{"id":3084,"date":"2025-10-03T23:58:47","date_gmt":"2025-10-03T23:58:47","guid":{"rendered":"http:\/\/ft365.org\/index.php\/2025\/10\/03\/student-loan-borrowers-who-missed-a-payment-may-now-be-subprime-bankrate\/"},"modified":"2025-10-03T23:58:47","modified_gmt":"2025-10-03T23:58:47","slug":"student-loan-borrowers-who-missed-a-payment-may-now-be-subprime-bankrate","status":"publish","type":"post","link":"http:\/\/ft365.org\/index.php\/2025\/10\/03\/student-loan-borrowers-who-missed-a-payment-may-now-be-subprime-bankrate\/","title":{"rendered":"Student Loan Borrowers Who Missed a Payment May Now Be Subprime | Bankrate"},"content":{"rendered":"
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Since you likely didn\u2019t have a federal student loan payment due for about five years, it\u2019s understandable that your on-ramp to repayment might not have been a straight shot. You\u2019d even be forgiven for missing the metaphorical freeway entrance, considering the mixed messaging from the Trump Administration<\/u>.<\/p>\n

But many student borrowers have been penalized for tardiness on their payments following the end of the COVID-era pause, in the form of delinquencies and dinged credit scores. This could be especially damaging if you\u2019re planning to make other financial moves, such as taking out a loan to buy a car or home, or just to get by.<\/p>\n

The question is, will anyone cut you some slack?<\/p>\n

Before we get to that, where do delinquency figures stand?<\/h2>\n

In May, credit bureau TransUnion sounded the alarm that borrowers\u2019 credit scores were starting to tumble<\/u>. After all, late or missed payments were being reported for the first time since the end of pandemic relief measures. Then, in late June, TransUnion followed up with even more alarming figures: 31 percent of federal loan borrowers with a payment due date were at least three months behind<\/u>.<\/p>\n

By the second quarter of 2025, more than 10 percent of all student loans were reported as 90 or more days delinquent, according to the Federal Reserve Bank of New York<\/u>.<\/p>\n

Multiple experts interviewed by Bankrate chalked the rise in delinquency to a simple hangover effect.<\/p>\n

\u201cThe initial uptick in delinquencies, a lot of it can be those borrowers kind of forgot about their loans or forgot about how to make the payments, their bank accounts changed, et cetera,\u201d says Enterval Analytics CEO John Falb. \u201cSo, I think we\u2019ll start to see that tick back down over time as they get used to making those payments.\u201d<\/p>\n

A greater incentive for borrowers to catch up is on the way: The Department of Education planned to resume enforcing wage garnishment<\/u> by late summer for federal loan borrowers who become so delinquent on their debt that they fall into default<\/u>.<\/p>\n

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\"President<\/p>\n

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Student loan delinquency is worst in states that voted for President Trump <\/h3>\n

Will the Administration help its most ardent supporters?<\/p>\n

Read more <\/p>\n<\/div><\/div>\n

As for relief: If you have private student loans to repay\u2026<\/h2>\n

No, you may not be worried about qualifying for a private student loan if you already have a federal loan in repayment. However, you might be interested to know how flexible your lender might be if you struggle to repay multiple debts.<\/p>\n

\u201cCertainly we have some of our borrowers who borrow both federal loans and MEFA loans, and they\u2019ve come to us,\u201d says MEFA executive director Tom Graf. \u201cAnd if we know they\u2019re experiencing difficulty with [federal loans in] the right hand and they have the MEFA loans in their left hand, we try to take that into consideration. And when I talk about modified repayment plans, if that pressure is so great, we entertain that discussion with them.\u201d<\/p>\n

Banks, credit unions, online companies and state-based lenders like MEFA don\u2019t offer the same suite of government-exclusive repayment protections, such as mandatory deferments and forbearances<\/u> and routes to forgiveness.<\/p>\n

Fortunately, however, some private lenders are more generous than others.<\/p>\n

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\"Four<\/p>\n

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Are federal student loan changes making you eye private lenders? <\/h3>\n

Here are seven with federal loan-like perks<\/p>\n

Read more <\/p>\n<\/div><\/div>\n

If you\u2019re aiming to borrow other consumer loans\u2026<\/h2>\n

Prosper<\/u>, a peer-to-peer lending marketplace offering personal and auto loans, has already accounted for mitigating factors \u2014 such as the post-pandemic behavior of student loan borrowers \u2014 in its machine-learning underwriting model, says chief credit officer Haiyan Huang.<\/p>\n

\u201cWe\u2019re not just taking a look at the delinquency status as a \u2018no,\u2019\u201d Huang says. \u201cHowever, we\u2019re looking at, holistically, how this person\u2019s overall credit behavior, payment behavior, credit [utilization] are showing as a whole history instead of a snapshot view. So, all in all, we\u2019re looking at many aspects to make the credit decisions.\u201d<\/p>\n

Huang also notes the critical lag in student loan delinquency reporting \u2014 TransUnion\u2019s late June report was based on April data, for example \u2014 and how late- or missed-payment rates appear on the decline.<\/p>\n

\u201cSo, for us then, we\u2019re not considering this will considerably reduce the approval odds for people who are delinquent on student loans,\u201d she says.<\/p>\n

Of course, not all lenders for all financial products will treat delinquent education debtors the same.<\/p>\n

Auto lenders may need to adjust their underwriting processes the most<\/h3>\n

That\u2019s because subprime or fair-credit consumers<\/u> (folks with scores below 600, give or take) make up a substantial portion of auto loan applicants \u2014 and, in TransUnion\u2019s telling, many newly delinquent student loan borrowers would now be classified as subprime.<\/p>\n

FICO vice president Shams Blanc told Cox Automotive<\/u> in July that auto lenders shouldn\u2019t always adhere to \u201ccredit score cut-offs,\u201d such as imposing a minimum 620 credit score requirement to gain approval. Instead, Blanc said, lenders should \u201cbroaden their view of these borrowers\u2019 ability and willingness to repay.\u201d<\/p>\n

Specifically, Blanc suggested that auto lenders \u201cisolate student loan-driven drops\u201d in credit score to more accurately estimate an auto loan applicant\u2019s ability to repay. If you have a 610 credit score and a recent student loan delinquency, to follow Blanc\u2019s example, you might be a more qualified applicant than a peer who has the same score but previously defaulted on a car loan.<\/p>\n

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For lenders, the opportunity \u2014 and the risk \u2014 lies in understanding why a score dropped, and knowing how to manage this larger, more complex subprime pool.<\/q> \u2014 Shams Blanc <\/cite> <\/p><\/blockquote><\/div>\n

If lenders can be detail-oriented enough in their underwriting \u2014 whether through automated modeling like Prosper or more human-centered evaluation \u2014 it would benefit you as the potential borrower.<\/p>\n

Possible next steps to avoid (or escape) delinquency, repair your credit<\/h2>\n

If you\u2019re struggling with student loans or are worried about your debt repayment\u2019s impact on your credit score and report or your ability to qualify for other types of financing, keep your head up and keep reading:<\/p>\n