The national average credit score in the United States dropped to 715 in February, down from January and the previous year. This decline is primarily attributed to the return of federal student loan delinquencies on credit reports, which had been absent for almost five years due to pandemic measures. The impact of these delinquencies has significantly stressed student loan borrowers.
Federal student loan delinquencies reappeared on credit reports in February when 2.7 million borrowers had new late payments. This followed the expiration of the Education Department’s “on-ramp” period in September 2024, which had delayed the delinquency clock. Consequently, many borrowers’ credit scores are falling, marking only the second drop in the national average FICO score over the past decade.
FICO scores play a critical role for lenders in determining loan terms or approvals, with scores ranging from 300 to 850. Scores below 670 are deemed “fair” or “poor,” potentially leading to higher interest rates or limited credit access. The resurgence of delinquencies suggests a major crisis, likely to cause further drops in national credit scores.
The situation worsened because many borrowers had not made payments since March 2020, following multiple extensions on federal student loan payment pauses. With the cessation of the “on-ramp” in 2024, delinquent payments now negatively impact credit reports. FICO predicts that up to 5.4 million additional borrowers risk 90-day delinquencies soon, potentially further dropping average credit scores.
Over 40 million Americans hold more than $1.6 trillion in federal student loan debt. The relief provided during the pandemic was eroded by inflation, drastically increasing living costs. Many borrowers, as noted by advocates, lack the financial capacity to resume payments.
The New York Federal Reserve Bank foresees millions of borrowers facing credit score drops due to late payments. While the national average score fell by just one point, individual impacts can be severe, with substantial score reductions for delinquent borrowers. These delinquencies can affect credit standings for up to seven years, even if rectified later.
The findings underscore the severe stress on borrowers as delinquencies affect individual and national credit scores again. The average score drop highlights the larger issue of overwhelming student loan debt returning to credit reports.
