Borrower Credit Scores Plunge Following Student Loan Delinquencies

Millions of borrowers have reportedly seen their credit scores plummet because of delinquent student loans.

Credit scores fell by more than 100 points for 2.2 million delinquent student loan borrowers, and by at least 150 points for more than 1 million borrowers during the first three months of 2025, the Washington Post reported Sunday (May 25), citing an analysis by the Federal Reserve Bank of New York.

A VantageScore analysis of student loan debt from earlier this year projected that 2.3 million borrowers would see their scores fall into “subprime” territory, or below 600, and that 32% of borrowers who were expected to be past due have scores in the prime (661 to 780) or super prime (781 to 850) categories.

The Post report noted that this is the type of credit score decline that accompanies a personal bankruptcy filing. Around 2.4 million of those borrowers once had favorable credit scores and would have qualified for car loans, mortgages, or credit cards before these delinquencies were reported, researchers told the newspaper.

Among the borrowers profiled in the report is Kentucky resident Tina Johnson, whose plans to purchase a used car and go back to school fell through when her credit score dropped from 650 to 418. That decrease happened after Johnson missed $440 worth of student loan payments that she didn’t realize had resumed.

While the Department of Education said lenders would issue borrowers a bill at least three weeks before it was due, Johnson said she was never notified that payments had restarted.

“I took care of the accounts, but there’s nothing else I can do,” said Johnson, a DoorDash driver. “It’ll take me years to get those 200 points back.”

The Department of Education began collecting student loan payments earlier this month following a pause instituted during the COVID pandemic.

A recent report by Bloomberg Economics found that rising student loan defaults could shrink consumer spending by as much as $63 billion a year.

Meanwhile, recent research by PYMNTS Intelligence finds that subprime borrowers are turning to nontraditional sources like payday loans, credit-builder loans, and buy now, pay later (BNPL) services to cover essential purchases and bridge cash flow gaps.

“While these alternatives offer accessibility, often with lower denial rates than traditional cards … they frequently carry high interest rates and fees that can further strain these borrowers,” PYMNTS wrote last week.

“And the effectiveness of some alternative credit providers for building credit is limited, as not all report consumer behavior to the major credit bureaus. Despite these hurdles and the reliance on alternative products, obtaining traditional credit remains a crucial financial milestone for subprime borrowers.”