The Impact of Student Loans on Your Credit Score: A Comprehensive Guide
Student loans are a significant financial undertaking for many individuals pursuing higher education. Understanding how these loans affect your credit score is crucial for managing your financial health and future opportunities. This article delves into the multifaceted relationship between student loans and credit scores, providing a comprehensive overview for students, graduates, and anyone considering financing their education.
Student Loans and Credit Reports: The Basics
Similar to other financial commitments, student loans appear on your credit reports. They function as installment loans, much like auto loans or mortgages. This means borrowers repay a principal amount borrowed, along with interest, over a defined period. Your credit score, a numerical representation of your creditworthiness, is calculated based on the information in your credit report. A FICO credit score, a widely used type, ranges from 300 to 850, with higher scores indicating better credit.
Zehra Mehdi-Barlas, director of public relations for Global Consumer Solutions at Equifax, notes that student loans can be a way to establish credit history if they are paid off responsibly. Establishing a responsible credit history may also lead to other opportunities for vehicle loans or mortgages.
How Student Loans Impact Your Credit Score
Student loans impact your debt to income and debt to credit ratios. Your debt to income ratio is the amount of debt you owe divided by your income; your debt to credit utilization ratio is the amount of credit you're using compared to the amount of credit available to you.
Several factors contribute to your credit score, and student loans can influence these in various ways:
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- Payment History: This is the most critical factor, reflecting whether you make payments on time. Timely student loan payments contribute positively to your credit score, while late or missed payments can significantly damage it. This calculation relies on your on-time payments.
- Credit Utilization: This measures the amount of credit you're using compared to your total available credit. Student loans, as installment loans, don't directly affect credit utilization in the same way as credit cards. However, they contribute to your overall debt burden, which lenders consider.
- Length of Credit History: A longer credit history generally leads to a better credit score. Taking out student loans as a young adult can increase the amount of time you have had credit, which could raise your score. Student loans may be one way to establish credit history.
- Credit Mix: Having a mix of different types of credit accounts (e.g., credit cards, installment loans) can positively impact your credit score. Student loans add to this mix.
- New Credit: Opening multiple new credit accounts in a short period can lower your credit score. While taking out student loans might initially cause a slight dip, the long-term benefits of responsible repayment outweigh this effect.
- Credit inquiries: A credit inquiry is a request to look at your credit file, which can result in either a hard or soft credit pull. Hard inquiries are the only credit pulls that can have a negative impact on your credit score and usually stay on your credit report for up to two years. Most federal student loans do not require a hard inquiry on your credit report. Currently, Direct PLUS loans are the only federal student loan option that requires a hard inquiry. This type of loan is only available to graduate and professional students, and parents of dependent undergraduate students. On the other hand, private student loans may require a hard credit inquiry, which can impact your credit score.
The Impact of Delinquency and Default
The consequences of not paying your student loans can be severe. When households stop paying their student loans, their credit scores will go down. Missing payments can lead to delinquency, which is reported to credit bureaus. Loans under the Federal Direct Loan Program or Federal Family Education Loan Program are considered in default if payments are missed after 270 days. Defaulting on a student loan may result in withheld wages and no further access to federal aid until the debt is settled or a repayment plan has been approved.
A Q2 2025 TransUnion analysis found that 31% of federal student loan borrowers with a payment due have been reported as 90 or more days delinquent.
The Trump administration's resumption of student loan payments earlier this month is taking a toll on many borrowers' credit records. Credit scores dropped by more than 100 points for 2.2 million delinquent student loan borrowers from January through March of 2025, according to recent data from the Federal Reserve Bank of New York. Another 1 million borrowers experienced credit score drops of at least 150 points for the first three months of 2025.
The New York Fed analysis showed that if missed payments come largely from those with lower scores, the aggregate impact will be smaller because those with low credit scores will see smaller declines and already have relatively limited credit access. However, if prime and superprime borrowers fell behind on student loan payments, the aggregate drop in credit standing among student loan borrowers could be much larger. This would result in reduced credit limits, higher interest rates for new loans, and overall lower credit access.
Using data from 2016 to 2019, the Federal Reserve Bank of New York estimated the credit score impact of a new reporting of a 90 (or more) days past due student loan delinquency by borrower credit score band prior to the delinquency. The table below shows the average change in credit score for borrowers the quarter after they experienced a new delinquency of 90 or more days past due:
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| Credit Score Before New Delinquency | Average Credit Score Change Associated with New Student Loan Delinquency |
|---|---|
| Less than 620 | -87 |
| 620-659 | -143 |
| 660-719 | -165 |
| 720-759 | -165 |
| 760 or higher | -171 |
Given these estimates, we expect to see more than nine million student loan borrowers face substantial declines in credit standing over the first quarter of 2025.
Megan Cerullo, a New York-based reporter for CBS MoneyWatch covering small business, workplace, health care, consumer spending and personal finance topics, noted that a low credit score makes securing future loans both more difficult and more costly, pushing milestones like buying a home, or saving for retirement, further out of reach.
Tushar Bagamane, CEO of budgeting tool Vola Finance, told CBS MoneyWatch that the long-term issue is they'll have trouble accessing other types of loans in the future, like mortgage and car loans. It's easier to build credit scores when you don't have negative data, but when you have a delinquency, it's hard to come out of that. It takes a lot of effort. Consumers with multiple delinquencies report having to pay "exorbitantly high on interest" on larger loans once a delinquency impacts their credit score, Bagamane said.
Zwemmer, of Oxford Economics, noted that a delinquency remains on one's credit report for seven years, and so avoiding becoming delinquent on a loan in the first place is the best course of action.
Jason Ackerman, a certified public accountant and co-founder of WealthRabbit, a retirement planning platform, said that as their credit scores drop, those who can least afford to shoulder higher borrowing costs will see their rates rise. Younger people are getting further behind on the American dream of buying a house and saving for retirement.
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The Pandemic Forbearance and Its Impact on Credit Scores
The pandemic forbearance on federal student loans naturally had a rather large impact on credit scores for affected borrowers. Page 8 of the Student Loan Update shows an 11-point increase in median credit scores for student loan borrowers from the end of 2019 to the end of 2020; however, these increases were particularly large for borrowers who had a previous delinquency. The 2020 forbearance marked all delinquent (but not defaulted) loans as current, causing a jump of 74 points, from 501 to 575, in the median score between 2019:Q4 and 2020:Q4 for those borrowers who were previously delinquent but not defaulted. Defaulted borrowers saw a gradual rise in credit scores as their negative marks aged and as some borrowers voluntarily rehabilitated their defaulted loans. However, in the fourth quarter of 2022, the Fresh Start program marked all defaulted loans as current, increasing the median score for those with a default in 2019 by 44 points, from 564 in 2022:Q1 to 608 in 2023:Q1. By the end of 2024, those borrowers with loans in delinquency or in default saw scores that were 103 and 72 points higher, respectively, than at the end of 2019.
However, with the end of the forbearance period, borrowers receiving a new delinquency will see a drop in their credit score. This may signal a reversal of the positive credit score trend seen during the pandemic, which would lead to reduced credit limits and higher interest rates for new loans.
Managing Student Loans for a Healthy Credit Score
Here are some essential tips for managing your student loans and protecting your credit score:
- Make On-Time Payments: This is the most crucial step. Set up automatic payments to avoid missing deadlines. If you're late with or miss a single payment, it may not affect your credit score depending on the loan type and how long it takes for you to make the payment.
- Choose the Right Repayment Plan: Explore different repayment options, such as income-driven repayment plans, which can lower your monthly payments based on your income and family size. You can change your repayment plan for federal loans at any time at no cost. You'll just need to reach out to your loan servicer to discuss your repayment plan options to determine which one works best for you.
- Communicate with Your Loan Servicer: If you're struggling to make payments, contact your loan servicer immediately. They may be able to offer solutions like forbearance or deferment, which can temporarily postpone your payments. In addition, after you graduate, you may be eligible for a deferment or forbearance in certain circumstances. For example, it may be possible to consolidate or refinance your loans or enter an income-driven repayment plan.
- Avoid Default: Defaulting on your student loans has severe consequences, including damage to your credit score, wage garnishment, and loss of eligibility for future federal aid.
- Monitor Your Credit Report: Regularly check your credit report for any errors or inaccuracies. You can get your credit report for free each week at annualcreditreport.com. You can see your payment history for loans on your credit report. With each account, you will see a month-by-month breakdown of your balance, scheduled payment, and the amount paid. If you suspect youâve been the victim of fraud, you can submit a dispute.
- Track Your Loans: Make sure to track all your loans, noting their repayment dates and monthly payment amounts, so you can adjust your budget and avoid missed payments. There are online tools available to help you track your student loans, or you can create your own spreadsheet. Consider consistently monitoring your credit report as well to be sure your payments and balances are reported correctly.
- Consider Refinancing: If you have private student loans, refinancing to a lower interest rate could save you money and potentially lower your monthly payments. When you refinance your student loans, a lender will pay off your debt and issue a new private student loan. This new loan may come with a lower interest rate or a different term or length of time you have to pay the loan. Over time, it could save you quite a bit of interest. It could also lower your monthly payment amount while lengthening your repayment term. However, be aware that refinancing federal loans into private loans means you can no longer tap any of the benefits that come with the federal program, such as income-driven repayment, loan forgiveness, forbearance or deferment.
Student Loans and Mortgages
Student loans will appear on your credit report. Mortgage lenders will look at your credit history to determine your mortgage eligibility. Your loans, which include student loans, will be used to measure your debt-to-income ratio. If you have a student loan and you're shopping for other loans or credit, your student loan may affect your options because of its impact on both ratios.
The Lingering Presence on Your Credit Report
There is nothing you need to do to remove student loans from your credit report. Loans closed in good standing will remain on your credit report for up to 10 years. Adverse information, like a missed payment, can remain on your credit report for seven years.
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