Student Loan Delinquent Tank Credit Rating for Millions of Borrowers: How to Recover

A 100-point drop in credit score can be "absolutely disastrous."

It could also take years to recover, said Matt Schulz, chief credit analyst at London headquarters.

The Federal Reserve Bank of New York reported last week that millions of student loan borrowers have damaged their chances of qualifying for new cars, mortgages and credit cards due to lack of payments.

Specifically, the credit scores of 2.2 million student loan borrowers who committed new crimes fell by more than 100 in the first quarter of 2025. The report said more than one million saws fell by at least 150 points.

The Federal Reserve Bank of New York reported last week that millions of student loan borrowers had sharply dropped their credit rates due to lack of payments.

Recovering from such a blow is "will be a marathon rather than a sprint," Schultz said.

Student loan borrowers start facing debt collection by default

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More than half of new default borrowers have received a secondary credit score, meaning that the violation is unlikely to significantly affect their credit access, as it is impossible to be approved for new credit anyway.

However, many borrowers who previously might have received credit scores for auto loans, mortgages or credit card qualifications will now face higher borrowing fees and even be rejected for new credit altogether.

Student loan payments were suspended at the beginning of the pandemic to relieve financial stress on borrowers. The pause ended in September 2023, but introduced a one-year “ramp” period to prevent unpayments from being reported to the credit bureau. The ramp expired in October 2024, so the default rate first appeared in the credit report in the first quarter of 2025.

This is why the average credit score in the United States has dropped

Once that grace period is over, some people go from having a clear record to a breath of 90 days or later.

Students wearing graduation gowns — George Washington University students wore graduation gowns outside the White House in Washington, D.C. on May 18, 2022.

According to Schultz, this dramatic drop in credit may mean that consumers must pay higher insurance premiums or get approval from apartments.

Schultz also warned that it could prevent people from getting a 0% balance transfer card, which helps “help to pay off debts.”

He added: "In the long run, it can cost you tens of thousands of dollars in the form of higher interest rates, larger fees, etc. It's a big deal. It's a big deal. It's hard. There's harder in life than Crummy Settor, and unfortunately, many Americans are going to learn this difficult lesson."

Schultz said it is important to make sure there are no errors in the credit report to avoid unnecessary lowering of scores, while recovering from it.

Schultz said the errors were “more than people realize” and removing them could be a huge victory.

Another strategy might be to increase your utilization by asking for more available credit, but not using it. But, Schultz said, it is difficult to gain additional credibility due to recent crimes.

Militants hold signs at a rally outside the U.S. Supreme Court — Student Debt Relief Activists attend the rally at the U.S. Supreme Court in Washington, DC on June 30, 2023

In addition, becoming an authorized user on someone else’s credit card can also help improve credit. However, Schultz said the ultimate responsibility for paying off the balance of authorized users will still belong to the main account holder.

"When used correctly, it can be important to be an authorized user because it passes on the positive history related to the card of the primary account holder to the authorized user," Schultz said. "It does turbocharge your credit and is a common tool for parents to use with college students."

But, overall, it's just doing the right thing over and over and being patient.

Original article source: Student Loan Delinquent Tank Credit Rating for Millions of Borrowers: How to Recover