Bracing for Impact: Navigating the Shifting Tides of Student Loan Repayment

The landscape of consumer credit is undergoing a significant transformation, largely driven by the resumption of federal student loan delinquency reporting. As a result of the COVID-19 pandemic, federal student loans borrowers entered a forbearance period in March 2020.  After the extended forbearance period ended and payments on these loans resumed in October 2023, millions of borrowers are now navigating a complex financial reality, and lenders must prepare for the potential ripple effects.

Following the resumption of federal student loan payments, there was an on-ramp period that delayed the reporting of missed payments to consumer reporting agencies for another year, which ended in October 2024 and set the stage for the Department of Education to resume reporting in January 2025.

During the February Market Pulse webinar, Rikard Bandebo, EVP, Chief Strategy Officer and Chief Economist at VantageScore and Tom O’Neill, Senior Advisor at Equifax engaged in a Q&A, moderated by Equifax Advisory Leader Emmaline Aliff, on the resumption of reporting of federal student loan delinquencies and its impact on credit.

The Resumption Reality

Approximately 2.5 million borrowers are anticipated to be reported as delinquent within the first month of reporting resumption. This number could surge to 9 million in the coming months. An additional consequence is the reclassification of 2.4 million accounts from “Paid as Agreed” to “In Collections.” These shifts are already appearing on credit files and will continue to do so incrementally in the near term.

A Changed Financial Landscape

One cause of concern for both borrowers and lenders is that borrowers are not in the same financial position they were five years ago when reporting was paused. Many have accumulated additional debt, particularly through credit cards and auto loans. This means the resumption of student loan delinquency reporting is occurring within a very different debt context.

There are 31 million federal student loans, with 21 million borrowers currently expected to make payments. As of February 2025, 43% of loans due may not be current, amounting to approximately 9.2 million borrowers, with the average student loan debt is just under $30,000. Plus, the recent shuttering of the Saving on a Valuable Education, or SAVE, program means an additional 8 million people will now be required to make payments, which is expected to further increase reported delinquencies throughout the summer months.

Who is Most at Risk?

Research conducted by VantageScore indicates that borrowers most likely to be reported past due have at least one of the following statements apply to them:

• They had a delinquency, default, or derogatory event on any loan in the year prior to the payment/reporting pause (May 2019 – May 2020).

• They had a delinquency, default, or derogatory event on any non-student loan account during the payment/reporting pause (June 2020 – December 2024).

• They had a new collection or public record/bankruptcy during the payment/reporting pause (June 2020 – December 2024).

Distribution of Borrowers Likely to Be Delinquent

These delinquencies will not be isolated to just one or two population segments, with borrowers from subprime to super prime expected to be reported as delinquent. VantageScore estimates that the percentage of borrowers who are anticipated to fall delinquent by credit score segment are: 

• Subprime (300-600): 45%

• Near prime (601-660): 23%

• Prime (661-780): 29%

• Super prime (781-850): 3%

This means that 32% of borrowers likely to be past due currently have prime or super prime scores.

Impacts Across Generations

The resumption in reporting of federal student loan delinquencies affects multiple generations, not just the youngest one or two. However, younger generations, already facing growing financial pressures, may find it harder to make payments and avoid delinquency. Attempts to avoid delinquency could lead to some financial behavioral changes by borrowers, such as switching to minimum credit card payments rather than paying the full balance, altering spending habits, or depleting the amount or ability to save. With a growing number of Gen Zs on credit files, the long-term ramifications of federal student loans are significant.

Credit Score Implications

One major concern for both lenders and federal student loan borrowers is exactly how these delinquencies will impact people’s credit scores. Bandebo estimates borrowers who go delinquent will see average score drops according to credit population segments: 

• Super prime: 129-point drop

• Prime: 79-point drop

• Near prime: 51-point drop

• Subprime: 36-point drop

These shifts will lead to changes in these score band populations. Approximately 2.1 million people are expected to fall out of prime, and the subprime population is projected to grow by about 2.3 million.

Recommendations for Lenders

To navigate these shifts, Bandebo and O’Neill recommend that lenders should:

• Take a holistic view of consumers: Consider the full financial picture, not just one aspect.

• Monitor consumer profiles frequently: Stay up to date on changes in credit behavior.

• Encourage at-risk customers to contact their servicers: Proactive communication can help borrowers avoid delinquency and the associated negative impact on their credit reports.

The federal student loan delinquency landscape is complex, but by staying informed and adapting strategies, lenders can effectively navigate these shifting tides and continue to serve their customers effectively.

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*The opinions, estimates, and forecasts presented herein are for general information use only. This material is based upon information that we consider to be reliable, but we do not represent that it is accurate or complete. No person should consider distribution of this material as making any representation or warranty with respect to such material and should not rely upon it as such. Equifax does not assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice. The opinions, estimates, forecasts, and other views published herein represent the views of the presenters as of the date indicated and do not necessarily represent the views of Equifax or its management.