Why Millions of Student Borrowers Could See a Big Drop in Their Credit Scores - Your Money Briefing

Wall Street Journal

02-04-2025

More than 9 million student-loan borrowers could see a decline in their credit scores in the first half of the year, according to the Federal Reserve Bank of New York. Wall Street Journal reporter Oyin Adedoyin joins host Ariana Aspuru to discuss what you should do if you are at risk.
Full Transcript
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Ariana Aspuru: Hey, Your Money Briefing listeners, this is Ariana Aspuru. Here at YMB, we're all about bringing you important personal finance and career news. We're working on making some changes to the show and we want to hear from you. Our question today is, what kinds of life issues, related to money, do you want to hear more about? If you're listening on Spotify, look for our poll under the episode description, or you can send us an email to [e-mail], that's Y-M-B at W-S-J dot com. Now onto the show. Here's Your Money Briefing for Wednesday, April 2nd. I'm Ariana Aspuru for the Wall Street Journal. Now that pandemic-era protections are over, more than 9 million student loan borrowers could see their credit scores tank.
Oyin Adedoyin: We reported that about 43% of borrowers, who owe payments on federal student loans, hadn't resumed making them. And that was according to an analysis of government data by VantageScore, a credit score provider. So that's millions of people who are either seeing that their credit scores are dropping pretty dramatically, or on track to see those drops in the coming months.
Ariana Aspuru: We'll talk with Wall Street Journal reporter, Oyin Adedoyin, about what borrowers need to know if they're at risk. That's after the break. The pause on student loan payments helped borrowers' credit scores for years, but that's over and they're now in jeopardy. Wall Street Journal reporter, Oyin Adedoyin, joins me to talk about it. Oyin, you reported that student loan delinquency rates have hit a new high. What exactly is driving this surge?
Oyin Adedoyin: It's a host of things. So for student loan borrowers, many of them haven't had to pay for their student loans in years. First, the pandemic hit, which caused there to be a pause on student loan repayments, then the Biden administration released a host of policies aimed at making student loans more affordable, lowering monthly payments for borrowers, and for some borrowers, pausing those payments altogether. So earlier this year, the education department had to start reporting delinquent student loans to credit bureaus, and that is what is causing this drop in credit scores for borrowers.
Ariana Aspuru: So how long has it been since loan payments have resumed? How long has it taken for that to hit people's credit scores?
Oyin Adedoyin: The pandemic-era of relief on student loans was extended in 2022. And then in 2023, borrowers were placed in a 12-month on-ramp period. So that meant that they could start paying their student loans, but if for some reason they missed a payment or they didn't have the money that month, it wouldn't negatively affect their credit score. Now, in the fall of last year, that is when the 90-day clock started, before the education department had to start reporting those delinquent loans to the credit bureaus. And student loans are really interesting because they don't get reported when they're 30 days late or 60 days late, they only get reported when they're 90 days late. So by then you would've missed at least three payments.
Ariana Aspuru: Let's talk about the numbers. I want to know what kind of credit score drops are we seeing?
Oyin Adedoyin: So the interesting thing about this is that people with higher credit scores get hit the worst when they have a delinquency for their student loans. For example, those with a credit score of 760 or above, were expected to see an average credit score decline of 171 points after student loan delinquency. By comparison, those with credit scores of less than 620, were only expected to see an average drop of 87 points. And those are estimates from the New York Fed.
Ariana Aspuru: How many borrowers are being affected by this?
Oyin Adedoyin: More than 9 million student loan borrowers are set to see their credit scores drop in the first half of this year, and that's according to the Federal Reserve Bank of New York. We reported that about 43% of borrowers, who owe payments on federal student loans, hadn't resumed making them. And that was according to an analysis of government data by VantageScore, a credit score provider. So that's millions of people who are either seeing that their credit scores were dropping pretty dramatically, or on track to see those drops in the coming months.
Ariana Aspuru: And you mentioned in your story that past-due balances are now higher than they were before the pandemic. Why is that?
Oyin Adedoyin: Before the pandemic, the share of past-due balances had hovered near 14% throughout 2019, and that's because the pause on payments also led to a pause on delinquency reports. So a lot of people saw a boost in credit scores. A lot of people during the pandemic also benefited from stimulus payments, and so people were actually able to maybe pay down debt that they owed. And so overall credit health looked a lot better in the pandemic. And after payments resumed, the volume of past-due loans quickly returned back to pre-pandemic levels. And today it's reached a new high of 15.6%. So that means more than 250 billion in delinquent debt held by 9.7 million borrowers. And the people who I spoke to said this was a time for reprioritizing for them. They knew that their student loan payments weren't going to be counted, and so they said, "Let me pay down this mortgage debt, or save up for a car, or pay down my credit card debt." So they were basically shifting their priorities and putting student loans on the back.
Ariana Aspuru: What's the easiest way for someone who has student loans and wants to make sure that their credit doesn't get hit by accidentally missing them?
Oyin Adedoyin: Interestingly enough, a lot of borrowers found out this was happening because they had apps like Credit Karma or CreditWise already on their phones. So people today actually have easier access to information like their credit score. Most people's banks have free credit checking services, so you can see every time you check your banking app, what your credit score is. And a lot of people have those notifications already set, and that's something that financial advisors do recommend you keep your notifications on for your credit score so that you know when there's a change. And then you can see in your credit report why that change is happening.
Ariana Aspuru: If this has hit your credit score, what can you do? Can you dispute it?
Oyin Adedoyin: Credit experts say that if you are experiencing this, the first thing you should do is pay that overdue balance. If there is an error in the credit report, like it's not accurate, you did make that payment and you have the paperwork to back it up, then you should definitely dispute it. But if it is accurate, a dispute may not always work. Credit experts say that you should contact your student loan servicer and try to get placed in a forbearance or a deferment on your loan. So that means that you're not going to be charged that monthly fee, especially if you don't have the income to support it. Student loans are really unique because you can't get rid of them with bankruptcy, they're pretty sticky in that way. And a delinquency for student loans in your credit report could last for up to seven years. So credit experts are really encouraging borrowers not to ignore it and wait for it to go away.
Ariana Aspuru: Is this something that we've ever seen in the past, when it comes to student loan payments?
Oyin Adedoyin: Well, the volume of past-due loans have returned to and exceeded pre-pandemic levels. So this is something of a record high when it comes to past-due student loan balances, and we're still waiting to see what long-term effects this may have. But this does stand to have pretty significant economic impacts. It could lead to a chilling effect on spending, or big ticket purchases for young people in their 20s and 30s.
Ariana Aspuru: That's WSJ reporter, Oyin Adedoyin. And that's it for Your Money Briefing. This episode was produced by me, with supervising producer, Melony Roy. Additional help from Dalvin Brown. I'm Ariana Aspuru for the Wall Street Journal. Thanks for listening.