford monthly payments in the $250-300 range and worries about what the blows in his credit score mean for every area of his life.
“The fact that this economy is driven by debt is the fact that my score is the most important thing no matter what financial decisions I make, other than going to the grocery store,” he said. “My car, my home… your credit rating will be a social stratifier.”
The Associated Press is supported by the Charles Schwab Foundation for education and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.
