The reprieve is over. The pandemic-related breathing room from student-loan payments is done, and the financial reality of repayment has returned for millions of borrowers.
But beyond the strain on monthly budgets, a more significant consequence is hitting those who fell behind: Their credit scores are now dropping because their history of missed payments will return to their credit reports.
If this is you, I can understand that you may be panicking and feeling blindsided, particularly if you saw a significant increase in your credit score.
Thanks to the payment pause that began during the pandemic, borrowers with loans in delinquency saw their scores jump by 103 points between 2019 and 2024, according to a New York Federal Reserve analysis released in March.
An increase that high can make a huge difference, pushing someone into an advantageous credit tier that qualifies them for the best mortgage or auto loan rates.
Now, the New York Fed estimates that more than 9 million borrowers will see their credit scores nosedive as negative information migrates back into their files.
“It is reasonable to expect student loan delinquency to surpass pre-pandemic levels when new delinquencies hit credit reports,’’ the New York Fed report candidly pointed out.
But the climb back to a good credit range is doable if you make consistently smart and responsible financial choices moving forward and avoid sketchy companies offering rapid, unrealistic solutions.
Here’s the truth about navigating the aftermath of student loan delinquency if your score dropped dramatically.
Employers cannot see your credit score
Credit scores are expressed in three digits — typically ranging from 300 (bad) to 850 (excellent) — for the widely used FICO score and the latest version of VantageScore, a scoring model jointly managed by the three major bureaus — Equifax, Experian, and TransUnion. On a basic level, it’s a snapshot of your creditworthiness.
It’s reasonable for you to be concerned that a potential employer will deny you a job because you have a subpar credit score.
However, when an employer pulls your credit file as part of a background check, the company receives a modified version of your report that excludes that all-important three-digit score.
It does list, however, your payment history and outstanding debts. If you’re denied a position because of your credit history, under the Fair Credit Reporting Act, the employer must notify you and give you a summary of your rights.
At least 11 states and various local jurisdictions have enacted legislation that either prohibits employers from accessing credit reports for hiring purposes or limits how they can use that information when making employment decisions, according to Nolo, an online self-help legal website.
Before an employer can access your credit report, they must obtain your explicit consent. Typically, an employer’s interest in reviewing your credit file is to confirm your identity or to assess your history of managing your finances responsibly, particularly if the position involves handling a lot of money or needs a government security clearance.
If you know your score was tanked primarily because of delinquent student loans, I recommend that you be forthcoming with a prospective employer about why you fell behind — for example, job loss or underemployment — and what you’re doing to address the situation.
Your score could improve sooner than you think
Here’s something that works in your favor: Credit scoring is fluid, not static, because creditors are regularly sending information about how you handle your debts. Paying your bills on time and whittling down debt both positively impact your credit history.
Thirty-five percent of your score is your payment history. Start paying your student loans on time, and your score will soon creep up.
Another effective way to boost your score is to knock down your debt. Thirty percent of your score is derived from how much you owe. So carrying a lot of credit card debt can drag your score down.
If you have credit cards, reducing your balances is more critical than ever. Aim for a credit utilization rate — the share of available credit you’re using — that’s below 30 percent and ideally in the single digits. High credit card utilization can further damage an already low credit score.
Based on my work with borrowers, assuming your credit file contains other positive information, taking these steps should, on average, begin to show improvement in your score within a year.
Communicate with your lender
I’ve worked with borrowers who have complained that they didn’t know they were behind because they haven’t heard from their student loan servicers.
It’s your responsibility, however, to understand where you stand with your loans. Don’t wait to be contacted.
You also need to ask about your repayment options. Although there’s a lot of confusion around income-driven repayment plans because of policies implemented by the Trump administration, contact your loan servicer anyway. The Education Department has resumed accepting applications for some of its most affordable income-driven repayment plans.
If you can’t pay, let your lender know. You might qualify for forbearance or deferment if you’re facing temporary financial hardship.
For federal student loans that have gone into default, there are specific rehabilitation programs available, typically involving monthly payments over a set period.
Don’t fall for promises of a quick fix
There are a lot of scams preying on student loan borrowers. Don’t be swayed by promises of instant credit score repair.
Keep your money to help pay down your loans. Besides, you can’t buy time from these companies — and that, along with financial discipline, is what it takes to boost a damaged score.
Negative information such as late payments can stay in your file for seven years, but recent delinquencies — 30, 60, and 90 days late — carry a heavier weight than older debts.
Don’t get discouraged if you don’t see a dramatic jump in your score immediately after making on-time payments or entering a rehabilitation program.
You can rebuild your credit. Each on-time payment and every dollar reduction in your debt is a step closer to the restoration of a favorable credit score.
Michelle Singletary can be reached at michelle.singletary@washpost.com.
