Late Student Loan Borrowers Face 129-Point Credit History Hit

There’s a new source of stress facing America’s already-stressed student loan borrowers.

For the first time since the pandemic, delinquent payments will be added to their credit histories. This is happening, as Bloomberg News reported Thursday (Feb. 27), at a time when more than 9 million borrowers are behind on payments.

That figure makes up an estimated 43% of government loans, the report added, citing a VantageScore analysis of Department of Education data.

The credit-scoring firm said that borrowers who fall behind on their payments could see their scores plummet by as much as 129 points.

As the report notes, student loan bills restarted in October 2023 following a break sparked by the COVID pandemic. However, President Joe Biden instituted a leniency program to protect borrowers from the worst impacts of missed payments. That grace period concluded early last fall, and now, missed payments can be reported to credit bureaus.

VantageScore, the report said, expects 2.3 million borrowers will see their scores fall into “subprime” territory, or below 600, and that 32% of borrowers likely to be past due have scores in the prime (661 to 780) or super prime (781 to 850) categories.

The news comes as consumers are facing borrowing-related pressures from other directions. For example, data released earlier this month by the Federal Reserve Bank of New York on credit card and household debt showed that delinquency rates rose slightly from the prior quarter, with 3.6% of outstanding debt in some stage of delinquency.

“But credit cards continue to be the loan type with the highest share of balance 90+ days delinquent, at 11.35%,” PYMNTS wrote.

“This share grew 2% quarterly and 17% year over year. We haven’t seen these levels of delinquency in years — and in fact, not since the fourth quarter of 2011.”

Meanwhile, new research by PYMNTS shows that the financial pressures related to rising household bills is leading struggling consumers to take more reactive measures to stay on top of their expenses. On average, consumers who live paycheck to paycheck took 5.9 actions in response to higher bills, almost double the 3.2 actions by financially stable consumers.

“These actions often involved emergency measures like skipping or partially paying bills (33%), compared to solutions such as negotiating rates (12%),” that report said.

“Many struggling consumers also reported canceling services (22%) or applying for financial assistance programs (24%).”