How Much Does Missing Student Loan Payments Affect Your Credit Score? – CBS News | Vette Leader

A freeze on federal student loan payments in the United States during the COVID-19 pandemic has provided millions of Americans with important financial breathing space. But borrowers could soon be back on the hook when the moratorium goes into effect expire at the end of the month.

More than 79% of those with student debt — 30 million people total — have had their credit scores improved during the pandemic, according to a report this week from the Federal Reserve Bank of New York. Nearly 8 million borrowers have improved their score enough to jump to a higher loan tier.

“The pandemic pause in payments has dramatically reduced student loan arrears and delinquencies, so we’ve seen an increase in creditworthiness across the student debtor distribution,” said Marshall Steinbaum, senior fellow in college finance at the Jain Family Institute. “The creditworthiness of student debtors has generally increased, but it has increased most for the least affluent student debtors.”

The Biden administration has yet to make a final decision on whether to do so cancel student debt for almost 40 million Americans. Meanwhile, missing payments or defaulting on your student loan can have far-reaching financial consequences.

“In general, student debt weighs heavily on the financial well-being of many households, preventing them from getting credit and everything that entails,” Steinbaum added.

This is how your creditworthiness is determined

Your credit score, which tells a lender how likely you are to make or miss a debt payment, is calculated largely based on your payment history. Other factors such as Things like your auto loan and credit card debt and the length of your credit history also affect your score. The types of accounts you hold and your recent lending activity make up the rest of your score.

In general, your credit score is calculated like this:

  • Payment history (35%)
  • Amounts owed (30%)
  • Credit history length (15%)
  • Types of credit accounts (10%)
  • New Balance (10%)

So what happens when the federal student loan grace period ends and you can’t make payments? The harsh reality is that missed payments hurt your credit score. Less simple is how much.

“That’s the impossible question. There is no fixed score for any event on a credit report,” said John Ulzheimer, a credit professional who has worked at Equifax and FICO, two of the top credit scorers.

If your credit is spotless, a single late payment can drastically drop your score.

“If you have a fantastic credit report and you suddenly start missing payments, the impact will be more dramatic than if you already had bad credit and start missing student loan payments,” Ulzheimer said.

Carrying on debt is harmless to your credit score as long as you make your payments on time and don’t default on the loan.

“It’s really a problem of defaults and missing payments when you start getting into big trouble,” he said.

Higher federal rates on student loans make borrowing college funds more expensive;


Credit scores typically range from 300 to 850, with scores of 670 and higher being considered good to excellent. According to Experian, the average FICO score in the US in 2021 was 714.

According to Ted Rossman, a credit expert at, even a single late payment can seriously tarnish an otherwise strong credit score, reducing it by as much as 100 points. However, if your payment history was already inconsistent, a missed payment or two will have less impact.

“If you already have a bunch of late payments and a lot of debt, an extra late payment isn’t going to hurt as much as it would with someone with a spotless credit history,” Rossman said.

Unsurprisingly, defaulting on a student loan usually does more damage.

“It could easily take 150 or more points off your score. You should avoid getting to that point,” he said.

Bad credit can make it difficult to rent or buy a home, buy or lease a car, get a cell phone contract, or even sign up for utilities like electricity and gas. Some employers even check the candidates’ creditworthiness.

“Your credit score is one of the most important numbers in your financial life,” Rossman said. “It will go a long way in determining whether or not you are eligible for loans and lines of credit.

The worst thing you can do is nothing

It is never wise to ignore overdue student loan payments.

“If you’re in trouble outside of the current leniency, you definitely want to speak up,” Rossman said. “There are options – your lender can work with you. The worst thing you can do is nothing.”

For example, you can apply for an income-based repayment plan or consolidate your loans into a private plan. With an income-based repayment plan, your monthly payment is set at a rate that you can afford based on your income, typically around 10-15% of your discretionary income.

What is not possible: Applying for personal bankruptcy, which is prohibited by law.

“Guarantee loans are non-callable, so not really an option. Similar to things like child benefit, you can’t replace the stuff in bankruptcy,” said Ulzheimer.

But there are workarounds. For example, you can use a home equity or personal loan to first pay off your student debt, then file for bankruptcy and have the other loans paid off.

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