President Donald Trump’s efforts to dismantle the Education Department, and limit access to student loan forgiveness, is sparking increased financial stress among student borrowers. Now an estimated 9.7 million student-loan borrowers, who owe more than $250 billion, face a hit to their credit scores as pandemic-era measures to limit the consequences of non-payment fade away, according to Federal Reserve Bank of New York’s Research and Statistics Group.
“It is reasonable to expect student loan delinquency to surpass pre-pandemic levels when new delinquencies hit credit reports…,” the New York Fed said in a blog post last week. “Borrowers enrolled in the SAVE Plan are in forbearance due to federal litigation of the SAVE Plan.”
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In February, a federal appeals court blocked the Biden administration’s $475 billion Saving on a Valuable Education (SAVE) student loan relief plan. The court sided with the seven Republican-led states that filed a lawsuit against the U.S. Department of Education’s SAVE plan
Following that ruling, President Biden sought to continue providing student debt relief, as he did throughout his presidency, through cancellations for specific groups, such as those with permanent disabilities or those who attended schools that defrauded students. By the time he left office, he had forgiven $183.6 billion in student loans for more than 5 million borrowers.
A pause on student loan payments during the pandemic was extended in 2022 when the Biden administration said it would cancel student loans for more than 40 million borrowers, however, the Supreme Court threw out that decision a year later.
Related: Student loan borrowers ‘freaking out’ over Trump’s education department cuts
Then the Biden administration instituted a 12-month "on-ramp period" through September 2024 that froze notices to credit agencies about missed payments. “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,” said the blog.
However, reporting of student loan delinquencies resumed after the Jan. 1 deadline. “Delinquencies will hit credit reports over a rolling window as borrowers with missed payments advance beyond 90 days past due,” according to the Federal Reserve.
“We expect to see more than nine million student loan borrowers face substantial declines in credit standing over the first quarter of 2025,” concluded the Federal Reserve.
Some good news for borrowers: This week, the Trump administration reopened online access for the income-driven repayment plan (IDR), which is intended to allow borrowers to make payments based on their income.
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
