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Credit Score Impacts from Past Due Student Loan Payments



Student Loan Balance and Repayment Trends Since the Pandemic Disruption

Summary:

In these  companion posts from the New York Federal Reserve, the authors  highlighted how the pandemic and subsequent policy actions disrupted trends in the growth of student loan balances, the pace of repayment, and the classification of delinquent loans and  also how these changes affected the credit scores of student loan borrowers and how the return of negative reporting of past due balances will impact the credit standing of student loan borrowers. The authors estimate that more than nine million student loan borrowers will face significant drops in credit score once delinquencies appear on credit reports in the first half of 2025. 

Commentary:

As a  disproportionate number of student loan borrowers had prior delinquencies — indicating a high risk of re-default now that protections have lapsed —  from a bankruptcy perspective, this is the canary in the credit coal mine. These borrowers are not just behind on student loans; they are likely carrying correlated financial stress: credit cards, car loans, and medical debt. Filing a bankruptcy may make payment of those student loans affordable by eliminating other debt and may, depending on the continuation of the Department of Justice Student Loan guidance regarding stipulations of dischargeability, offer permanent relief.

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