Student loan borrowers risk lower credit scores
By: Medora Lee
USA Today
..... Another credit agency is ringing the alarm bell on student loan delinquencies just as the Department of Education is resuming involuntary collections on defaulted debt.
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An all-time high 20.5% of student borrowers were seriousness delinquent, or 90-plus days overdue through February, [2025] compared with 11.5% in February 2020. before the pandemic, according to TransUnion research released May 5. [2025] And that number may be understated.
..... "More than one in five student loan borrowers with a payment due have been reported as seriously delinquent, but this figure may in fact be much higher," said Michele Raneri, vice president and head of research at TransUnion.
..... In February, [2025] about 2.7 million student loan borrowers had severe delinquencies, with more to come since all loan have different dates, estimated Tommy Lee, the director of credit scoring company FICO. More than 5 million more severe delinquencies between March and April [2025] could be reported, he said.
..... In April, [2025] FICO warned of a spike in student loan borrowers falling into serious delinquency.
..... A serious delinquency can be a major hit on credit scores, increasing the cost of loans or limiting how much people may be able to borrow in the future.
..... "Consumers may find themselves shocked by the dramatic and immediate impact that a default can have on their credit scores," said Joshua Trumbull, senior vice president and head of consumer lending at TransUnion.
..... Student loan payments resumed in September 2023, with borrowers given a one-year "on-ramp" in which credit bureaus didn't report nonpayment to credit bureaus. In April, [2025] the Education Department said it would resume collection activities, effective May 5. 2[205]
..... Consumers who had faced default since the end of the On-ramp saw their credit scores decline by an average of 63 points, TransUnion said.
..... In April, [2025] credit scoring company FICO said the average score that lenders sue to assets risk fell to 715, down a point from January [2025] and t3wo points from a year ago.
The decline reflected a rise in 90-plus-day delinquencies in the past six months, partly because federal student loan delinquencies are being overprotected on credit files for the first time since March 2020, FICO said.
..... Super prime, or top tier, student borrowers usually see the largest hit to credit scores for serious delinquencies and defaults.
..... "While a lower percentage of super prime borrowers were seriously delinquent, those who did ultimately default saw the impact to their credit scores to be significantly greater than that of traditionally more risky credit ties," TransUnioon said. "This is largely due to the fact that borrowers in higher credit risk tiers typically have fewer derogatory marks, so an account in default has the potential to have a significant and jarring impact."
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On average, a super prime borrower could see a 175-point credit score hit, while a prime borrower could suffer a decline in the range of 99 to 121 points, TransUnion said.
..... The compares with a 42-point drop for sub-prime, or lower-tier, borrowers and a 64-point decline for near-prime borrowers.