Advertiser Disclosure

Why Are Credit Scores Of Student Loan Borrowers Dropping Up To 200 Points?

Elite Personal Finance

Last Update: March 11, 2025 • Financial News •

Across the nation, many students, known as borrowers, have reported seeing their credit scores drop after student loan providers started reporting delinquencies to the three credit bureaus—Equifax, Experian, and TransUnion. Some have reported scores dropping by as much as 200 points.

According to The Wall Street Journal, roughly 43% of federal student loan borrowers have not restarted payments, which is hurting their ability to secure other lines of credit, such as auto loans, mortgages, and home equity.

The results are clear when it comes to paying off student debt on time.

According to VantageScore, borrowers resuming their student loan payments could experience credit score increases of up to eight points on average. However, once missed payments are reported to the three Nationwide Credit Reporting Agencies (NCRAs), estimated score decreases could range between 49 and 82 points.

From mid-2023 to 2024, under the Biden administration, student loan borrowers enjoyed a year-long on-ramp for resuming payments, a benefit introduced due to the COVID-19 pandemic. Under this mandate, any missed payments on federal student loans would not be reported to Equifax, Experian, and TransUnion until a 90-day delinquency threshold was reached.

This policy had far-reaching consequences. For example, roughly a third of consumers who had not made payments since the end of the federal student loan forbearance remained behind on their payments, making the program essential.

Remember that payment history constitutes 35% of your FICO score, with missed payments typically reported after being 30 days late to one or more of the three credit reporting bureaus. According to the FICO Blog “those with higher scores are likely to experience the greatest impact to their score from a new 90+ day delinquency being reported, while those with lower FICO Scores will likely see a smaller impact.”

According to TransUnion, paying off student loan accounts can temporarily lower your credit score since it reduces the average age of your active credit accounts. The average age of your accounts makes up 15% of your FICO score, meaning that older credit accounts generally contribute to a higher credit score.

In short, FICO credit scores are based on a point system ranging from 300 to 850. The five key factors used to calculate your credit score include payment history, credit utilization ratio, length of credit history, average age of accounts, and credit mix. A lower score makes it harder to obtain credit with favorable APRs, repayment terms, and fee structures.

For a long time, the impact of student loan defaults on credit scores has been a hot topic on Reddit. For example, in this ongoing Reddit thread, users discuss everything from identity theft concerns to how high student loan balances can increase credit utilization and lower credit scores. A key recommendation is to maintain a healthy debt-to-income ratio and avoid using more than 30% of your available credit.

Another point of contention is that transferring student loans to different servicers can also temporarily affect credit scores due to changes in credit history and potential account closures.

Additionally, borrowers in Income-Based Repayment (IBR) or Public Service Loan Forgiveness (PSLF) programs may still see their credit scores impacted by high balances, even if they are making on-time payments. Credit utilization accounts for 30% of a FICO score.

In September 2024, the Department of Education, under the Trump administration, chose not to enforce a required 12-month reprieve for student loan borrowers struggling to make repayments. The reprieve had initially promised that no delinquent accounts would be reported to credit agencies. However, that benefit ended on September 30, 2024.

Three months later, loan servicers began reporting delinquent payments to credit bureaus, and loans officially went into default once payments were not made for nine months. At that point, borrowers had the option of applying for deferment to temporarily pause their student loan payments. However, interest continued to accrue, further deepening their debt burden.

0 Shares

MEET THE AUTHOR

Elite Personal Finance

Profile

Recent posts

Why Are Credit Scores Of Student Loan Borrowers Dropping Up To 200 Points?

Trump to Block Student Loan Forgiveness for ‘Anti-American’ Groups

Are Student Loans in Danger if The Education Department Shuts Down?

Medical Debts Out of Credit Reports

DOGE Blocked from Accessing US Education Department Data

Recommended Articles

Debt

Why Are Credit Scores Of Student Loan Borrowers Dropping Up To 200 Points?

EPF March 11, 2025

Debt

Trump to Block Student Loan Forgiveness for ‘Anti-American’ Groups

EPF March 11, 2025

Debt

Are Student Loans in Danger if The Education Department Shuts Down?

EPF March 8, 2025

AS SEEN ON