The credit scores of millions of Americans have plummeted in the first quarter of the year as a result of rising student loan delinquency rates, following the end of a years-long pause on federal payments.
According to a recent report by the Federal Reserve Bank of New York, nearly six million student loan borrowers—nearly 14 percent—were 90 or more days delinquent or in default between January and March 2025.
This increase in delinquency rates across the country, accompanied by a drop in credit scores, represents not only a significant challenge for millions of Americans but also has the potential to have dramatic ripple effects on the U.S. economy.
Why It Matters
Being delinquent on one’s student loan payments can have a damaging impact on borrowers’ credit scores, which in turn can make it much harder to make some big purchases, such as buying a home or a car.
The new data in the New York Fed’s report suggest that millions of Americans will have a harder time getting auto and mortgage loans at a time when many are already struggling with historically high monthly payments and rising costs across the board, or could face higher interest rates.
What To Know
The student loan payment freeze, introduced at the beginning of the pandemic, was in place for an unprecedented 43 months. Payments officially resumed in October 2023, but the U.S. Department of Education granted borrowers an additional 12-month “on-ramp” period, during which they were shielded from most of the consequences of falling behind on payments, including reporting missed payments to credit bureaus.
New data show that student loan borrowers have been struggling to keep up with payments after the “on-ramp” period ended in late 2024. According to the New York Fed, the delinquency rate for student loans surged from below 1 percent to nearly 8 percent over the first quarter of 2025.
Between January and March, 13.7 percent of student loan borrowers were 90 or more days delinquent on their payments, while 23.7 percent were behind on payments but less than 90 days delinquent.
Delinquency on payments has enormous consequences for these borrowers. More than 2.2 million newly delinquent borrowers have seen their credit plunge by over 100 points, the New York Fed reported, while more than 1 million have experienced drops of at least 150 points.
“There is very little in life that is more expensive than having bad credit,” LendingTree Chief Consumer Finance Analyst Matt Schulz told Newsweek.
“It can literally cost you tens of thousands of dollars or more over the course of your life in the form of higher interest rates, fees and other costs on mortgages, auto loans, credit cards and other loans,” Schulz said. “It can also lead to higher insurance premiums, keep you from getting that apartment you’re looking at, and even make it harder to get a cell phone. It’s a big, big deal.”
An estimated 2.4 million delinquent borrowers previously had credit scores above 620, the New York Fed found, meaning they were eligible for credit cards, auto loans, or mortgage loans before the recent drops. Now, they may no longer be.
“Your credit score is one of the most important numbers in your financial life because it goes a long way toward determining whether or not you’re approved for financial products, along with the interest rates you’ll pay,” Bankrate Senior Industry Analyst Ted Rossman told Newsweek.
“The New York Fed says the average credit score drop for newly delinquent student loan borrowers is 177 points if they started with a credit score above 720, 140 points if they were between 620 and 719 and 74 points if they were below 620. Those are massive drops,” he said.
“And the bigger they are, the harder they fall—otherwise excellent credit could be ruined by just one misstep,” Rossman added.
“These declines make it much harder to get approved for credit cards, auto loans, mortgages and other loans. And even if applicants are approved, they’ll likely face much higher interest rates. Negative marks stay on your credit reports for up to seven years, although the impact is usually most pronounced in the first year or two.”
An Even Harder Path to Homeownership for Millennials
Millennials, who have faced multiple economic crises during their lifetimes, have had a hard time stepping onto the property ladder since they became of homebuying age. This, in turn, has delayed their plans to form their own families, with widespread consequences for American society.
With the ongoing housing affordability crisis in the U.S. and growing economic uncertainty surrounding the impact of the Trump administration’s tariff policies, millennials have yet to catch a break. And there is more bad news: according to the New York Fed, older millennials are also more likely to be delinquent on their student loans.
The report found that the borrower delinquency rate is lowest for those under 30, and the average age of a delinquent borrower has increased from 38.6 to 40.4.
A lower credit score can “absolutely, positively” make it harder to buy a home, Schulz said.
“Home prices and interest rates are already sky-high. Having less-than-perfect credit means that you may get stuck with an interest rate that’s even higher than the average,” he added.
“That’s troubling because even a fraction of a point extra on an interest rate can mean tens of thousands of additional interest paid over a 30-year loan. And of course, a low enough credit score may mean that you don’t even get the mortgage at all,” he said.
The minimum credit score for a conventional mortgage is 620, according to Rossman.
“Many of these newly delinquent student loan borrowers could fall below that threshold,” he said. “And at the minimum 620, the average 30-year fixed mortgage rate is 7.89 percent, according to Experian. That compares with 7.07 percent for someone with a 780 credit score. If you’re borrowing $300,000, the 620 borrower will end up paying $60,000 more in interest than the 780 borrower over the life of the loan.”
Can a Low Credit Score Be Recovered?
Schulz said that a bad credit score can absolutely be fixed, “but anyone promising a rapid, total recovery is likely trying to pull one over on you.”
Credit building is a marathon, Schulz said, rather than a sprint. “It is about doing the right things over and over, and unfortunately, a single major mistake can undo years of consistent work,” he added.
The impact of a drop will fade over time, Rossman said, but it is important to fill your credit reports with as much good information as possible.
“Getting current on your student loans is a good first step, although it won’t erase the prior delinquency. Aim to pay all of your other credit obligations on time, of course,” he said.
“Consider getting on a parent or spouse’s credit card account as an authorized user. If they use the account responsibly, that good behavior will help your credit score.”
Delinquent student loan borrowers could also try to apply for new credit, “especially safe products such as secured credit cards (which involve putting down a deposit) and credit-builder loans (basically a form of forced savings which can report to credit bureaus), Schulz said.