Millions face plunging credit scores as student loan collections resume

Millions of student loan borrowers are watching their credit scores plummet in real time as the Trump administration resumes federal debt collections.

After a five-year pause on collections, missed payments are once again being reported to credit bureaus, with some borrowers seeing their scores fall by more than 150 points — which has the potential to jeopardize their ability to rent apartments, obtain loans, or access reasonably priced credit. The Federal Reserve Bank of New York estimates that more than two million borrowers have so far experienced score declines of at least 100 points, as of the first quarter of 2025.

More than 5 million borrowers are currently in default, and that number is expected to rise, with the New York Fed projecting significant credit score drops for over 9 million borrowers.

Already a tough moment for borrowers

In addition to the hit to their credit scores, those in default also face wage garnishment and the seizure of tax refunds through the Treasury Offset Program. Social Security garnishment remains paused as of June.

The timing is especially challenging for younger borrowers. Unemployment among college graduates ages 20 to 24 has risen to 6.6%, the highest level in a decade outside of the pandemic. New graduates face stiff competitions for jobs, with many entry-level jobs now requiring years of experience. Even retail and restaurant jobs can be hard to come by.

Combined with proposed cuts to federal student aid in President Donald Trump’s broader budget plan, the resumption of collections signals a new era of aggressive enforcement — and growing financial strain for borrowers across the country.

“Borrowing money and failing to pay it back isn’t a victimless offense,” Education Secretary Linda McMahon wrote in a recent Wall Street Journal op-ed defending the Trump administration’s resumption of collections. “Debt doesn’t go away; it gets transferred to others.”

And she would know. Despite the Trump administration’s hardline stance on student loan repayment, both Trump and McMahon have personally benefited from the kinds of financial forgiveness now being denied to millions of borrowers.

Policymakers who themselves walked away from debt

Trump’s businesses have filed for bankruptcy six times, allowing him to walk away from or restructure hundreds of millions of dollars in unpaid loans. In one prominent case, lenders forgave more than $270 million in debt tied to Trump Tower Chicago. While Trump has insisted these were strategic moves, they underscore how bankruptcy laws have long offered protections to business owners that student borrowers are explicitly denied.

McMahon also has a history of seeking debt relief. In 1976, she and her husband, Vince McMahon, filed for personal bankruptcy after an early business failure left them unable to pay creditors. Years later, their professional wrestling company, Titan Sports (the predecessor to WWE), also declared bankruptcy as part of a broader corporate restructuring. McMahon, in the 2010s, seeking to begin a political career amid media scrutiny that brought her history of bankruptcy to light, repaid some of those debts after a lapse of nearly 40 years.

In other words, both Trump and McMahon relied on financial resets and breaks that her Education Department now refuses to extend to borrowers struggling under the weight of — ironically or not — far more modest debts.