From Yahoo Finance: 2025-05-05 08:01:00

Student loan delinquencies are on the rise as the Department of Education resumes involuntary collections on defaulted debt. 20.5% of borrowers are seriously delinquent, up from 11.5% in February 2020. Defaulting can severely impact credit scores, limiting borrowing ability. Super prime borrowers could see a 175-point credit score hit.

Credit scoring companies warn of a spike in student loan delinquencies, with borrowers facing a significant impact on credit scores. Resumed collections may lead to more severe delinquencies being reported. Prime borrowers could see a 121-point decline, while subprime borrowers might experience a 42-point drop.

Higher-risk borrowers may face a more significant impact on credit scores from defaults. Super prime borrowers could see a 175-point decline, while prime borrowers may suffer a 121-point hit. More than 5 million additional severe delinquencies could be reported between March and April, affecting over 2.7 million borrowers.

The Education Department has resumed collection activities on defaulted student loans, affecting borrowers’ credit scores. Delinquencies have led to a decline in the average FICO score, with serious delinquencies impacting borrowers in higher credit risk tiers more significantly. Involuntary collections resumed on May 5, increasing the financial burden on struggling borrowers.

Read more: Seriously delinquent student loan borrowers hit record high and climbing, TransUnion says