Credit scores decline for millions as U.S. student loan collections restart

NEW YORK, June 16 (Xinhua) -- 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, reported The Associated Press on Monday.

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," noted the report.

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, it added.

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.