Latest news with #Hanchon
Los Angeles Times
16 hours ago
- Business
- Los Angeles Times
Credit scores decline for millions as US student loan collections restart
NEW YORK — Millions of Americans are seeing their credit scores suffer now that the U.S. government has resumed referring missed student loan payments for debt collection. After 90 days of non-payment, student loan servicers report delinquent, or past-due, accounts to major credit bureaus, which use the information to recalculate the borrower's score. Falling behind on loan payments therefore can affect an individual's credit rating as severely as filing for personal bankruptcy. A lower credit score makes it harder or more expensive to obtain car loans, mortgages, credit cards, auto insurance and other financial services at a time when inflation, high interest rates, and layoffs have strained the resources of some consumers. The Federal Reserve Bank of New York reported that in the first three months of 2025, 2.2 million student loan recipients saw their scores drop by 100 points, and an additional 1 million had drops of 150 points or more. Declines that steep may mean the difference between a manageable credit card interest rate and an unmanageable one, or approval or rejection of an application to rent an apartment. The U.S. Department of Education paused federal student loan payments in March 2020, offering borrowers relief during the economic chaos of the coronavirus pandemic. Though payments technically resumed in 2023, the Biden administration provided a one-year grace period that ended in October 2024. Last month, the Trump administration restarted the collection process for outstanding student loans, with plans to seize wages and tax refunds if the loans continue to go unpaid. According to the Federal Reserve Bank of New York, about 1 in 4 people with student loan accounts were more than 90 days behind on payments at the end of March. Kat Hanchon, 33, who works in marketing and higher education in Detroit, was one of them. Hanchon said her score dropped by 57 points as a result of her loans falling delinquent this year. That put her score below 600, or subprime. When Hanchon received her statement from her loan servicer, her expected monthly payments were higher than before the pandemic-era pause, even though she had enrolled in a repayment plan that takes a borrower's full financial situation into account. 'They said I now have to pay $358 per month,' she said. 'I'm not going to be able to pay that. ... But I'm not unusual in the world we're living in right now.' Hanchon said she's had to prioritize paying medical expenses — for a dental crown, a root canal, and an endoscopy — before she'll be able to consider putting money toward the loans. While her housing situation is secure for the moment, she worries about the annual percentage rate for her credit cards fluctuating. Lenders, landlords, credit card companies, employers and utility companies all look to consumers' credit scores to gauge the likelihood of borrowers being able to make regular payments. A higher score typically results in lower interest rates and more favorable loan terms, while a lower score makes it harder to access credit. The Education Department has said borrowers should receive bills from lenders three weeks before any payments are due, but some people have reported that they have not been notified. Wait times for calls with loan servicers have been high, and layoffs at the Department of Education have also likely contributed to delayed service, consumer advocates say. Dom Holmes, 28, who works for a nonprofit in Manheim, Pennsylvania, said he woke up in early May to find his credit score had dropped 60 or 70 points overnight. 'All of a sudden I was delinquent, even though I'd never received notice,' he said. Holmes has begun the process of appealing the reduction of his credit score, he said. He's been considering a move for professional reasons, and added that he's concerned it could be tough to rent a place to live with his score as it stands. 'I'm at the ideal age where I should be starting a family and buying a home,' he said. 'When you destroy me financially, what are the chances I'm able to do that and that's viable for me?' Holmes, who was the first person in his family to graduate from college, said he still has some outstanding Parent Plus loans, which he intends to keep paying down so that his parents' credit scores aren't affected. He graduated in 2019, shortly before the pandemic, and said he can see how his generation might have difficulty paying off the debt. 'Right as I was entering the workforce, the world really stopped,' Holmes said. 'Things were really bad for a lot of people for a long time. We're still coming out of that. And all of a sudden, the switches got turned back on overnight.' Kevin King, vice president of credit risk at data and analytics company LexisNexis, said he expects the effects of the resumed student loan collections to begin rippling through the U.S. economy in the coming months. 'There were a number of years where it was probably a bad financial strategy to be making student loan payments,' he said. 'A lot of consumers were confused as various government (policies of forgiveness) were passed and overruled.' King predicts that student loan payments will move higher in the so-called 'payment hierarchy,' or the order in which consumers make payments, since the government plans to use 'levers to compel' such as wage garnishment and the seizing of tax refunds. 'Which bill do you pay first, second, and not at all?' King said. 'Historically, student loans are really far down the list. But the government's being pretty aggressive here in pursuing payment activity in a way that may shift the hierarchy. Consumers might be more willing to go delinquent or default on something like a credit card or installment loan.' The Federal Reserve of New York study also found that borrowers ages 40 and older were most likely to be delinquent on their loans. Andrew McCall, 58, of Boise, Idaho, said he has about $30,000 remaining in outstanding loans from earning his computer science degrees. He said he can't afford his monthly payments, which are in the $250-300 range, and worries what a hit to his credit score might mean for all areas of his life. 'The fact that this economy is driven by debt to begin with causes my score to be paramount no matter what financial decisions I'm making, outside of going to the grocery store,' he said. 'My car, my house... Your credit rating becomes a social stratifier.' Lewis writes for the Associated Press.
17 hours ago
- Business
Credit scores decline for millions as US student loan collections restart
NEW YORK -- Millions of Americans are seeing their credit scores suffer now that the U.S. government has resumed referring missed student loan payments for debt collection. After 90 days of non-payment, student loan servicers report delinquent, or past-due, accounts to major credit bureaus, which use the information to recalculate the borrower's score. Falling behind on loan payments therefore can affect an individual's credit rating as severely as filing for personal bankruptcy. A lower credit score makes it harder or more expensive to obtain car loans, mortgages, credit cards, auto insurance and other financial services at a time when inflation, high interest rates, and layoffs have strained the resources of some consumers. The Federal Reserve Bank of New York reported that in the first three months of 2025, 2.2 million student loan recipients saw their scores drop by 100 points, and an additional 1 million had drops of 150 points or more. Declines that steep may mean the difference between a manageable credit card interest rate and an unmanageable one, or approval or rejection of an application to rent an apartment. The U.S. Department of Education paused federal student loan payments in March 2020, offering borrowers relief during the economic chaos of the coronavirus pandemic. Though payments technically resumed in 2023, the Biden administration provided a one-year grace period that ended in October 2024. Last month, the Trump administration restarted the collection process for outstanding student loans, with plans to seize wages and tax refunds if the loans continue to go unpaid. According to the Federal Reserve Bank of New York, about 1 in 4 people with student loan accounts were more than 90 days behind on payments at the end of March. Kat Hanchon, 33, who works in marketing and higher education in Detroit, was one of them. Hanchon said her score dropped by 57 points as a result of her loans falling delinquent this year. That put her score below 600, or subprime. When Hanchon received her statement from her loan servicer, her expected monthly payments were higher than before the pandemic-era pause, even though she had enrolled in a repayment plan that takes a borrower's full financial situation into account. 'They said I now have to pay $358 per month," she said. "I'm not going to be able to pay that. ... But I'm not unusual in the world we're living in right now." Hanchon said she's had to prioritize paying medical expenses — for a dental crown, a root canal, and an endoscopy — before she'll be able to consider putting money toward the loans. While her housing situation is secure for the moment, she worries about the annual percentage rate for her credit cards fluctuating. Lenders, landlords, credit card companies, employers and utility companies all look to consumers' credit scores to gauge the likelihood of borrowers being able to make regular payments. A higher score typically results in lower interest rates and more favorable loan terms, while a lower score makes it harder to access credit. The Education Department has said borrowers should receive bills from lenders three weeks before any payments are due, but some people have reported that they have not been notified. Wait times for calls with loan servicers have been high, and layoffs at the Department of Education have also likely contributed to delayed service, consumer advocates say. Dom Holmes, 28, who works for a nonprofit in Manheim, Pennsylvania, said he woke up in early May to find his credit score had dropped 60 or 70 points overnight. 'All of a sudden I was delinquent, even though I'd never received notice,' he said. Holmes has begun the process of appealing the reduction of his credit score, he said. He's been considering a move for professional reasons, and added that he's concerned it could be tough to rent a place to live with his score as it stands. 'I'm at the ideal age where I should be starting a family and buying a home,' he said. 'When you destroy me financially, what are the chances I'm able to do that and that's viable for me?' Holmes, who was the first person in his family to graduate from college, said he still has some outstanding Parent Plus loans, which he intends to keep paying down so that his parents' credit scores aren't affected. He graduated in 2019, shortly before the pandemic, and said he can see how his generation might have difficulty paying off the debt. 'Right as I was entering the workforce, the world really stopped,' Holmes said. 'Things were really bad for a lot of people for a long time. We're still coming out of that. And all of a sudden, the switches got turned back on overnight.' Kevin King, vice president of credit risk at data and analytics company LexisNexis, said he expects the effects of the resumed student loan collections to begin rippling through the U.S. economy in the coming months. 'There were a number of years where it was probably a bad financial strategy to be making student loan payments,' he said. 'A lot of consumers were confused as various government (policies of forgiveness) were passed and overruled.' King predicts that student loan payments will move higher in the so-called 'payment hierarchy,' or the order in which consumers make payments, since the government plans to use 'levers to compel" such as wage garnishment and the seizing of tax refunds. 'Which bill do you pay first, second, and not at all?' King said. 'Historically, student loans are really far down the list. But the government's being pretty aggressive here in pursuing payment activity in a way that may shift the hierarchy. Consumers might be more willing to go delinquent or default on something like a credit card or installment loan.' The Federal Reserve of New York study also found that borrowers ages 40 and older were most likely to be delinquent on their loans. Andrew McCall, 58, of Boise, Idaho, said he has about $30,000 remaining in outstanding loans from earning his computer science degrees. He said he can't afford his monthly payments, which are in the $250-300 range, and worries what a hit to his credit score might mean for all areas of his life. 'The fact that this economy is driven by debt to begin with causes my score to be paramount no matter what financial decisions I'm making, outside of going to the grocery store,' he said. 'My car, my house... Your credit rating becomes a social stratifier.' The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.
The Hill
a day ago
- Business
- The Hill
Credit scores decline for millions as US student loan collections restart
NEW YORK (AP) — Millions of Americans are seeing their credit scores suffer now that the U.S. government has resumed referring missed student loan payments for debt collection. After 90 days of non-payment, student loan servicers report delinquent, or past-due, accounts to major credit bureaus, which use the information to recalculate the borrower's score. Falling behind on loan payments therefore can affect an individual's credit rating as severely as filing for personal bankruptcy. A lower credit score makes it harder or more expensive to obtain car loans, mortgages, credit cards, auto insurance and other financial services at a time when inflation, high interest rates, and layoffs have strained the resources of some consumers. The Federal Reserve Bank of New York reported that in the first three months of 2025, 2.2 million student loan recipients saw their scores drop by 100 points, and an additional 1 million had drops of 150 points or more. Declines that steep may mean the difference between a manageable credit card interest rate and an unmanageable one, or approval or rejection of an application to rent an apartment. The U.S. Department of Education paused federal student loan payments in March 2020, offering borrowers relief during the economic chaos of the coronavirus pandemic. Though payments technically resumed in 2023, the Biden administration provided a one-year grace period that ended in October 2024. Last month, the Trump administration restarted the collection process for outstanding student loans, with plans to seize wages and tax refunds if the loans continue to go unpaid. According to the Federal Reserve Bank of New York, about 1 in 4 people with student loan accounts were more than 90 days behind on payments at the end of March. Kat Hanchon, 33, who works in marketing and higher education in Detroit, was one of them. Hanchon said her score dropped by 57 points as a result of her loans falling delinquent this year. That put her score below 600, or subprime. When Hanchon received her statement from her loan servicer, her expected monthly payments were higher than before the pandemic-era pause, even though she had enrolled in a repayment plan that takes a borrower's full financial situation into account. 'They said I now have to pay $358 per month,' she said. 'I'm not going to be able to pay that. … But I'm not unusual in the world we're living in right now.' Hanchon said she's had to prioritize paying medical expenses — for a dental crown, a root canal, and an endoscopy — before she'll be able to consider putting money toward the loans. While her housing situation is secure for the moment, she worries about the annual percentage rate for her credit cards fluctuating. Lenders, landlords, credit card companies, employers and utility companies all look to consumers' credit scores to gauge the likelihood of borrowers being able to make regular payments. A higher score typically results in lower interest rates and more favorable loan terms, while a lower score makes it harder to access credit. The Education Department has said borrowers should receive bills from lenders three weeks before any payments are due, but some people have reported that they have not been notified. Wait times for calls with loan servicers have been high, and layoffs at the Department of Education have also likely contributed to delayed service, consumer advocates say. Dom Holmes, 28, who works for a nonprofit in Manheim, Pennsylvania, said he woke up in early May to find his credit score had dropped 60 or 70 points overnight. 'All of a sudden I was delinquent, even though I'd never received notice,' he said. Holmes has begun the process of appealing the reduction of his credit score, he said. He's been considering a move for professional reasons, and added that he's concerned it could be tough to rent a place to live with his score as it stands. 'I'm at the ideal age where I should be starting a family and buying a home,' he said. 'When you destroy me financially, what are the chances I'm able to do that and that's viable for me?' Holmes, who was the first person in his family to graduate from college, said he still has some outstanding Parent Plus loans, which he intends to keep paying down so that his parents' credit scores aren't affected. He graduated in 2019, shortly before the pandemic, and said he can see how his generation might have difficulty paying off the debt. 'Right as I was entering the workforce, the world really stopped,' Holmes said. 'Things were really bad for a lot of people for a long time. We're still coming out of that. And all of a sudden, the switches got turned back on overnight.' Kevin King, vice president of credit risk at data and analytics company LexisNexis, said he expects the effects of the resumed student loan collections to begin rippling through the U.S. economy in the coming months. 'There were a number of years where it was probably a bad financial strategy to be making student loan payments,' he said. 'A lot of consumers were confused as various government (policies of forgiveness) were passed and overruled.' King predicts that student loan payments will move higher in the so-called 'payment hierarchy,' or the order in which consumers make payments, since the government plans to use 'levers to compel' such as wage garnishment and the seizing of tax refunds. 'Which bill do you pay first, second, and not at all?' King said. 'Historically, student loans are really far down the list. But the government's being pretty aggressive here in pursuing payment activity in a way that may shift the hierarchy. Consumers might be more willing to go delinquent or default on something like a credit card or installment loan.' The Federal Reserve of New York study also found that borrowers ages 40 and older were most likely to be delinquent on their loans. Andrew McCall, 58, of Boise, Idaho, said he has about $30,000 remaining in outstanding loans from earning his computer science degrees. He said he can't afford his monthly payments, which are in the $250-300 range, and worries what a hit to his credit score might mean for all areas of his life. 'The fact that this economy is driven by debt to begin with causes my score to be paramount no matter what financial decisions I'm making, outside of going to the grocery store,' he said. 'My car, my house… Your credit rating becomes a social stratifier.' ___ The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.
San Francisco Chronicle
a day ago
- Business
- San Francisco Chronicle
Credit scores decline for millions as US student loan collections restart
NEW YORK (AP) — Millions of Americans are seeing their credit scores suffer now that the U.S. government has resumed referring missed student loan payments for debt collection. After 90 days of non-payment, student loan servicers report delinquent, or past-due, accounts to major credit bureaus, which use the information to recalculate the borrower's score. Falling behind on loan payments therefore can affect an individual's credit rating as severely as filing for personal bankruptcy. A lower credit score makes it harder or more expensive to obtain car loans, mortgages, credit cards, auto insurance and other financial services at a time when inflation, high interest rates, and layoffs have strained the resources of some consumers. The Federal Reserve Bank of New York reported that in the first three months of 2025, 2.2 million student loan recipients saw their scores drop by 100 points, and an additional 1 million had drops of 150 points or more. Declines that steep may mean the difference between a manageable credit card interest rate and an unmanageable one, or approval or rejection of an application to rent an apartment. The U.S. Department of Education paused federal student loan payments in March 2020, offering borrowers relief during the economic chaos of the coronavirus pandemic. Though payments technically resumed in 2023, the Biden administration provided a one-year grace period that ended in October 2024. Last month, the Trump administration restarted the collection process for outstanding student loans, with plans to seize wages and tax refunds if the loans continue to go unpaid. According to the Federal Reserve Bank of New York, about 1 in 4 people with student loan accounts were more than 90 days behind on payments at the end of March. Kat Hanchon, 33, who works in marketing and higher education in Detroit, was one of them. Hanchon said her score dropped by 57 points as a result of her loans falling delinquent this year. That put her score below 600, or subprime. When Hanchon received her statement from her loan servicer, her expected monthly payments were higher than before the pandemic-era pause, even though she had enrolled in a repayment plan that takes a borrower's full financial situation into account. 'They said I now have to pay $358 per month," she said. "I'm not going to be able to pay that. ... But I'm not unusual in the world we're living in right now." Hanchon said she's had to prioritize paying medical expenses — for a dental crown, a root canal, and an endoscopy — before she'll be able to consider putting money toward the loans. While her housing situation is secure for the moment, she worries about the annual percentage rate for her credit cards fluctuating. Lenders, landlords, credit card companies, employers and utility companies all look to consumers' credit scores to gauge the likelihood of borrowers being able to make regular payments. A higher score typically results in lower interest rates and more favorable loan terms, while a lower score makes it harder to access credit. The Education Department has said borrowers should receive bills from lenders three weeks before any payments are due, but some people have reported that they have not been notified. Wait times for calls with loan servicers have been high, and layoffs at the Department of Education have also likely contributed to delayed service, consumer advocates say. Dom Holmes, 28, who works for a nonprofit in Manheim, Pennsylvania, said he woke up in early May to find his credit score had dropped 60 or 70 points overnight. 'All of a sudden I was delinquent, even though I'd never received notice,' he said. Holmes has begun the process of appealing the reduction of his credit score, he said. He's been considering a move for professional reasons, and added that he's concerned it could be tough to rent a place to live with his score as it stands. 'I'm at the ideal age where I should be starting a family and buying a home,' he said. 'When you destroy me financially, what are the chances I'm able to do that and that's viable for me?' Holmes, who was the first person in his family to graduate from college, said he still has some outstanding Parent Plus loans, which he intends to keep paying down so that his parents' credit scores aren't affected. He graduated in 2019, shortly before the pandemic, and said he can see how his generation might have difficulty paying off the debt. 'Right as I was entering the workforce, the world really stopped,' Holmes said. 'Things were really bad for a lot of people for a long time. We're still coming out of that. And all of a sudden, the switches got turned back on overnight.' Kevin King, vice president of credit risk at data and analytics company LexisNexis, said he expects the effects of the resumed student loan collections to begin rippling through the U.S. economy in the coming months. 'There were a number of years where it was probably a bad financial strategy to be making student loan payments,' he said. 'A lot of consumers were confused as various government (policies of forgiveness) were passed and overruled.' King predicts that student loan payments will move higher in the so-called 'payment hierarchy,' or the order in which consumers make payments, since the government plans to use 'levers to compel" such as wage garnishment and the seizing of tax refunds. 'Which bill do you pay first, second, and not at all?' King said. 'Historically, student loans are really far down the list. But the government's being pretty aggressive here in pursuing payment activity in a way that may shift the hierarchy. Consumers might be more willing to go delinquent or default on something like a credit card or installment loan.' The Federal Reserve of New York study also found that borrowers ages 40 and older were most likely to be delinquent on their loans. Andrew McCall, 58, of Boise, Idaho, said he has about $30,000 remaining in outstanding loans from earning his computer science degrees. He said he can't afford his monthly payments, which are in the $250-300 range, and worries what a hit to his credit score might mean for all areas of his life. 'The fact that this economy is driven by debt to begin with causes my score to be paramount no matter what financial decisions I'm making, outside of going to the grocery store,' he said. 'My car, my house... Your credit rating becomes a social stratifier.' ___ The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.
Mint
23-04-2025
- Business
- Mint
After five years of hiatus, US govt to start recovering student loans in defaults
Starting next month, the Education Department in the US says student loans that are in default will be referred for collections, reported Associated Press. Roughly 5.3 million borrowers are in default on their student loans and soon could be subject to having their wages garnished. Referrals for collection had been put on hold since March 2020 because of the COVID-19 pandemic, when the U.S. government also paused federal student loan payments and interest accrual as a temporary relief measure. That grace period was extended multiple times by the Biden administration and ended in October. One of the borrowers facing more severe consequences is Kat Hanchon, who works in higher education information technology in Michigan. 'My stomach dropped immediately as soon as I read (the news),' said Hanchon, 33. 'I wanted to throw up because I already live paycheck to paycheck.' Hanchon said she owes nearly $85,000 in debt between their undergraduate and master's degrees. And even with an income-driven repayment plan, Hanchon said she could not afford to pay those loans off on top of other expenses including a mortgage and medical bills. The last time Hanchon remembers being able to make a student loan payment was September 2024. 'I couldn't even afford the $55 that they were trying to charge me ... because it's that tight of a budget,' she said. The department says it will soon begin sending notices on collection efforts, but there are options for borrowers to get out of default. Beginning May 5, the department will begin involuntary collection through the Treasury Department's offset program. Borrowers who have student loans in default will receive communication from Federal Student Aid in the upcoming weeks with information about their options, according to the Education Department. Involuntary collection means the government can garnish wages, intercept tax refunds and seize portions of Social Security checks and other benefit payments to go toward paying back the loan. A student loan becomes delinquent when a borrower doesn't make a payment 90 days after its due date. If you continue to be delinquent on your loan for 270 days — or roughly nine months — then your loan goes into default. While being delinquent affects your credit score, going into default has more serious consequences such as wage garnishment. When you fall behind on a loan by 270 days, the loan appears on your credit report as being in default. Once a loan is in default the government will send the borrower into collections. The Education Department is recommending borrowers visit its Default Resolution Group to make a monthly payment, enroll in an income-driven repayment plan, or sign up for loan rehabilitation. Betsy Mayotte, president of The Institute for Student Loan Advisors, recommends loan rehabilitation as an option. Borrowers in default must ask their loan servicer to be placed into such a program. Typically, servicers ask for proof of income and expenses to calculate a payment amount. Once a borrower has paid on time for nine months in a row, they are taken out of default, Mayotte said. A loan rehabilitation can only be done once. Student loan forbearance is a temporary pause on your student loan payments granted to borrowers who are experiencing financial difficulties. To apply for forbearance, borrowers must contact their loan servicer. Borrowers can be granted forbearance by their loan servicer for up to 12 months but interest will continue to accrue during this period. Forbearance is not an option for borrowers whose student loans are in default. However, they are an option if you are delinquent on your loan. Borrowers need to know the status of their student loans in order to find out if they are in default, said Kate Wood, student loans expert at NerdWallet. To find the status of a student loan and their loan servicer information, borrowers need to access their account. Since the Education Department is going to send notices about involuntary collections through email, borrowers want to make sure all their personal information is updated such as email and physical address, Wood recommended. Yes, benefits from Social Security are considered income and can be affected by involuntary collections. Borrowers who are delinquent on their student loans take a massive hit on their credit scores, said Wood. Those who are delinquent on their student loans might see a drop of one hundred points or more to their credit score. A delinquency stays on your credit report for seven years. Credit scores are used in many aspects of people's financial lives such as access to credit cards, buying a house or renting an apartment. To review income-driven repayment plan options, you can check the loan simulator at Visit here for all personal finance updates First Published: 23 Apr 2025, 03:20 PM IST
