Student loan borrowers in default could see credit scores plummet

We have a warning for millions of federal student loan borrowers now that collections have resumed.

Defaulting can have a dramatic and immediate impact on your credit score, which could affect your ability to buy a home, a car, or get a new credit card.

A new analysis by credit reporting bureau TransUnion reveals troubling insight.

Student loan borrowers who faced default in recent months have seen their credit scores plummet an average of 63 points.

The impact is even more severe on people with higher credit scores. They're seeing their scores nosedive by as much as 175 points.

"The student loan was for my bachelor's of arts in psychology," said Christina Massie of West Philadelphia.

Massie, a graduate of the University of North Carolina Chapel Hill, said she'd been making regular payments on her student loan without fail.

Then COVID hit and she put her loan into forbearance.

"I received no formal notification when that forbearance period ended," she said.

Massie assumed her auto-debits would automatically resume once payments became due once again.

But that isn't what happened.

"Not only had my student loans been sold to a new lender, but that lender also reported my student loans differently," she said.

Massie said even though she owed less than $1,000, the new lender broke up her loan into six different accounts and reported her as being in default on every single one.

"I saw a drastic drop in my credit score, and I was in the process of purchasing a home," she said.

Massie said her credit score plummeted more than 120 points, jeopardizing her chances of becoming a new homeowner.

"My immediate reaction was frustration," she added.

Experts say if you have a federal student loan, log into your account at studentaid.gov right away.

"If you just have late payments, let's say you're not in default just yet, you want to call your lender and ask them, 'Can you backdate my general forbearance to the time that I was late?'" said Sonia Lewis, CEO of Student Loan Doctor.

You can do that as far back as six months.

And make sure this is your first step. If you make a payment before doing that, the late payment will stick on your credit report.

"This is not something that lenders are now automatically doing for people," said Lewis. "And this may also help improve your credit score and it'll look like you were never late for those payments."

The Student Loan Doctor also offered this advice on what to do if you are already in default.

Meanwhile, we have good news about Christina Massie. She paid her loans and submitted formal complaints to the lender's credit department.

The lender then removed the delinquencies with two of the credit bureaus and that was enough to raise her credit score, so she just closed on her new home.