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Millions of Americans with student loans are on the verge of a financial setback as the expiration of pandemic-era protections is expected to lead to a wave of credit score declines by mid-2025.
According to new research from the Federal Reserve Bank of New York, over nine million borrowers with past-due student loan balances are likely to see "significant" damage to their credit scores-rolling back the improvements made during the years of suspended loan payments and interest accrual.
During the height of the COVID-19 pandemic, federal student loan payments were paused beginning in March 2020, thanks to a sweeping forbearance program that lasted until August 2023.
This pause provided temporary relief not only by halting monthly payments but also by freezing interest and shielding borrowers from the usual credit score penalties associated with missed or late payments.
The impact on credit was immediate. The typical borrower's credit score rose by 11 points in 2020-from 662 to 673-as their delinquent status was effectively erased. For those who had previously defaulted or were behind on their loans in 2019, the gains were even more striking. Borrowers with delinquent loans saw their credit scores jump by 74 points, with the median score rising from 501 to 575.
Post-pandemic restart reignites risk for struggling borrowers
The temporary boost came with an expiration date, and that time has now ed. Federal student loan payments officially resumed in fall 2023, following a one-year "on-ramp" period where missed payments didn't hurt borrowers' credit.
That grace period ended in September 2024, meaning any delinquencies or defaults are now being reported once again to credit bureaus.
The New York Fed report warns that borrowers who had significantly improved their credit under the forbearance window are now vulnerable to steep drops.
In fact, the research found that borrowers in delinquency or default as of 2024 had credit scores 103 and 72 points higher, respectively, than they did at the end of 2019. Those hard-earned gains are now in jeopardy.
A key difference borrowers must now understand is the distinction between delinquency and default. A loan becomes delinquent when a payment is more than 90 days late, and it will then be reported to the credit bureaus.
A default typically occurs when a borrower misses payments for 270 days. Both statuses can inflict long-lasting damage on credit health.
In particular, a fresh student loan delinquency can cause a borrower's credit score to plummet by over 150 points, according to the Fed. And even more troubling, these negative marks will stay on a credit report for up to seven years, limiting access to affordable credit, mortgages and other financial opportunities.