In the past year, credit scores have declined at their fastest rate since the Great Recession as borrowers deal with elevated inflation, high interest rates, and an uptick in student loan delinquencies.
Student loan delinquencies started showing up on borrowers' credit reports in February 2025, according to FICO. Severe delinquencies, or loans that are late by 90 days or more, rose to 9.8% in April 2025, up from 7.9% in April 2024.
If you are shopping for a home and have been pre-approved prior to a student loan delinquency, your pre-approval may no longer be valid. Your credit score is a vital aspect of the home financing process, which is why it’s important to take steps to ensure your student loan payments are current and sustainable.
Over 15% of Student Loan Borrowers Behind on Payments, Substantial Effects on Credit Scores
Student loan collection activity was suspended during the pandemic. The relief period officially expired on Sept. 30, 2024, and student loan delinquencies began showing up on credit reports in February 2025.
The consequences of missed payments can extend to decreasing credit scores, as well as the garnishment of wages and retirement benefits.
A recent report conducted by the Federal Reserve Bank of New York finds that over 15% of all student loan holders are likely now behind on debts. Those affected could face a tougher time getting access to home or auto loans or see their credit card limits lowered.
The New York Fed’s researchers also found that a student loan delinquency can knock more than 150 points from the FICO score of someone with around average credit.
The expected drop was highest for borrowers who start with the best scores. Among those with scores under 620, delinquencies could lead to an average 87-point decline.
The aggregate effect on overall credit access will largely depend on the previous credit standing of those with past due loans, but may result in reduced credit limits, higher interest rates for new loans, and overall lower credit access.
How Student Loan Borrowers Can Protect Their Credit
Student loan borrowers struggling to make consistent payments have options to stay on track and protect their credit.
Borrowers can apply for an income-driven repayment plan, which will cap their monthly bill at a share of their discretionary income. Many borrowers end up with a monthly payment of zero.
The Education Department recently re-opened several IDR plan applications, following a period during which the plans were unavailable.
Borrowers can also apply for a number of deferments or forbearances, which can pause your payments for a year or more. It may show up on your credit report that you’re not currently making payments on your loan, but you shouldn’t be flagged as late.
Visit Studentaid.gov to determine your student loan servicer and the best repayment options for your circumstances.
Closing Thoughts
If you have missed student loan payments, check your credit reports regularly for free at AnnualCreditReport.com to make sure all three credit rating companies, Experian, Equifax, and TransUnion, are showing your correct student loan balance and payment status.
Student loan debt can make it harder, but not impossible, for you to get a mortgage. Lenders consider your student loan debt when they assess your mortgage application and may deny you if your debt-to-income (DTI) ratio is too high.
If you fall behind on your student loan payments, the impact on your credit score can be another barrier to homeownership. Paying student loan bills every month can also make it difficult to save for a down payment and closing costs, but there are grants and down payment assistance programs available.
With some guidance and the right financial strategy, you can still get a mortgage with student loans still on your plate. If you’re ready to take the next step towards homeownership, get in touch with us today.
