Credit scores for many student loan borrowers have dropped precipitously as protections put in place during the COVID-19 pandemic come to an end, heralding troubling news for millions across the nation. Reports from various sources indicate significant declines—some borrowers have seen credit scores decrease by as much as 200 points due to missed payments being reported by loan servicers to credit bureaus.
Throughout the pandemic, federal student loan borrowers enjoyed the benefit of paused payments, along with suspensions on adverse credit reporting. This was instituted to alleviate the financial strain caused by the pandemic. Yet, as these measures conclude, borrowers are now faced with the grim realization of their financial situation. From October 2024 onwards, any missed payment will be reported as a 90-day delinquency, meaning the impact of pandemic protections is wearing off, and the consequences are becoming all too clear.
“I will resume making payments in May 2025, and I have no issue paying moving forward,” said Roman Henry, whose credit score took a tumble from above 800 to just 608, as highlighted by Newsweek. He expressed frustration over the communication failures from his loan servicer, Nelnet, which left him unaware of resumed payments, resulting in his account being marked as delinquent.
Similarly, Taylor Scarborough, another impacted borrower from San Francisco, reported her credit score had dropped by over 150 points without adequate warning. “Nelnet never sent me a 30- or 60-day past-due notice,” she recalled. The abrupt changes to her financial stability were alarming, particularly as her credit limit was slashed by $8,000 as her score plummeted.
The decline of credit scores among student loan borrowers can be traced back to systemic issues with communication. Many borrowers received scant or no notification about the end of payment pauses due to outdated contact information held by loan servicers. Henry pointed out, “After logging back in to Nelnet, I saw my email on file was outdated and my mailing address was also wrong.” This was not uncommon, as many borrowers had moved multiple times since the start of the pandemic, leaving them vulnerable to missing important payment information.
“They assumed we would be contacted as payments restarted since dates shifted multiple times over the pandemic,” another borrower echoed, highlighting the expectation of clear communication, which was sorely lacking.
So, as the on-ramp period for deferment concludes, where does this leave borrowers? There are steps they can take to address potential credit score issues. For some servicers, like Nelnet, borrowers might have the option for retroactive forbearance, preventing future damage. Although this won’t eliminate the delinquency already reported, it may help limit additional consequences.
Borrowers are also encouraged to submit goodwill removal requests to their servicers, asking for the one-time courtesy removal of the 90-day delinquency mark. Given the widespread confusion surrounding the post-pandemic transition, many borrowers feel it’s worth reaching out to their lenders for assistance.
For those who believe their credit score injuries stemmed from administrative mistakes or erroneous reporting, disputing such inaccuracies through credit bureaus—Equifax, Experian, and TransUnion—is another avenue to pursue. Keeping close track of credit through annual credit reports is recommended to catch any discrepancies early.
Adopting proactive measures is key. Recently, many borrowers have opted for income-driven repayment plans, which could help lower monthly payments and mitigate the risk of future delinquencies. Under such plans, consistent, on-time payments can positively influence credit scores over time.
Regular credit monitoring is another wise strategy. Borrowers should keep on eye on their credit reports for unauthorized accounts and verify their servicer has up-to-date contact information on file. “Many borrowers have fallen victim to outdated records,” said one financial advisor. This proactive approach can spare borrowers unnecessary financial distress.
The impact of negative credit scores extends beyond just loan approval. High-interest rates can lead to increased premiums on insurances and restrictive rental agreements, limiting borrowers’ financial options significantly. “A high score can mean lower interest rates on mortgages and can even affect job opportunities,” financial experts note.
The withdrawal of government protections brings numerous challenges for student loan borrowers, signaling the end of the era where financial strain was somewhat eased. The impending shift lays bare the condition of many borrowers’ finances, making it increasingly important for them to protect their credit scores proactively. The challenges they face are real and dire, urging borrowers to stay on top of their finances and communications with loan servicers to avoid additional setbacks.