URGENT UPDATE: Americans are facing a dramatic drop in credit scores due to skyrocketing student loan delinquencies, now at an all-time high. A new report from Fair Isaac Corporation (FICO) reveals that over 10% of borrowers with student loans have not made a payment in more than 90 days, marking a critical moment for millions of consumers.
As of April 2023, FICO reported that 6.1 million Americans have had a student loan delinquency recorded on their credit files, a significant increase from just 7.9% last year to 9.8% this April. This surge represents a staggering 25% jump in just one year. With 21 million consumers being assessed in this report, the implications are vast, affecting credit scores across the nation.
The impact on credit scores is severe. Borrowers with delinquencies have seen an average drop of 69 points, pushing many below the crucial 600 mark. Alarmingly, 25% of these individuals have reported declines of over 100 points. In contrast, another 1.9 million consumers, who have not made any payments since last October, have managed to maintain modest increases in their credit scores, averaging just a 2-point rise.
The situation is particularly troubling for Gen Z borrowers, who have experienced the largest year-over-year score drop since 2020. With 34% of this demographic holding student loans—double the rate of the general population—the urgency of addressing this financial crisis cannot be overstated.
This alarming trend marks the first significant impact on credit scores from unpaid student loans since the CARES Act allowed federal student loan payments to be paused until October 2023. However, delinquencies began appearing on credit reports only recently, following the U.S. Department of Education’s “on-ramp” period, which extends from October 1, 2023 to September 30, 2024. This period delayed the reporting of delinquencies, but they started showing up in February 2023 due to the standard 90-day lag for reporting after payments are overdue.
In response to this escalating crisis, experts emphasize the importance of payment history in determining credit scores, accounting for about 35% of the overall score calculation. As millions of borrowers grapple with the repercussions of missed payments, their financial futures hang in the balance.
As this situation unfolds, borrowers are urged to take immediate action to avoid further damage to their credit profiles. Understanding options for repayment and seeking financial advice could be vital steps in mitigating the risk of long-term credit issues.
Stay tuned for further updates on this developing story, as the ramifications of these delinquencies continue to affect millions of Americans.
