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Miami Herald
2 days ago
- Business
- Miami Herald
What to do if your credit score is harmed by the restart of federal student loan collections
What to do if your credit score is harmed by the restart of federal student loan collections There are many benefits that come with a good credit score: better rates on car and homeowners insurance, more housing options, and the ability to snag credit cards with the best rewards, just to name a few. But soon millions of student loan borrowers may have to say goodbye to some of those perks. More than 9 million student loan borrowers will face "significant drops" in their credit scores once delinquencies appear on their credit reports in the first half of 2025, according to a recent report from the Federal Reserve Bank of New York. The delinquencies come as a result of the Education Department restarting collection efforts on federal student loans that are in default after having paused those efforts for years. If you see your credit score take a tumble, you'll likely be wondering what to do next. Current, a consumer fintech banking platform, shares everything you need to know about why scores are dropping and what steps you can take to start bumping your score back up. Why student loan borrowers' credit scores are dropping One of the federal government's many COVID-19 pandemic-era relief efforts was the pause on federal student loan payments - a pause that was extended several times, giving borrowers room to breathe over the last few years. In 2023, borrowers were given a yearlong "on-ramp" period during which late or missed payments didn't lead to a hit on their credit reports. That period expired in September, and, because payments need to be at least 90 days late before falling into delinquency, we're starting to see the effects on delinquency now. "The first batch of past due student loans were reported in the first quarter of 2025, resulting in a large jump in seriously delinquent borrowers," Daniel Mangrum, research economist at the New York Fed, notes in a recent report. More than 2.2 million of those newly delinquent borrowers saw their credit scores plunge more than 100 points, and more than 1 million saw decreases of at least 150 points. What to do if your credit score is harmed The first step to getting back on track when it comes to your student loans and credit score is to get a good grasp of your current situation, says Anjali Jariwala, a financial advisor and founder of Fit Advisors in Redondo Beach, California. She says to visit the Federal Student Aid website and pull a report from the National Student Loan Data System, which can give you a full history of your student loans, including outstanding balances. Then, she recommends working with a student loan consultant to fully understand your options. But there may not be much more you can do regarding your student loans beyond trying to make payments. At that point, it's time to take other steps to boost your score. Minimize revolving debts and make on-time payments If you have other debts, work on bringing those down in conjunction with paying back your student loans, says Andre Small, a financial advisor and founder of A Small Investment in Houston. That's especially important for high-interest revolving debt, such as credit cards. And while it's fine - and actually beneficial to your credit score - to have a diverse range of types of credit (say, a credit card, auto loan and mortgage on top of your student loans), it's important to make your payments on time. Maintaining a long credit history can also help give your score a bump, so instead of closing an old credit card account, consider putting a small recurring cost like a subscription service on that card. Get a higher credit limit Your credit utilization ratio, also referred to as your credit utilization rate, is a key factor that can impact your credit score. This ratio is the amount of credit you're using divided by the amount that's available to you. The lower you can get it, the better. One way to lower that ratio is to get a higher credit card limit. If you have a $1,000 limit and you spend $100, that's a 10% ratio. But if you increase that limit to $5,000, now you're looking at a 2% ratio. Banks will often alert you when you're eligible for a higher credit limit, such as if your income increases, but you can also call your credit card issuer directly and ask for a bump to your limit. However, you need to keep in mind that the higher limit doesn't mean you should go on a shopping spree. "The goal is not to increase your credit limit so you can spend more," Jariwala says. "The goal is just to get that ratio to be at that ideal level, which, for credit score purposes, is usually 10% or less." For younger consumers who may not be able to boost their credit limit, Jariwala adds that another option is to see if a parent can add you as an authorized user on their credit card, which can also help boost your credit score. Dispute any errors on your report One thing worse than taking an action that causes your credit score to fall is to have someone else hurt your credit score. With technology constantly evolving and scammers developing new and sophisticated ways to steal their victims' identities, the Federal Trade Commission received more than 1.1 million identity theft reports in 2024. That means it's more important than ever to regularly check your credit report for any activity you don't recognize and dispute any errors. You can get a free weekly report from the three major credit reporting agencies - Equifax, Experian and TransUnion - at and you can usually expect to see the results of an investigation within 30 days of filing the dispute. Use a credit builder card When evaluating secured credit cards that can help you build or repair your credit, look for the following features: The card can be used just like any other credit card. Even though it draws only from the funds available in your account, it will reliably build your credit history with every keeps track of your balance as you spend and ensures you have enough money set aside in reserved funds to cover your outstanding balance at the end of the enables you to set up automatic payments once or twice per month, as desired, paying your balance from your reserved funds with no additional action needed from provider reports your on-time payments to the three major credit bureaus to help build your credit history. This is important, as a history of on-time payments is a major factor in improving your credit score. For instance, Current's proprietary data shows that users of its secured card see an average 81-point credit score increase within six months. The result? Eventually, your credit score will start to creep up, ideally giving you more options and better interest rates when it's time to borrow money. This story was produced by Current and reviewed and distributed by Stacker. © Stacker Media, LLC.
Newsweek
14-05-2025
- Business
- Newsweek
Map Shows States Where Student Loan Delinquencies Are Highest
Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources. Newsweek AI is in beta. Translations may contain inaccuracies—please refer to the original content. Several states in the South have the highest rates of student loan delinquency, according to a map from researchers at the Federal Reserve Bank of New York. Why It Matters Roughly 5.3 million borrowers are in default on their federal student loans, while another 4 million are late in making payments. Federal student loans had not been referred for collection since March 2020, including those that were in default, because of the COVID-19 pandemic. But the Department of Education announced it would begin collection on student loans that are in default this month, including the garnishing of wages for potentially millions of borrowers. What To Know The delinquency rate for student loan balances spiked after a near five-year pause on reporting delinquent federal student loans ended, according to a report from the New York Fed. Some 7.7 percent of aggregate student debt was 90 or more days delinquent in the first quarter of 2025, up from less than 1 percent in the previous quarter, the report said. In a blog post, researchers estimated that 13.7 percent of borrowers—about six million Americans—had a loan that was nine or more days past due or in default in the first three months in 2025, a similar share to the same period in 2020. Researchers also calculated the borrower delinquency rate in each state after removing those who were not in repayment or had a zero dollar monthly payment. They wrote that seven states have a conditional borrower delinquency rate above 30 percent, that is, the percentage of borrowers with at least one student loan that is 90 or more days past due or in default. Those states are Mississippi (44.6 percent), Alabama (34.1 percent), West Virginia (34.0 percent), Kentucky (33.6 percent), Oklahoma (33.6 percent), Arkansas (33.5 percent), and Louisiana (31.8 percent). The states where the rate is below 15 percent are: Illinois (13.7 percent), Massachusetts (14 percent), Connecticut (14.5 percent), Vermont (14.7 percent), and New Hampshire (14.8 percent). What People Are Saying Daniel Mangrum, Research Economist at the New York Fed, said in a statement: "Transition rates into serious delinquency have leveled off for credit card and auto loans over the past year. However, the first batch of past due student loans were reported in the first quarter of 2025, resulting in a large jump in seriously delinquent borrowers." They wrote: "Millions of borrowers face steep declines in their credit standing which will increase borrowing costs or seriously limit their access to credit like mortgages and auto loans. It is unclear whether these penalties will spill over into payment difficulties in other credit products." Secretary of Education Linda McMahon said in a statement last week: "As we begin to help defaulted borrowers back into repayment, we must also fix a broken higher education finance system that has put upward pressure on tuition rates without ensuring that colleges and universities are delivering a high-value degree to students. "For too long, insufficient transparency and accountability structures have allowed U.S. universities to saddle students with enormous debt loads without paying enough attention to whether their own graduates are truly prepared to succeed in the labor market." What's Next This month, the Department of Education began involuntary collection through the Treasury Department's offset program, which withholds government payments—including tax refunds, federal salaries and other benefits—from people with past-due debts to the government. Later this summer, the department will also begin garnishing wages for borrowers in default.
Mint
14-05-2025
- Business
- Mint
Student loans key reason of highest default rate in US since 2020; adverse impact on new credit cards: Report
The share of outstanding US consumer debt that's in delinquency rose in the first quarter to the highest in five years, reflecting an end to the pandemic-era pause on reporting delinquent student loan payments on credit reports, reported Bloomberg. Some 4.3 per cent of debt was delinquent in the first three months of this year, the most since 2020 and up from 3.6 per cent in the prior quarter, the New York Fed said Tuesday in its Quarterly Report on Household Debt and Credit. Outside of student loans, however, transition to early delinquency held steady for nearly all debt types. Missing payments on federal student loans have just begun to reappear on credit reports, following a years-long payment freeze. As a result, about 8% of student debt fell into serious delinquency — or was 90 or more days late — in the first quarter, up from less than 1% a year earlier. 'Transition rates into serious delinquency have leveled off for credit card and auto loans over the past year,' Daniel Mangrum, a research economist at the New York Fed, said in a statement. 'However, the first batch of past due student loans were reported in the first quarter of 2025, resulting in a large jump in seriously delinquent borrowers.' Debt delinquency rates have been on the rise since late 2023, as consumers battled elevated inflation and high borrowing costs. Total household debt — which is primarily composed of mortgages, student loans, auto loans and credit-card balances — increased by $167 billion in the first quarter to a record $18.2 trillion. A pause on federal student loan payments gave some borrowers breathing room to pay off other debt and improve their credit scores. But now that those payments are once again being reported to credit bureaus, student loan delinquencies have returned more toward pre-pandemic levels, the New York Fed found. More than half the borrowers who are newly delinquent on student loans had subprime credit scores in the fourth quarter of last year, according to the New York Fed. But 2.4 million borrowers, or 43% of the newly delinquent, had credit scores at or above 620. 'Many would have qualified for new auto, mortgage and credit cards before those delinquencies were reported,' New York Fed researchers wrote in a blog post Tuesday. It's not clear where student loan delinquencies will go from here. While they could rise further, it's also possible that some borrowers may start making payments after seeing the student loans ding their credit report, the researchers said. In the aggregate, the researchers said household balance sheets look good. Credit card balances fell from the previous quarter, as is typical at the start of the year as people pay off debt incurred over the holidays. But auto loan balances unexpectedly declined, the first such drop since the third quarter of 2020. Even so, the share of credit card debt that is 90 or more days delinquent climbed to 12.3 per cent in the first quarter, the most since 2011. Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
Epoch Times
13-05-2025
- Business
- Epoch Times
Student Loan Delinquencies Soar as Pandemic-Era Protections Expire
Student loan delinquencies spiked in the first quarter of 2025 as the federal government resumed reporting overdue payments to credit bureaus for the first time in nearly five years, marking the end of a pandemic-era pause on repayment of student debt. The Federal Reserve Bank of New York The sudden jump follows the formal expiration of a 43-month pandemic-era pause on student loan repayments that began in March 2020 and included an additional one-year 'on-ramp' in 2023–2024 during which missed payments were not penalized. Once reporting resumed, a backlog of delinquent accounts was added to credit files, leading to the spike. 'Transition rates into serious delinquency have leveled off for credit card and auto loans over the past year,' Daniel Mangrum, Research Economist at the New York Fed, said in a statement. 'However, the first batch of past due student loans was reported in the first quarter of 2025, resulting in a large jump in seriously delinquent borrowers.' While overall delinquency rates across all household debt rose to 4.3 percent, up from 3.6 percent in the fourth quarter of 2024, the increase was driven almost entirely by student loans. Delinquency transition rates for other major categories—including mortgages, auto loans, and credit cards—remained stable. With student loan delinquency returning to pre-pandemic levels, roughly six million borrowers are now either past due or in default, representing more than 10 percent of balances, New York Fed economists Related Stories 5/7/2025 5/5/2025 The economists warned that the return of delinquencies is likely to have wide-reaching effects on borrowers' financial lives, with many already seeing sharp declines in credit scores. 'The ramifications of student loan delinquency are severe,' they wrote. 'Millions of borrowers face steep declines in their credit standing, which will increase borrowing costs or seriously limit their access to credit, like mortgages and auto loans. It is unclear whether these penalties will spill over into payment difficulties in other credit products.' Borrowers hardest hit by the resurgence in delinquencies are concentrated in Southern states, and older borrowers make up a growing share of those falling behind, the Fed noted. Meanwhile, the end of pandemic-era protections also brought the restart of involuntary debt collections—including wage garnishment and the seizure of federal benefits—for borrowers in default. The Education Department The department The restart of enforcement follows the end of President Joe Biden's push for mass student loan forgiveness, which aimed to cancel hundreds of billions in debt through executive action. That initiative was blocked in 2023 by the Supreme Court, which ruled that the administration lacked the authority to cancel loans without congressional approval. In April, Education Secretary Linda McMahon said the department had abandoned blanket loan cancellation and would instead focus on restoring repayment discipline. 'American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,' McMahon said in a statement. 'Going forward, the Department of Education, in conjunction with the Department of the Treasury, will shepherd the student loan program responsibly and according to the law, which means helping borrowers return to repayment—both for the sake of their own financial health and our nation's economic outlook.'
The Hill
13-05-2025
- Business
- The Hill
Student loan delinquencies surge back after 5-year pause
Student loan delinquencies spiked in the first few months of this year after a pandemic-era pause in reporting late payments ended, the New York Federal Reserve reported Tuesday in its quarterly household debt analysis. Serious federal student loan delinquency, marked when someone fails to pay for 90 days, surged from below 1 percent in the first quarter last year, during the five-year reporting pause, to nearly 8 percent this year as reporting resumed, the New York Fed found. The renewed addition of student loan reporting ultimately drove the nation's combined rate of delinquent consumer debt to its highest level in five years. 'Transition rates into serious delinquency have leveled off for credit card and auto loans over the past year,' Daniel Mangrum, Research Economist at the New York Fed, said in a news release. 'However, the first batch of past due student loans were reported in the first quarter of 2025, resulting in a large jump in seriously delinquent borrowers.' Delinquent borrowers will see the new data reflected in their credit reports and could face involuntary collections. The student loan delinquency rate fell below 1 percent after the federal government paused student loan repayments and delinquency tracking in 2020 at the height of the COVID-19 pandemic. Borrowers were given a one-year transition period after student loan payments technically resumed in late 2023, which protected them from some financial penalties and repayment. The delinquencies began appearing on credit reports this year, New York Fed analysts noted. 'Among borrowers who were required to make payments, nearly one in four student loan borrowers (23.7 percent) were behind on their student loans in the first quarter of 2025,' they wrote. The Fed's analysis found that student loan delinquency was most prevalent in the south, while states in the northeast tended to have lower rates. Seven states had student loan delinquency rates higher than 30 percent: Mississippi (44.6 percent), Alabama (34.1 percent), West Virginia (34.0 percent), Kentucky (33.6 percent), Oklahoma (33.6 percent), Arkansas (33.5 percent) and Louisiana (31.8 percent). Just five states had rates below 15 percent: Illinois (13.7 percent), Massachusetts (14.0 percent), Connecticut (14.5 percent), Vermont (14.7 percent) and New Hampshire (14.8 percent).
