Over 2.2 million Americans saw their credit scores plummet by more than 100 points as the government resumed student loan collections, leaving many borrowers financially devastated and unable to qualify for mortgages, car loans, or even rental apartments.
Key Takeaways
- Federal student loan collections resumed in October 2024 after a pandemic pause, causing 2.2 million borrowers to experience credit score drops exceeding 100 points
- By March 2025, approximately 25% of all student loan borrowers were over 90 days delinquent on their payments
- The Trump administration has implemented measures to seize wages and tax refunds from borrowers with unpaid student loans
- Older borrowers (over 40) are disproportionately affected by delinquency, creating long-term financial instability for this demographic
- The economic ripple effect extends beyond individual borrowers, as they prioritize student loan payments over other financial obligations
Millions Face Credit Score Collapse as Loan Collections Resume
The end of the pandemic-era student loan payment pause has triggered a financial crisis for millions of Americans. After the Department of Education resumed loan collections in October 2024, delinquent payments began appearing on credit reports by early 2025. The impact has been devastating: 2.2 million borrowers saw their credit scores plunge by over 100 points, with a shocking 1 million experiencing drops of 150 points or more. These dramatic declines have immediate consequences for borrowers’ ability to secure mortgages, auto loans, credit cards, and even rental housing at affordable rates.
Missed student loan payments are reported to credit bureaus after 90 days of delinquency, triggering the severe credit score impacts. By March 2025, approximately 25% of all student loan borrowers had fallen into this category. The Trump administration has implemented measures to recover these unpaid debts, including wage garnishment and seizure of tax refunds, intensifying financial pressure on already struggling borrowers. Many claim they never received proper notification about payment resumption or faced excessive wait times when seeking assistance from loan servicers.
Millions See Credit Plunge Amid Student Loan Default Collection | Jim Thomas, Newsmax
Millions of Americans have seen their credit scores plummet after missing student loan payments, severely limiting their ability to rent apartments, secure loans, and find employment,… pic.twitter.com/KXlmoK8gex
— Owen Gregorian (@OwenGregorian) May 26, 2025
Real People, Real Consequences
The human toll of this credit crisis is exemplified by borrowers like Kat Hanchon, who found herself unable to meet her financial obligations when collections resumed. “They said I now have to pay $358 per month. I’m not going to be able to pay that. … But I’m not unusual in the world we’re living in right now,” said Kat Hanchon.
“All of a sudden I was delinquent, even though I’d never received notice,” said Dom Holmes.
For many borrowers like Holmes, the credit score impact has far-reaching consequences beyond their current finances. “I’m at the ideal age where I should be starting a family and buying a home. When you destroy me financially, what are the chances I’m able to do that and that’s viable for me?” Holmes added. His situation reflects the generational impact of this crisis, as millennials and younger Gen X borrowers find themselves unable to achieve traditional financial milestones due to student loan debt burdens and damaged credit profiles.
Economic Ripple Effects and Policy Considerations
The broader economic consequences of this mass credit score decline cannot be overstated. As borrowers prioritize student loan payments to protect their credit, other financial obligations may fall by the wayside. This shift in consumer spending patterns threatens to destabilize various economic sectors, from retail to housing. Kevin King, vice president of credit risk and marketing at LexisNexis Risk Solutions, noted the confusion caused by conflicting government policies: “There were a number of years where it was probably a bad financial strategy to be making student loan payments. A lot of consumers were confused as various government (policies of forgiveness) were passed and overruled.”
Particularly concerning is the disproportionate impact on older borrowers. Data shows that Americans over 40 are more likely to be delinquent on their student loans, creating financial instability for a demographic approaching retirement age. This trend threatens to undermine retirement security for millions of Americans who may find themselves still struggling with student debt well into their senior years. The Trump administration’s approach of enforcing collections through wage garnishment and tax refund seizures aims to address the mounting federal student loan debt, but critics argue it places undue hardship on borrowers already struggling with inflation and economic uncertainty.
As the situation continues to evolve, many borrowers are seeking income-driven repayment plans and other options to manage their debt obligations. However, the damage to credit scores will take years to repair, leaving a generation of Americans facing higher interest rates, limited access to credit, and diminished financial opportunities. This serves as a stark reminder of the long-term consequences of the government’s pandemic policies and the challenges of transitioning back to normal loan servicing operations after an extended pause.
