The recent Federal Debt Ceiling law officially ends federal student loan forbearance by the end of August 2023.  As a result, a large percentage of nearly 40 million Americans who have not made payments on their federal student loans in the past three years and who are facing new payment obligations may experience changes in their credit scores, according to new VantageScore research.[1]

Analyzing credit bureau information from all three Nationwide Credit Reporting Agencies (NCRAs), VantageScore estimated the impact of the new law. Student loan borrowers in forbearance collectively owe almost $1.3 trillion in federal loans, as of December 2022, according to the Department of Education. 

VantageScore’s findings include:

SIGNIFICANT POTENTIAL IMPACT: Based on repayment behavior prior to the start of the forbearance period, VantageScore estimates that a range of scenarios are possible indicating that between 34% to 76% of borrowers may miss their first required federal student loan payment, resulting in a decline in their credit score after those delinquencies are reported to the credit bureaus (delinquencies are not expected to be reported until December 2024). Depending on the scenario, the national average VantageScore could decline between 1 point and 9 points.

BORROWERS RESUMING PAYMENTS MAY EXPERIENCE SCORE INCREASES UP TO 8 POINTS: Student loan borrowers who resume their payments on time will likely experience a score increase of up to 8 points on average. 

BORROWERS NOT RESUMING PAYMENTS THAT ARE REPORTED DELINQUENT HAVE HIGHEST SCORE DECLINE: Most of the estimated score decrease – varying between 49 and 82 points on average per consumer reported delinquent – will likely be experienced by borrowers who will not be resuming their student loan payments at the end of the three-year pause at the time when the new delinquent event will be reported on file.

In August of 2022, the Department of Education introduced the “Fresh Start” program, designed to aid borrowers who have defaulted on their student loans.  To learn more about this program and how to help avoid payment hardships, VantageScore has provided a helpful Fresh Start Score Impact FAQ.

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Please note that this information is provided for educational purposes only. Importantly, an individual’s credit profile and credit score is unique and the exact impact on an individual’s credit score will vary depending on various factors.

[1] VantageScore credit scores are generated by the nationwide consumer reporting agencies (Equifax, Experian and TransUnion). VantageScore does not own or maintain credit data pertaining to specific individual consumers.