Millions of Americans hit with bad credit after missed student loan payments

The credit score drop is akin to filing for bankruptcy, and some borrowers are finding out when they try to get car loans or rent apartments.

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By Abha Bhattarai

Millions of Americans are suddenly facing dramatically lower credit scores from delinquent student loans, making it tougher for them to secure housing, insurance, car loans, even employment at a vulnerable time for the U.S. economy.

Credit scores dipped by more than 100 points for 2.2 million delinquent student loan borrowers, and 150 points or more for more than 1 million in the first three months of 2025, according to an analysis by the Federal Reserve Bank of New York. It’s the kind of credit score drop that follows a personal bankruptcy filing. Roughly 2.4 million of those Americans previously had favorable credit scores and would have qualified for car loans, mortgages or credit cards before these delinquencies were reported, researchers said.

The slide in credit scores could lead to pricier loans for millions as borrowing costs are near 20-year highs. The Federal Reserve has signaled that it doesn’t plan to cut interest rates right away.

Already there are signs that lower credit scores are making it harder for more Americans to get loans, with rejection rates for auto loans, credit cards and mortgage refinancing all ticking up in February, compared with a year earlier.

Tina Johnson was two days away from finalizing the purchase of a used Nissan Pathfinder when she got notice that her preapproved loan was no longer valid. Her credit score had fallen from 650 to 418 after she missed $440 worth of student loan payments that she didn’t realize were required again. Although the Department of Education said lenders would send borrowers a bill at least three weeks before it was due,Johnson said she was never notified that payments needed to resume.

“Nothing, no email, no phone call, no letter — I could’ve avoided all this if I had known,” said Johnson, 44, who lives in Fleming County, Kentucky.

Johnson’s expected car payment of $350 a month nearly doubled overnight, making it unaffordablefor the DoorDash delivery driver. She’s stuck with her 12-year-old Nissan Altima for now. Johnson says she’s also putting off other plans, including borrowing against her home to repair her roof and going back to school for a bachelor’s degree, because of the sudden hit to her credit score.

“I took care of the accounts, but there’s nothing else I can do,” she said. “It’ll take me years to get those 200 points back.”

Federal student loan payments were paused early in the coronavirus pandemic in March 2020, offering millions of Americans relief at a time of economic upheaval and high unemployment. Although payments started back up in late 2023, the Biden administration offered a year-long grace period. That ended on Sept. 30, but millions of borrowers have yet to make a payment on their student loans.

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This month the federal government restarted collection efforts for defaulted student loans and said it plans to resume seizing wages, tax returns and Social Security payments this summer, making the stakes even higher.