A growing student loan crisis could deal a major blow to the credit health of millions of Americans, with new research revealing that more than 9 million borrowers are at risk of seeing their credit scores plummet in the first quarter of 2025.
Delinquencies Reach Unprecedented Highs
The Federal Reserve Bank of New York’s biennial report, released Wednesday, paints a stark picture of the student loan landscape following the disruption caused by the Covid-19 pandemic. According to the 2025 Student Loan Update, approximately 15.6% of federal student loans were likely delinquent by the end of last year — the highest figure ever recorded. That translates to over $250 billion in overdue debt spread across nearly 9.7 million borrowers.
Data Still Incoming
The report’s figures are based on available data from Federal Student Aid through September 30, 2024, with updated fourth-quarter statistics expected after March 31. However, the early signs suggest an escalating financial challenge for millions of student loan holders as the long-term pandemic relief measures come to an end.
Credit Scores Under Threat
Delinquency on student loans carries serious consequences. The New York Fed found that borrowers entering default typically see their credit scores take sharp dives — around 87 points for those with subprime credit, and a staggering 171 points for borrowers who previously maintained superprime ratings.
This potential damage comes just months after the expiration of the Biden administration’s one-year “on-ramp” — a policy that shielded borrowers from credit score penalties due to missed payments. That buffer period officially ended on September 30, 2024, putting many borrowers back at risk of credit harm.
Pandemic Relief Wears Off
During the height of the pandemic, federal student loan payments were paused for over three years, giving millions a temporary reprieve. Many took advantage of the break to reduce their balances, but others were caught in political and administrative limbo as student loan forgiveness plans faced repeated legal obstacles.
Post-Pause Payment Patterns Shift
Since payments resumed in fall 2023, some borrowers have continued to make progress on their loan balances. Still, the New York Fed noted a concerning trend: a sizable portion of borrowers saw their balances either stay the same or increase, a pattern far more common than before the pandemic. This was likely due to non-payment and the widespread use of administrative forbearance — many borrowers were still waiting on resolution around income-driven repayment plans such as the Saving on a Valuable Education (SAVE) plan, which has been tangled in lawsuits.
Wider Financial Pressure Builds
Student loans don’t exist in a vacuum. As financial strain grows, experts warn that borrowers might begin falling behind on other obligations — credit cards, car loans, or mortgages — as the burden of student debt takes priority.
“It’s the ‘you can’t get blood from a stone’ idea,” said Ted Rossman, senior industry analyst at Bankrate. “That money’s got to come from somewhere. So people may be falling behind on other [debt] because of the student loan burden.”
Borrowers Facing Uncertainty
The situation could worsen amid proposed actions under the Trump administration, which include dismantling the Department of Education and freezing new applications for income-driven repayment plans. Such policy changes threaten to make an already fragile system even more difficult to navigate for borrowers attempting to regain financial footing.
A Fragile Moment for Millions
Although student loan borrowers make up a relatively small segment of the broader consumer economy, the latest data underscores the growing vulnerability in household finances. With economic uncertainty, rising interest rates, and the threat of a potential recession all looming, student loan debt is quickly becoming a flashpoint in America’s financial outlook for 2025.
