Lori Meadows
Student loan debt can have a significant impact on an individual's credit score, and their ability to access credit in the future. While federal student loans do not require a credit check, and therefore do not factor into an individual's credit history, private student loans may require a credit check, which can impact loan rates and terms. An individual's credit score is calculated based on their payment history, the amount owed, credit utilization, and length of credit history. As such, missed payments on student loans can negatively affect an individual's credit score, with late payments remaining on credit reports for up to seven years. However, during the COVID-19 pandemic, the CARES Act ensured that paused payments did not affect borrowers' credit scores.
| Characteristics | Values |
|---|---|
| Impact on credit score | Not paying federal student loans can negatively affect one's credit score. |
| Factors considered by credit scoring companies | Payment history, amounts owed, credit utilization, credit history, and credit mix. |
| Delinquency | Delinquencies or missed payments beyond 90 days will be reported to credit bureaus and can result in a lower credit score. |
| Hard inquiries | Hard inquiries, such as loan applications, can also lower one's credit score, but to a lesser extent and for a shorter duration. |
| Federal student loan specifics | Most federal student loans do not require a hard inquiry or a credit check, so they may have less impact on credit scores than other types of loans. |
| CARES Act | According to the CARES Act, paused payments during the pandemic did not negatively affect credit scores. |
| Biden administration's stance | The Biden administration urged credit reporting agencies not to penalize individuals for missed student loan payments after the pause was lifted in 2023. |
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What You'll Learn
The CARES Act and student loan payments
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed on March 27, 2020, provided a six-month automatic payment suspension for any student loan held by the federal government. This period, from March 23 to September 30, 2020, was later extended to December 31, 2020. During this time, no interest was charged on federal student loans, effectively setting the interest rate to 0%. This meant that if you had a federal student loan, you didn't need to contact your loan servicer to request a suspension; the freeze was applied automatically. However, individuals could choose to continue making monthly payments if they wished.
The CARES Act also included provisions for borrowers enrolled in the Public Service Loan Forgiveness (PSLF) Program. Under the PSLF, borrowers who work in eligible public service jobs and make 120 on-time student loan payments are eligible to have the remaining balance on their federal Direct Loans forgiven. Importantly, the freeze on student loan payments under the CARES Act did not affect this 120-month running period. Each month of the suspension period still counted toward a borrower's 120-payment tally, even if they did not make any payments during the freeze.
It is important to note that not all student loans are issued by the federal government, and the CARES Act suspension applied only to federal student loans. Other student loans continued with their usual payment schedule unless the lender authorized a change.
The impact of the CARES Act on credit scores is also worth considering. According to some sources, the CARES Act ensured that paused payments during the suspension period did not negatively affect credit scores. However, once the pause was lifted, failing to make payments would likely hurt an individual's credit score.
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Delinquent federal loans and credit bureaus
Delinquent federal student loans can negatively impact an individual's credit score and their ability to secure future loans. Credit scoring models consider several factors, including payment history, amounts owed, credit utilization, and length of credit history. While federal student loans don't typically require immediate repayment, missing payments can damage your credit standing.
During the COVID-19 pandemic, negative reporting of past-due balances was paused, and borrowers in the SAVE Plan were granted forbearance due to federal litigation. However, as of 2025, credit reports are expected to reflect a significant increase in the delinquency rate for student loans. A Q2 2025 TransUnion analysis found that 31% of federal student loan borrowers with a due payment were reported as 90 or more days delinquent.
The impact of delinquent federal loans on credit bureaus and an individual's credit score varies. Firstly, delinquent federal loans can remain on an individual's credit report for up to seven years if the loan contains adverse information, such as missed payments. This can negatively affect their credit score and may be considered by lenders when evaluating future loan applications. Secondly, credit scoring models favour active accounts. Once a student loan account is paid and closed, there may be a temporary drop in the credit score due to the resulting decrease in the average age of active credit accounts.
Additionally, the Biden administration has urged credit reporting agencies not to negatively impact credit scores due to missed student loan payments, especially considering the challenges of restarting payments after a pause. However, the administration acknowledged their lack of control over how credit scoring companies factor in missed payments.
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Student loan debt and credit score variability
Student loan debt can have a significant impact on an individual's credit score, and this impact can vary depending on several factors. Firstly, let's understand the relationship between student loan debt and credit scores.
The Impact of Student Loan Debt on Credit Scores
Student loan debt can influence an individual's credit score in several ways. One of the most critical factors is payment history. Credit scoring models heavily weigh payment history, and late or missed payments on student loans can negatively affect an individual's credit score. Even a single missed payment can lower the credit score, and late payments can remain on the credit report for up to seven years. Therefore, it is crucial to stay on top of student loan repayment schedules to maintain a healthy credit score.
Another factor that contributes to credit score variability is the amount owed. Credit scoring models consider the total debt burden, and if an individual is not actively paying down their student debt, the accruing interest can increase the balance, negatively impacting their credit score. Lower balances are generally viewed more positively by credit scoring companies.
The length of credit history also plays a role in credit score variability. Student loans, being long-term debts, can help establish and build credit history. Credit scoring models favour active accounts, so once a student loan is paid off and the account is closed, there may be a temporary drop in the credit score due to the resulting decrease in the average age of active credit accounts.
The Influence of External Factors
During the COVID-19 pandemic, there was a pause on student loan payments, which resulted in a unique situation for borrowers. The CARES Act and other government interventions allowed for a temporary suspension of payments without negatively impacting credit scores. However, once the pause was lifted, individuals who continued to miss payments saw their credit scores take a hit.
Additionally, errors made by loan servicers, such as inaccurate disclosures and late billing statements, have also impacted borrowers' credit scores. In some cases, the Department of Education directed servicers to place affected borrowers into administrative forbearance to resolve these issues.
Managing Student Loan Debt for Optimal Credit Score
To maintain a healthy credit score in the context of student loan debt, it is essential to prioritize timely payments and stay up to date with repayment schedules. Individuals should also be mindful of the interest accrual on their student loans, as growing balances can negatively affect their creditworthiness.
Furthermore, it is crucial to track all loans, their repayment dates, and monthly payment amounts. Tools like studentaid.gov can help individuals stay organized and avoid missed payments. Additionally, regularly checking one's credit report and addressing any discrepancies or errors is vital for maintaining a positive credit history.
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Student loan payback schedules and credit scores
Paying or not paying federal student loans can have an impact on your credit score. According to TransUnion, a Q2 2025 analysis found that 31% of federal student loan borrowers with a payment due have been reported as 90 or more days delinquent. Even one missed payment can lower your credit score, and late payments can stay on your credit report for up to seven years.
During the post-pandemic period, the negative reporting of past-due balances will impact the credit scores of student loan borrowers. Delinquencies will hit credit reports over a rolling window as borrowers with missed payments advance beyond 90 days past due. According to the CARES Act, if you are not required to make payments, your loans are reported as in good standing each month, which positively impacts your payment history. However, your balance remains the same, keeping the amounts owed neutral.
Student loan payback schedules can affect your credit score in several ways. Firstly, your payment history is crucial, and maintaining a record of on-time monthly payments helps build your credit. Secondly, the length of your credit history matters. Closing student loan accounts, especially older ones, can lower the average age of your accounts, negatively impacting your score. Thirdly, your credit mix can be affected. Student loans are considered installment loans, and having only revolving credit remaining, such as credit cards, can negatively impact your score.
Additionally, hard inquiries on private student loans can lower your credit score. Direct PLUS loans, available to graduate and professional students and parents of dependent undergraduate students, are the only federal student loans that require a hard inquiry. To minimize the impact, it's advisable to shop around for student loans within a short period, ideally within two weeks.
While paying off student loans can cause a temporary dip in your credit score, it will typically rebound and may continue to increase over time as you practice good credit habits. Paying off student loans frees up cash flow, allowing you to focus on other financial goals and reducing your debt-to-income ratio. In the long run, paying off student loans can help improve your credit score and overall financial health.
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Student loan refinancing and federal payment programs
Student loan refinancing allows borrowers to consolidate multiple federal and private student loans into a single loan with a private lender, such as a bank or credit union. This can result in a lower interest rate and more affordable monthly payments. For example, Navy Federal Credit Union offers refinancing for both federal and private student loans, as well as parent refinance loans. They also allow borrowers to combine multiple loans into one monthly payment.
However, it is important to note that refinancing federal student loans with a private lender may result in the loss of certain federal benefits and programs, such as Public Service Loan Forgiveness, Income-Driven Repayment plans, forbearance, or loan forgiveness. These benefits offer flexibility in repayment options and can provide relief during financial hardships. Therefore, borrowers should carefully consider their options and consult official sources, such as Federal Student Aid, before deciding to refinance federal student loans.
Federal payment programs, such as the Income-Driven Repayment (IDR) plans, offer alternative solutions for borrowers seeking more manageable repayment terms. These plans set the monthly payment amount based on the borrower's income and can provide flexible options to align with the borrower's financial situation. However, it is worth noting that applications for IDR plans have been suspended due to federal litigation, impacting borrowers' ability to enroll in these plans.
During the COVID-19 pandemic, the CARES Act provided temporary relief by pausing student loan payments without negatively affecting credit scores. This measure helped borrowers maintain their credit standing, even if they were unable to make regular payments. While the CARES Act provisions have since expired, similar federal initiatives or payment pauses in the future could provide further assistance to borrowers struggling with student loan repayment.
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Frequently asked questions
Yes, not paying your federal student loans can negatively affect your credit score. Payment history is the most important factor in determining your credit score, so even one missed payment can lower your score. Late payments can stay on your credit report for up to seven years.
If your federal student loans are paused, your credit score will not be affected. According to the CARES Act, any paused payments are reported as being in good standing, the same as if you were making on-time payments in full.
If you don't make payments on your federal student loans after the pause is lifted, your credit score may be affected. While the Biden administration has urged credit reporting agencies not to negatively impact credit scores for missed payments after the pause, they do not control how credit scoring companies factor in missed or delayed payments.
If your federal student loans go into default, your credit score will be negatively affected. Defaulted loans are considered delinquent and will be reported as such on your credit report, which can lower your score.
Yes, not paying your federal student loans can have other impacts on your credit beyond just your credit score. For example, if you apply for another loan or credit card, the lender may pull your credit report, including information on your student loans, to make a lending decision. A history of missed payments on your student loans may make the lender less likely to approve your application or offer favourable terms.
