How Restarted Student Loan Collections Are Crushing Credit Scores
Explore how the resumed student loan collections are driving credit score drops for millions, reshaping financial realities, and what borrowers can do to navigate this challenging landscape.
Key Takeaways
- Restarted student loan collections cause sharp credit score drops.
- Millions face 100+ point credit score declines, impacting loans and housing.
- Government uses wage garnishments and tax refund seizures aggressively.
- Borrowers struggle with higher monthly payments post-pandemic pause.
- Older borrowers and those with disabilities are especially vulnerable.
Millions of Americans are feeling the financial squeeze as the U.S. government has resumed collections on overdue student loans. After a pandemic-era pause that lasted from March 2020 through October 2024, the Trump administration reignited efforts to collect on defaulted loans, including wage garnishments and tax refund seizures. This shift has sent shockwaves through borrowers’ credit scores, with some dropping over 150 points—damage comparable to bankruptcy. Stories from Detroit to Boise reveal the human side of these numbers: borrowers juggling medical bills, rent, and rising loan payments. This article unpacks the credit score fallout, explores the broader economic ripple effects, and offers insights into navigating this new financial terrain.
Understanding Credit Score Drops
Imagine waking up one morning to find your credit score has plunged by 100 points or more overnight. That’s the reality for millions since student loan collections resumed. When borrowers miss payments for 90 days, loan servicers report these delinquencies to credit bureaus, which then slash credit scores. The Federal Reserve Bank of New York revealed that in early 2025, 2.2 million borrowers saw their scores drop by 100 points, and another million experienced declines exceeding 150 points. Such steep falls aren’t just numbers—they translate into higher interest rates, tougher loan approvals, and even challenges renting apartments.
Kat Hanchon’s story from Detroit puts a face on these stats. Her score dropped 57 points, pushing her below the 600 mark, into subprime territory. Despite enrolling in an income-driven repayment plan, her monthly bill jumped to $358, forcing her to prioritize medical bills over loans. This domino effect shows how credit score drops can tighten financial nooses, making everyday expenses more costly and access to credit more elusive.
Navigating Higher Payments Post-Pandemic
The pandemic pause on student loan payments was a financial lifeline for many. But as the pause ended in October 2024, borrowers faced a harsh reality: monthly payments surged. Kat’s $150 pre-pandemic payment ballooned to $358, a jump echoed by many. Andrew McCall, 58, from Boise, Idaho, struggles with $250 to $300 monthly bills on $30,000 of remaining debt. He worries how a damaged credit score will ripple through his life—from housing to transportation.
This sudden spike in payments amid inflation and layoffs leaves borrowers caught between a rock and a hard place. Medical expenses, rent, and daily costs compete with loan bills, forcing tough choices. The government’s promise of bills arriving three weeks before due dates hasn’t always materialized, leaving some like Dom Holmes blindsided by delinquency notices. The result? A growing number of borrowers falling behind despite their best efforts.
Facing Wage Garnishments and Tax Seizures
The Trump administration’s restart of collections isn’t just about sending bills—it’s about action. Wage garnishments and tax refund seizures are now tools to compel repayment. Borrowers like Tracy Davis, who voted for Trump hoping for relief, now face nearly $400 monthly payments and credit hits. She worries about wage garnishment despite trying to pay what she can.
The Department of Education paused garnishing Social Security benefits but plans to begin wage garnishments later in the summer. This aggressive stance shifts student loans higher in the payment hierarchy, meaning borrowers might prioritize these debts over credit cards or other loans. For many, this means tighter budgets and increased financial stress. The government’s message is clear: unpaid student loans won’t be ignored, but the human cost is palpable.
The Cross-Generational Impact
Student loan delinquency isn’t confined to fresh graduates. The Federal Reserve Bank of New York found borrowers aged 40 and older are most likely to be delinquent. Andrew McCall’s story highlights this trend—decades after earning his degrees, he still battles $30,000 in debt. Meanwhile, younger borrowers like Dom Holmes face credit score drops that threaten their ability to rent homes or start families.
Miranda Metheny, disabled and supporting two children, faces $600 monthly disability insurance bills and student loan defaults. She voices a common fear: “We’re not all billionaires.” The financial strain spans generations, underscoring that student loan debt is a long shadow affecting diverse lives. This cross-generational burden complicates economic recovery and personal milestones alike.
Rethinking Student Loan Myths
The myth that student loans are a victimless debt is challenged by the current collection surge. Linda McMahon, Trump’s education secretary, emphasized that unpaid loans shift costs to taxpayers. Yet, many borrowers feel caught in a system that doesn’t account for their realities. Some, like Cheri, support repayment but find collections after a pandemic pause “a very drastic move.” Others, like Miranda Metheny, express buyer’s remorse over voting decisions tied to loan policies.
Experts like Kevin King note that confusion over forgiveness policies led many to deprioritize student loans. Now, with the government wielding strong collection levers, borrowers must rethink payment priorities. The idea that student loans can be ignored without consequence is fading fast. Understanding these shifts helps borrowers make informed choices and challenges the notion that student debt is just a personal problem—it’s a societal one.
Long Story Short
The restart of student loan collections has unleashed a wave of credit score declines that ripple far beyond monthly bills. For millions, the jump from pandemic relief to aggressive repayment feels like a financial earthquake shaking foundations built on hope and hard work. The stories of Kat, Andrew, and others remind us that behind every number is a person balancing priorities in a strained economy. While the government’s push for accountability is clear, the path forward demands careful navigation—prioritizing payments, seeking repayment plans, and staying informed. As credit scores dictate access to homes, cars, and even jobs, borrowers must act swiftly but thoughtfully. The road ahead is tough, but understanding the stakes and options can help steer through the storm toward financial stability.