The return of student loan collections has been a shock to millions of Americans. In turn, millions are being forced into dire economic straits and seeing their credit scores crater. Kat Hanchon, one of the people who’s been affected. Her loan servicer told her the new monthly payments would be $358, higher than what she was paying prior to the pandemic-era freeze. Now Hanchon is in a worse position. Her credit score has taken a recent 57 point hit now placing her below 600 and making it officially subprime.
The Biden administration’s one-year grace period officially came to a close in October 2024. Consequently, borrowers were confronted with the prospect of paying their loans again. Hanchon expressed her anger over increasing costs. Now she has to make the painful choice of which medical bills to pay first for procedures including a dental crown, root canal, and endoscopy. She noted, “They said I now have to pay $358 per month. I’m not going to be able to pay that. I’m not unusual in the world we’re living in right now.”
Dom Holmes, 28, is another borrower in the depths of such stress. He graduated in the spring of 2019, right before the pandemic began. Overnight, he saw his credit score drop 60-70 points as resuming loan payments kicked in. Holmes still has Parent Plus loans in repayment and is determined to pay them—as he should, especially to the extent that not doing harms his parents’ credit scores. He lamented not being told that he was delinquent. “Suddenly I was delinquent,” even though he received no notice of any kind, he explained.
Andrew McCall, 58, from Ocala, is worried too. He still has about $30,000 in loans from his computer science degrees. From hiring and housing to healthcare, McCall illustrated the many ways credit scores create strict controls on everyday life. He explained, “In an economy based on debt, my score makes a difference for all monetary transactions I am involved with, aside from purchasing grocery.” He continued, “My car, my house… Your credit rating is turned into a social stratifier.”
Kevin King, a Temple University expert on consumer finances, argued that the restarting of student loan collections will have powerful consequences. These impacts are sure to cause a wave throughout the U.S. economy in the months ahead. King emphasized the disorientation borrowers are experiencing in the wake of government policies. As Mr. Smith remarked, “Consumers were confused when new policies for forgiveness came out only to be reversed shortly thereafter.” He says that as a result, many people are having to make dangerous choices on which bills to pay first. “Which bill do you prioritize payment first, second and not pay at all,” he asked.
Her collection process began on her defaulted student loans after a long pause under the Trump administration’s emergency relief for borrowers during the pandemic. This pause was intended to provide relief for borrowers. Now that the grace period has ended, student loan servicers are reporting delinquent accounts to major credit bureaus after 90 days of non-payment. Alarmingly, as millions of Americans make their first steps into this new financial reality, a lot of them are already struggling with their loan payments.
