Student loan defaults hit credit scores

[UNITED STATES] The national average credit score in the United States has experienced a decline, primarily attributed to a resurgence in student loan delinquencies. Following the resumption of federal student loan payments in October 2024, many borrowers have faced challenges in meeting their obligations, leading to an increase in delinquencies that are now impacting credit scores.

As of February 2025, the national average FICO credit score stood at 715, marking a slight decrease from the previous month and a more significant drop from the previous year. This decline is largely due to the reappearance of student loan delinquencies on credit reports after a hiatus during the COVID-19 pandemic. The "on-ramp" period, which provided a grace period for borrowers, ended on September 30, 2024, removing protections against negative credit reporting for missed payments.

The Department of Education reported that as of early March 2025, more than 7.2 million borrowers had missed at least one payment since the restart, with nearly 3 million accounts already flagged as delinquent. This sharp rise in missed payments has overwhelmed some loan servicers, leading to long wait times and delayed assistance for struggling borrowers. Consumer advocates argue that many borrowers were unprepared for the transition back into repayment, pointing to insufficient outreach and support.

In parallel, a recent report from the Consumer Financial Protection Bureau (CFPB) highlighted a concerning trend: a disproportionate number of delinquencies are concentrated among lower-income households and first-generation college graduates. These groups often lack generational wealth or financial safety nets, making them especially vulnerable to economic shocks. The CFPB urged lenders and policymakers to implement more targeted support strategies to prevent long-term financial harm.

Impact of Student Loan Delinquencies

Research indicates that missed student loan payments can lead to substantial reductions in credit scores. For instance, a single missed payment can decrease a credit score by up to 100 points, and defaults can result in even more significant drops. These delinquencies are now being reported to credit bureaus, affecting the credit scores of millions of Americans.

The timing of the credit score decline is particularly sensitive, coinciding with broader economic uncertainty. Interest rates remain elevated, inflation has shown signs of resurgence, and consumer debt levels continue to rise. Together, these forces create a more challenging environment for individuals already struggling to regain financial stability after the pandemic. Analysts warn that unless student loan repayment policies evolve, the burden on household credit health could intensify.

Broader Economic Implications

The increase in student loan delinquencies has broader economic consequences. As credit scores decline, individuals may face higher interest rates on loans, reduced access to credit, and challenges in securing housing or employment opportunities that require credit checks. Additionally, the strain on borrowers' finances can lead to decreased consumer spending, further impacting the economy.

Some lawmakers have begun proposing legislative responses aimed at mitigating the impact. A bipartisan group in Congress recently introduced the "Borrower Relief Act," which would temporarily reinstate limited protections against credit damage for first-time delinquent borrowers. While the bill has yet to gain significant momentum, it reflects growing awareness among policymakers of the credit crisis unfolding among student loan holders.

Expert Insights

Dr. Rikard Bandebo, Chief Strategy Officer at VantageScore, emphasizes the importance of timely student loan payments in maintaining a healthy credit score. He notes that missed payments can have a layered effect, limiting consumers’ ability to meet other debt obligations and hindering future access to credit.

Moving Forward: Strategies for Borrowers
Borrowers are encouraged to explore repayment options available through studentaid.gov and to communicate proactively with loan servicers to avoid delinquencies. Maintaining consistent payment habits and seeking assistance when needed can help mitigate the negative impact on credit scores and financial well-being.