Millions of student borrowers are behind on loans — and may see their credit scores tank, VantageScore finds

For the first time since the pandemic, becoming past-due on your student loan payments will hurt your credit again.

The more than 9 million borrowers who are late on their payments may see their credit scores tank by as much as 129 points as the U.S. Department of Education ramps up collection activity again, a new report by VantageScore finds. The credit score company analyzed U.S. Department of Education data.

Meanwhile, those who are paying their student loan bills on time will likely benefit from a rise in their credit scores by much as eight points, according to VantageScore.

Credit scores typically range from 300 to 850, with around 670 and higher considered good.

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It’s been a long time since federal student loan borrowers have needed to worry about the downsides of missed payments, which can also include the garnishment of wages and retirement benefits. That’s because collection activity was suspended during the the pandemic and for a while after. The relief period officially expired on Sept. 30, 2024.

“For the first time in five years, federal student loan delinquencies will start to reappear on credit files,” said Rikard Bandebo, chief economist at VantageScore, in a statement.

Here’s what student loan borrowers should know about their credit scores.

Around 9.2 million people — 43% of the roughly 22 million borrowers with payments due — are behind on their payments, according to the VantageScore report.

The delinquencies will pop up on credit reports between now and May.

Those borrowers’ credit scores will likely take a hit, triggering a cascade of other financial consequences, said Cathy Curtis, a certified financial planner and the founder and CEO of Curtis Financial Planning in Oakland, California.

“Borrowers with past-due student loans and lower credit scores face higher borrowing costs across the board — from mortgages, car loans and credit cards,” said Curtis, a member of CNBC’s Advisor Council.

The borrowers can apply for an income-driven repayment plan, which will cap their monthly bill at a share of their discretionary income. Many borrowers end up with a zero monthly payment. As of now, the applications for IDR plans are unavailable while the Education Department makes sure its plans comply with a new court order. But you should be able to access one in the coming months.

Borrowers can also apply for a number of deferments or forbearances, which can pause your payments for a year or more.

Additionally if you’re already in default on your loans, you should consider rehabilitating or consolidating your debt, experts said.

Rehabilitating involves making “nine voluntary, reasonable and affordable monthly payments,” according to the Education Department. Those nine payments can be made over “a period of 10 consecutive months,” its web site notes.

Consolidation, meanwhile, may be available to those who “make three consecutive, voluntary, on-time, full monthly payments.” At that point, they can essentially repackage their debt into a new loan. (The online loan consolidation application is also temporary unavailable.)

If you don’t know who your loan servicer is, you can find out at Studentaid.gov.

Experts also recommend that you check your credit reports regularly for free at AnnualCreditReport.com to make sure all three credit rating companies — Experian, Equifax and TransUnion — are showing your correct student loan balance and payment status.