According to the U.S. Department of Education, only 38% of the more than 40 million borrowers with federal student loans were current and in repayment as of April 2025. Most remaining borrowers were delinquent on their payments, in an interest-free forbearance or deferment period, or in the six-month grace period that applies after leaving school.
Interestingly, borrowers who are delinquent or in default on their student loans have not had their late payments reported to the credit bureaus or had any collection activity on their loans since the initial pause caused by the COVID-19 pandemic in March of 2020. This means that, for the last five years, borrowers have largely been able to ignore their loan payments without any impact to their credit.
But, all of that is about to change. The Department of Education student loan reporting revealed that, as of May 5th, 2025, student loan delinquencies will be reported to credit bureaus for the first time in years. Collection activity will also begin for student loans in default. The impact is expected to be substantial since almost 10 million borrowers who haven’t made payments on their loans in years could be in default in the next few months.
If you’re late on your student loan payments, you are in late-stage delinquency (have a monthly payment 91 to 180 days past due) or you haven’t made a payment on your student loans in years, you’ll need to move quickly to avoid damage to your credit score and future collections activity (including the garnishment of your wages).
How to recover from student loan credit damage – rehabilitate or consolidate your loans
If your loans are in default, meaning you have not made student loan payments for at least 270 days, you may be able to get back on track with student loan repayment through rehabilitating or consolidating your loans.
You can begin the loan rehabilitation process by reaching out to your federal student loan servicer. From there, you must agree in writing to make nine reasonable and affordable monthly payments within 20 days of the due date and for a consecutive period of 10 months (if you have Direct loans or a FFEL Program loan). Once you meet the requirements, the default status on your loans will be removed and collection activity will stop. In addition to that, the record of default on the rehabilitated loan will be wiped from your credit history. Just know that late payments on student loans still remain on your credit reports for seven years.
Consolidating your federal student loans with a Direct Consolidation Loan is another way to get out of default. To consolidate, you must agree to repay your loans on an income-driven repayment (IDR) plan or make three consecutive, full and on-time payments on the loan before you consolidate it. With loan consolidation though, the defaulted loan and other negative reporting remain on your credit history for seven years.
Choose a new repayment plan
Once you are back on track with repayment on your federal student loans, you may want to choose a new repayment plan that can help you secure a lower monthly payment or a more reasonable repayment timeline. While the Saving On a Valuable Education (SAVE) income-driven repayment plan was ultimately eliminated through court action in early 2025, there are still other income-driven payment plans to choose from including the Income-Based Repayment (IBR) Plan, Income-Contingent Repayment (ICR) Plan and Pay As You Earn (PAYE) Repayment Plan.
Each income-driven repayment plan lets you make a monthly payment that’s based on your income and family size, as well as the amount of “discretionary income” you have. They also let you make this late payment for 20 to 25 years before forgiving remaining student loan debt.
In addition to income-driven repayment plans, you can also opt for a 10-year repayment plan, graduated repayment and extended repayment. And if you still can’t afford the monthly payments on your student loans right now, you can still apply for another temporary deferment or forbearance.
How to fix credit after student loan default
While late payments on student loans and other negative reporting can stay on your credit reports for seven years, the moves you make now can still help you improve your credit over time. This includes making monthly payments on all your debts on time, which is crucial since your history of paying bills on time makes up 35% of your FICO score.
➤ LEARN MORE:What is a good credit score?
Since how much debt you owe in relation to your credit limits makes up another 30% of your FICO score, paying down revolving debt you have can also improve your credit. This is especially true if you currently show credit utilization over 30% of your available credit limits, or you owe $3,000 or more for every $10,000 in available credit you have.
➤ LEARN MORE:How much of your credit should you use?
Other strategies for credit improvement include the use of credit-building tools that can help you build your credit with responsible use. For example, consider getting a secured credit card that reports payments to the credit bureaus if you have truly poor credit and are starting over from scratch. If you have fair or decent credit, an unsecured credit card can help you prove your creditworthiness over time if you keep your credit utilization low and always pay your bills on time.
Bottom line
If you’re behind on student loan bills but haven’t seen any consequences to your credit in the last few years, you should know that all of that is about to change. Not only are student loan servicers reporting late payments to the credit bureaus again as of May 5, 2025, but collections activity will resume as well.
Your credit score may take a huge hit all of a sudden as a result, especially if your loans are in default and you don’t do anything to get back on track with repayment. If you take some of the steps we suggest now to manage student loan debt, you can help minimize the damage.
➤ SEE MORE:How to juggle student loan and credit card payments
