Student Loan Borrowers Face Steep Drop in Credit Scores

The end of the federal student loan payment pause and the Supreme Court's decision on student loan forgiveness have left many borrowers grappling with the reality of missed payments and the subsequent impact on their credit scores. According to a study by VantageScore, a leading credit scoring company, the national average VantageScore credit score is expected to decline by two points, from 702 to 700, by the summer of 2025 as student loan delinquencies begin to appear on credit files (VantageScore, 2025).

This decline is primarily due to the 9.2 million borrowers who were behind on their payments as of February 2025 and the additional 8 million borrowers who may be pushed out of forbearance in the coming months due to a recent court ruling against the Saving on a Valuable Education (SAVE) Plan (VantageScore, 2025). The increase in delinquencies will likely lead to further declines in credit scores for these borrowers, as late or missed payments can negatively impact credit scores for up to seven years (Investopedia, 2023).

In contrast, borrowers who continue to make their student loan payments on time are expected to see positive impacts on their credit scores. VantageScore estimates that borrowers who resume their payments on time could experience a score increase of up to 8 points on average (VantageScore, 2023). However, this positive impact is contingent upon borrowers resuming their payments and maintaining a consistent repayment schedule.

To mitigate the negative effects of missed payments on their credit scores, student loan borrowers can employ several strategies. These strategies can also be integrated into a broader investment portfolio to help manage debt and improve overall financial health. Here are some key strategies:

1. Income-Driven Repayment (IDR) Plans: Borrowers who find they are behind on payments or won't be able to afford their future payments can sign up for an IDR plan. These plans offer lower payments than the standard repayment plan. The Department of Education recently re-opened two IDR plans that offer lower payments. By switching to an IDR plan, borrowers can reduce their monthly payments, making it easier to stay current on their loans and avoid missed payments that could negatively impact their credit scores.
2. Forbearance: Borrowers who still cannot afford payments under an IDR plan can request forbearance from their loan servicer. This will temporarily postpone loan payments until a borrower can afford them again. Forbearance can help borrowers avoid missed payments and the associated negative impact on their credit scores. However, it's important to note that interest will continue to accrue during the forbearance period, so borrowers should use this option sparingly and only when necessary.
3. Credit Monitoring: Regularly monitoring credit reports can help borrowers identify any errors or inaccuracies that may be negatively impacting their credit scores. Borrowers can obtain a free copy of their credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once a year at AnnualCreditReport.com. By monitoring their credit reports, borrowers can dispute any errors and work to improve their credit scores over time.
4. Diversifying Investments: Integrating student loan debt management into a broader investment portfolio can help borrowers improve their overall financial health. Diversifying investments across different asset classes, such as stocks, bonds, and real estate, can help reduce risk and provide a more stable financial foundation. By managing debt and investing wisely, borrowers can work towards achieving their financial goals while minimizing the negative impact of missed payments on their credit scores.
5. Emergency Fund: Building an emergency fund can help borrowers prepare for unexpected expenses or financial setbacks. Aiming to save at least 3-6 months' worth of living expenses can provide a safety net in case of job loss, medical emergencies, or other unexpected events. Having an emergency fund can help borrowers avoid relying on credit cards or other high-interest debt to cover unexpected expenses, which can negatively impact their credit scores.
6. Financial Education: Educating oneself about personal finance and debt management can help borrowers make informed decisions about their money. By understanding the impact of missed payments on credit scores, borrowers can take proactive steps to manage their debt and improve their financial health. Attending workshops, reading books, and seeking professional advice can all contribute to a better understanding of personal finance and debt management.

In conclusion, the recent changes in student loan policies, such as the end of forbearance and the Supreme Court's decision on student loan forgiveness, are expected to have significant long-term impacts on the credit scores of borrowers. The national average VantageScore credit score is expected to decline by two points by the summer of 2025, primarily due to the increase in student loan delinquencies. Borrowers who continue to make their payments on time may see positive impacts on their credit scores, but those who struggle to afford their payments or fail to resume their payments may experience significant declines in their credit scores, which could linger for many years to come. By employing the strategies outlined above, student loan borrowers can work towards managing their debt, improving their credit scores, and achieving their long-term financial goals.