Missed student loan payments are blocking access to credit, especially for young adults

News stories about problems with student loans tend to focus on people in college or recent graduates. However, those problems have become serious enough to affect people long after they’ve left school.

Record levels of student loan debt and late payments are dragging down the credit scores of young adults. In turn, this could hold them back from the type of financial progress people expect after graduation.

Large-scale efforts to forgive student loan debt have been defeated politically and in the courts. Even so, student loan debt does not have to be a lifelong burden. There are still things people can do to reduce the damage missed student loan payments do to their credit and their wealth.

What happens if you miss a student loan payment?

Missed student loan payments are likely to cost you more money in the long run. They do this by damaging your credit record and by increasing the amount you’ll owe on those student loans.

When you miss a student loan payment, it’s reported to credit bureaus after 90 days (for most other types of debt, missed payments are reported after only 30 days). This negative mark can remain on your credit reports for seven years. Missed payments have a significant impact, since payment history is the single biggest factor in calculating credit scores.

Negative marks on your credit report can cost you in the future, since people with poor credit records generally have to pay higher interest rates when they borrow than people with good records. In the meantime, late fees and additional interest costs will only add to your student loan debt.

In turn, carrying more debt can also damage your credit record. Amounts owed is the second biggest factor in calculating credit scores.

Can missed student loan payments prevent you from getting credit?

The credit score impact of missed student loan payments can be meaningful enough to prevent you from getting credit. At the very least, it can cause you to pay more for credit.

Last year, FICO found that Gen Z consumers had a bigger drop in credit scores than any other age group. Roughly one in seven Gen Z consumers had a credit score drop of 50 points or more. In many cases, that would be more than enough to knock you down into a lower credit tier. That would have a negative impact on your access to credit and your cost of credit.

The steep rise in student loan delinquencies appears to be a big reason for the drop in credit scores among young adults. According to FICO, 34% of Gen Z have student loans, which is more than twice the percentage for the total population.

How are young adults being impacted by missed student loan payments?

A drop in credit score might seem a little abstract to students and recent grads who have little experience with using credit. The reality is that negative marks on your credit reports can have real-world impacts ranging from delaying your attainment of financial goals to impacting your employment and housing opportunities.

Here are some examples:

• Getting a mortgage generally requires fair-to-good credit. If missed student loan payments have damaged your credit, it may mean putting up with today’s high rental payments for a longer time.
• Credit card rates are sharply higher for people with lower credit scores. Credit cards often offer a range of interest rates. The most recent CardRatings Credit Card Rate survey found an average gap of 8.24% between the low and high ends of these ranges. That’s an example of how much more you may have to pay for having poor credit.
• Other forms of credit are also likely to charge more if you have a lower credit score.
• Your chances of having a credit application rejected are much higher if you have a weak credit history. Based on data from the Federal Reserve Bank of New York, CardRatings calculated that over the past ten years, the rejection rate for credit applications has been about 14 times higher for people with poor-to-fair credit scores than for those with very good-to-excellent scores.
• Landlords and employers can access your credit reports. So, negative marks on those reports may impact where you can live and what kind of job you can get.

The impacts of missed student loan payments can be long-lasting and extend beyond your credit reports. Failure to pay back your student loans can result in having your wages garnished. It may also make you ineligible to receive other forms of federal aid in the future.

Missed student loan payments are the kind of problem that can snowball, as late fees and interest charges add to the amount you owe. This can make the problem drag on for decades after you leave school. Data from the Federal Reserve Bank of New York shows that student loan delinquency rates are soaring across all age groups – even for people above 50 years old.

What can you do if you’re struggling with student loan payments?

If you’re having trouble making your student loan payments, contacting your loan servicer about an income-driven repayment plan or forbearance may be the first step towards solving your problem.

These programs apply to federal student loans, which represent the vast majority of student loan debt.

IMPORTANT update

The federal student loan system is undergoing its most significant overhaul in decades. Under the One Big Beautiful Bill Act, dramatic changes are set to take effect on July 1, 2026. If you are currently struggling with payments or holding older loans, you must act quickly to understand how these updates impact your options.

What is income-driven repayment?

Income-driven repayment (IDR) plans base your monthly payment on a percentage of your income and family size, making your payments significantly more affordable than a standard repayment schedule.

However, the options available to you depend heavily on when you borrowed:

For current and legacy borrowers: If you have existing loans, older IDR plans like Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR) are being phased out and will sunset completely by July 1, 2028. If you are currently enrolled in the now-defunct SAVE plan, your servicer will issue a notice giving you a 90-day window to manually select a new plan before you are automatically transitioned.

For loans disbursed after July 1: The federal student loan system is narrowing its IDR options down to just one: the new Repayment Assistance Plan (RAP). RAP caps monthly payments between 1% and 10% of your Adjusted Gross Income (AGI), offers a $50 monthly discount per dependent, and prevents your balance from growing by waiving unpaid monthly interest. Any remaining balance is forgiven after 30 years of payments.

Forbearance

Forbearance is a temporary pause in having to make payments if you are facing a severe financial emergency.

While it provides immediate relief, the rules are tightening:

The cost: Interest continues to accrue during forbearance, meaning your total debt will grow. Furthermore, traditional deferments for economic hardship and unemployment are slated for elimination in future implementation phases, making early budgeting and IDR enrollment even more critical.

Shorter pauses: For new loans, discretionary forbearance will be capped at a maximum of nine months within a 24-month window (down from the traditional 12-month increments).

Budgeting to reduce debt

If you don’t qualify for an IDR plan or forbearance, it may be a sign that you need to take a fresh look at how you’re spending your money. Make a budget that prioritizes debt payments, including student loans and other debt. Cut any other spending to bring it within your income, so you don’t simply run up other debts.

How can you repair credit damage from missed student loan payments?

If missed student loan payments have damaged your credit, there are steps you can take to start to repair it:

• Check your credit report to make sure that your records are accurate and up-to-date. For example, if you’ve caught up on payments after falling behind, after a month or two, you should check your credit reports to make sure those accounts are shown as in good standing instead of past due.
• Make future debt payments on time. It will take time for the payments you’ve missed in the past to disappear from your credit report. However, once you start making your payments, you’ll start to replace those negative marks with a positive credit history.
• Keep balances low. Your goal should be to pay down your total amount of debt over time. Don’t keep replacing one form of debt with another. Lower balances should help your credit score.
• Use credit in moderation. You don’t have to swear off using credit as long as you’ve figured out how to keep it under control. Using credit responsibly will do more than abstaining from it to improve your credit history. If past problems are making it difficult to get credit, look for products like credit cards that cater to customers with low credit scores or secured credit cards.

Being able to get credit is a valuable tool in managing your finances. Just because you’ve had problems in the past doesn’t mean you have to be shut out from getting credit in the future. The key is that once you get it, you need to use it responsibly.

Frequently asked questions

Is student loan debt going to be forgiven?

At this point, broad student loan debt forgiveness is unlikely for most borrowers following major political and legal challenges. While forgiveness is still actively granted through IDR plans and specialized programs (like Public Service Loan Forgiveness or school closure discharges), the federal tax exemption on forgiven debt expired at the end of 2025. Starting in 2026, any balance forgiven under an IDR plan is once again treated as taxable income by the IRS, which can result in a significant tax bill. The exception to this rule is Public Service Loan Forgiveness (PSLF), which remains permanently tax-free at the federal level.

Are student loan payments more important than other debt payments?

Student loan payments should be viewed as neither more nor less important than other debt obligations. Failure to pay any of them could do serious damage to your credit. It is true that student loan debt isn’t secured by property, the way mortgages or auto loans are. However, failure to pay federal student loans can have serious consequences, such as having wages garnished and making you ineligible for other forms of federal aid. On the bright side, federal student loans offer an unusual amount of flexibility, so it’s a good idea to seek payment modification rather than failing to pay the debt altogether.

Should I put off other financial decisions until my student loans are paid off?

Generally, no. Student loan debt usually has relatively low interest rates and is designed to be paid off over a long time (typically 10 years). That means you can pursue other financial goals even while you’re still paying off student loans. The key is not to take on additional financial obligations that make it difficult to make your current debt payments.

I have a Parent PLUS loan. Do the July 1 changes affect me?

Yes, critically. Parent PLUS loans disbursed after July 1 will face strict new annual borrowing limits ($20,000 per year) and a lifetime cap ($65,000). More importantly, new Parent PLUS loans will be entirely excluded from the new Repayment Assistance Plan (RAP). If you are an existing Parent PLUS borrower who needs access to income-driven repayment or Public Service Loan Forgiveness (PSLF), you must consolidate your loans into a Direct Consolidation Loan immediately to protect your eligibility.