- The end of student loan forbearance has dropped millions of credit scores
- But a new analysis shows that most borrowers are still making their car payments
Through much of the COVID-19 pandemic, federal student loan payments were paused. Student loan debt did not impact Americans’ credit scores.
That all changed in October, when the federal government resumed reporting student loan delinquencies to credit bureaus.
The move dropped many Americans’ credit scores dramatically. However, a new analysis suggests that many borrowers who saw their scores plummet are still making their car loan payments on time.
Scores Changed. Risk Didn’t.
- Many Americans saw their credit scores drop as late student loan payments showed up on credit reports
Shams Blanc, vice president and head of scores for the auto industry at FICO, explains, “When federal forbearance officially ended in October 2024 and delinquency reporting resumed, the scoreboard caught up with reality. Approximately two million auto-loan borrowers had a student-loan delinquency added to their credit file in Q1 2025. One in five of these consumers saw their score drop by 100 points or more overnight.”
The effect was particularly harsh on younger borrowers, she notes. “Among 18-29-year-olds, nearly 30% experienced that same 100-point decline.”
But, “Scores didn’t make these consumers riskier – they revealed risk that had been hidden for several years.”
Cox Automotive Chief Economist Jonathan Smoke explains, “Many newly scored subprime consumers are still current on their auto loans. Their scores dropped due to student loan activity, not because of missed car payments.”
Cox Automotive owns Kelley Blue Book.
Borrowers are four times more likely to fall behind on student loans than auto loans, he notes. After all, many borrowers need their cars to earn the money to pay back either loan.
What It Means for Borrowers and Banks
- Banks should look into why a score dropped, FICO suggests, as they evaluate loan applications
- Borrowers should know the loan climate will remain tough
Lenders should be aware of the phenomenon, Blanc says. “For lenders, the opportunity – and the risk – lies in understanding why a score dropped, and knowing how to manage this larger, more complex subprime pool.”
For those looking to borrow to buy a car, the news is rough. “It means affordability is declining. A tier decline in credit score can result in a higher interest rate on auto loans by almost 300 basis points for a 1-tier drop and more than 600 basis points for a 2-tier drop. That is a significant shift,” Smoke says.
It also helps explain some of the surge in new car sales in 2020 and 2021, Smoke says. “The year 2021 was the strongest in history for used retail transactions, driven in part by the reverse of what we are seeing now, with credit tiers improving, not declining.”
As student loan debt dropped off of credit reports, scores improved, and more people were able to borrow at affordable rates. As it returns to credit reports, the opposite will happen.
“We do not expect credit availability to improve in the near term, which will likely mean that rates will remain high and about where they have been, at least for the next six months,” Smoke says.
