The shift from forbearance to enforcement brings economic ripple effects nationwide
Millions of Americans face severe credit score drops as the federal government restarts student loan debt collection, causing an economic ripple effect.
The Federal Reserve Bank of New York reported that 2.2 million student loan recipients experienced credit score drops of 100 points during the first quarter of 2025, while another 1 million saw declines of 150 points or more. These dramatic decreases occurred after loan servicers began reporting delinquent accounts to credit bureaus following 90 days of non-payment.
The situation stems from the end of pandemic-era relief measures. The US Department of Education initially paused federal student loan payments in March 2020 during the coronavirus economic crisis. While payments technically resumed in 2023, the Biden administration provided a one-year grace period that ended in October 2024. The Trump administration restarted aggressive collection efforts last month, including plans to garnish wages and seize tax refunds.
An ABC report highlighted that credit score drops of this magnitude carry serious consequences. Lower scores make obtaining car loans, mortgages, credit cards, and auto insurance more difficult and expensive. The declines can mean the difference between manageable interest rates and crushing debt burdens, or approval versus rejection for apartment rentals.
According to Federal Reserve data, approximately 25% of student loan account holders were more than 90 days behind on payments by March’s end. Borrowers aged 40 and older showed the highest delinquency rates.
Kat Hanchon, a 33-year-old Detroit marketing professional, saw her score drop 57 points, falling below 600 into subprime territory. Her monthly payment requirement increased to $358, despite enrolling in an income-based repayment plan. “I’m not going to be able to pay that,” Hanchon said, noting she must prioritize medical expenses over loan payments.
Dom Holmes, a 28-year-old Pennsylvania nonprofit worker, discovered his score had dropped 60-70 points overnight without receiving payment notices. “All of a sudden I was delinquent, even though I’d never received notice,” Holmes said. He worries about his ability to rent housing or start a family with his damaged credit.
Consumer advocates report high wait times for loan servicer calls and delayed service, partly attributed to Department of Education layoffs. Many borrowers report not receiving required payment notifications.
Kevin King of LexisNexis predicts the resumed collections will create ripple effects throughout the economy as consumers reorganize their payment priorities, potentially defaulting on credit cards or other loans to avoid wage garnishment and tax refund seizures.
What are your thoughts on the national impact of resuming student loan collections? Share your insights below.
