Struggling to Pay Back Student Loans?

Here's How to Protect (and Improve) Your Credit Score

If you're behind on your student loan payments and watching your credit score drop, you're not alone. As of early 2025, over 9 million Americans are facing the same challenge. The good news? You can take action right now to stop the damage and start rebuilding, even while you're still working through student loan repayment.

The Student Loan Credit Score Crisis: What's Really Happening

The numbers tell a sobering story. According to the Federal Reserve Bank of New York, roughly 31% of federal student loan borrowers with payments due are now more than 90 days past due. That's nearly triple the pre-pandemic rate of 11.7%. After a three-year payment pause during COVID-19, millions of borrowers resumed payments in late 2023 and many are struggling to keep up.

Here's what makes this particularly challenging: missed student loan payments don't just sit quietly on your account. They get reported to all three major credit bureaus (Experian, Equifax, and TransUnion), and the impact on your credit score can be severe.

Research from the New York Fed shows that student loan delinquencies can drop your credit score by as much as 171 points. For borrowers who started with scores above 780, the average drop is around 175 points. Even those with lower starting scores can see declines of 87 to 150 points. One borrower reported watching their score plummet from 674 to 540 in a single week! That’s a 134-point drop that pushed them from "fair" credit into "poor" territory.

Why Student Loans Hit Your Credit Score So Hard

Your credit score is built on five key factors, and student loans directly impact several of them:

Payment History (35% of your score): This is the biggest factor. Every late payment gets reported once you're 30 days past due, with additional reports at 60 and 90 days. These negative marks stay on your credit report for up to seven years.

Credit Mix (10% of your score): Student loans are installment loans, which add diversity to your credit profile. But when they're delinquent, they work against you instead.

Credit History Length (15% of your score): For many young adults, student loans represent their oldest credit accounts. When these accounts show negative activity, it undermines what could otherwise be a strength.

The cascade effect is real. A lower credit score means higher interest rates on future loans, difficulty qualifying for apartments, and even challenges landing certain jobs. Some borrowers face loan denials entirely. According to TransUnion, 2.4 million borrowers who were previously above 620 (the threshold for "good" credit) saw their scores drop below that mark, immediately facing steeper borrowing costs and reduced access to credit.

What You Can Do Right Now

If you're struggling with student loan payments and worried about your credit, here are immediate steps you can take:

Contact Your Loan Servicer Today

Don't wait until you're further behind. Federal student loan servicers offer several programs designed specifically for borrowers facing financial hardship:

Income-Driven Repayment Plans: These programs cap your monthly payment at 10-20% of your discretionary income. If your income is low enough, your payment could be as low as $0. Even better, those $0 payments still count as on-time payments that protect your credit.

Deferment or Forbearance: While these pause your payments temporarily, interest may continue to accrue. Use these options strategically as a short-term bridge, not a long-term solution.

Fresh Start Program: If you're already in default, this Department of Education program can help you get back on track without the typical penalties.

Start Building Positive Credit History Immediately

Here's something many borrowers don't realize: you can actively improve your credit score at the same time you're managing student loan challenges. The key is adding new positive payment history that outweighs the negative marks.

This is where tools like Ava's credit building products become essential. Rather than waiting months or years for your student loan situation to resolve, you can proactively build credit through:

Credit Builder Cards: Ava's Credit Builder Mastercard works differently than traditional credit cards. You link it to your bank account and use it for everyday subscriptions like Netflix, Spotify, or your phone bill. These automatic payments get reported to all three credit bureaus, creating a steady stream of positive payment history. There's no interest, no deposits, and no hard credit check required.⁷

Credit Builder Loans: With Ava's Save & Build Credit Account, you make small monthly payments ($25) that get reported as on-time installment loan payments. After 12 months, you receive $300 in cash. It's like forced savings that also rebuilds your credit profile.⁷

The reason this matters: 74% of Ava members see credit score improvements in less than 7 days.¹ That's because Ava reports to credit bureaus daily (not monthly like most credit products), and the positive activity starts appearing on your credit report almost immediately.

Monitor Your Credit Report Closely

You're entitled to free credit reports from all three bureaus at AnnualCreditReport.com. Check them regularly to:

• Verify your student loan balances and payment status are reported correctly
• Dispute any errors immediately (mistakes happen more often than you'd think)
• Track your progress as you implement credit-building strategies

Errors on credit reports affect roughly 1 in 5 consumers, according to Federal Trade Commission research. A simple mistake in reporting your student loan status could be dragging down your score unnecessarily.

The Proactive Approach: Building Credit While Managing Debt

Here's a scenario playing out across the country: Sarah graduated in 2020 with $45,000 in student loans. When payments resumed in 2023, she was working a job that paid less than expected. By early 2025, she was 90 days past due on her loans, and her credit score dropped from 680 to 575.

At 575, Sarah couldn't qualify for a car loan she needed for a new job opportunity. She couldn't refinance her high-interest credit card. She was stuck.

But Sarah took action. She contacted her loan servicer and switched to an income-driven repayment plan that lowered her monthly payment from $425 to $150. Then she signed up for Ava's credit building program. Within two months, her score had climbed back to 615, which is enough to qualify for that car loan. After six months of consistent positive payments reported by Ava, combined with her now-manageable student loan payments, she crossed back over 650.

This isn't about ignoring your student loans. It's about being strategic. While you work out a sustainable repayment plan, you simultaneously build positive credit history that helps offset the damage and speeds your recovery.

Why Traditional Advice Isn't Enough Anymore

The old advice was simple: pay your bills on time, keep your balances low, and wait. But with millions of borrowers facing credit score drops of 100+ points, waiting isn't a viable strategy. By the time your student loans are back in good standing through payments alone, you could have missed out on job opportunities, housing options, and better interest rates on essential loans.

The modern approach recognizes that credit building needs to be active and intentional. Every month you're not adding positive payment history is a month your recovery is delayed. Credit-building tools have become more accessible and affordable precisely because of crises like the current student loan situation. Products that would have required significant deposits or high fees five years ago are now available for as little as $8-10 per month through services like Ava.

Understanding the Full Picture

Let's talk about the scope of the challenge. According to the Department of Education, approximately 42 million Americans hold federal student loans totaling $1.65 trillion. Recent data shows that 9.4% of aggregate student debt is currently reported as 90+ days delinquent or in default.

The three-year cohort default rate, which tracks borrowers who enter repayment and default within three years, shows significant variation by institution type. Borrowers who attended for-profit colleges face a 14.7% default rate within three years, while those from private non-profit institutions have a 6.4% default rate. This disparity reflects differences in post-graduation earnings and job prospects, but the credit score consequences are just as severe regardless of where you went to school.

What's particularly concerning: according to a 2024 Department of Education analysis, 59% of borrowers in default first defaulted five years earlier. This means millions of people are carrying damaged credit for years, paying higher costs on every form of credit they access during that time.

The Real Cost of a Damaged Credit Score

A lower credit score doesn't just affect your ability to borrow, it affects the cost of everything you do borrow. Consider these examples:

• Auto loans: The difference between a 700 credit score and a 600 credit score can mean paying 3-5% more in interest. On a $30,000 car loan, that's thousands of dollars over the life of the loan.
  
  
• Credit cards: Borrowers with good credit might qualify for cards with 15-18% APR. Those with damaged credit face rates of 25-30% or higher.
  
  
• Mortgages: A score below 620 can disqualify you from conventional mortgages entirely, forcing you into FHA loans with higher insurance costs and down payment requirements.
  
  
• Housing rentals: Many landlords check credit scores. A score below 600 can mean paying higher security deposits or being denied entirely.
  
  
• Employment: Some employers check credit reports as part of background checks, particularly for positions involving financial responsibility.
  
  

Over a year, the additional costs from a damaged credit score can easily exceed $2,700, according to financial industry estimates. Over several years, it can cost tens of thousands of dollars in unnecessary interest and fees.

Your Action Plan: The Next 30 Days

Here's what to do in the next month to start turning things around:

Week 1: Contact your student loan servicer. Ask about income-driven repayment plans, deferment, or forbearance options. Get your payment situation stabilized.

Week 2: Pull your credit reports from all three bureaus. Document exactly where you stand. Dispute any errors you find.

Week 3: Set up a credit building system. Sign up for Ava or a similar service that reports daily to all three credit bureaus. Link your bank account and set up automatic payments for small recurring bills.

Week 4: Create calendar reminders for all bill due dates. Set up automatic payments where possible. Start tracking your credit score improvement.

The goal isn't perfection overnight. The goal is to stop the bleeding and start building momentum. Every month of positive payment history helps. Every point your score improves opens more doors.

Why Ava Works for Student Loan Borrowers

Ava was designed specifically for people rebuilding credit. The platform addresses four of the five major factors that credit bureaus use to calculate scores. Here's how:

No Hard Credit Check: Traditional credit cards and loans require hard inquiries that temporarily lower your score. Ava doesn't. You won't take an additional credit hit just to start rebuilding.

No Interest, No Deposits: The Credit Builder Card requires no deposit and charges zero interest. Your membership fee ($8/month for annual plans) is all you pay, which is far less than the interest you'd pay on a traditional secured credit card.⁷

Automatic Credit Building: Once set up, Ava works in the background. Your existing subscription payments (streaming services, phone bills, etc.) become credit-building opportunities without changing your spending habits.⁷

Comprehensive Reporting: Ava reports to TransUnion, Equifax, and Experian, all three major bureaus. This ensures your improved credit history shows up wherever lenders look.⁸

The combination of these features makes Ava particularly effective for borrowers dealing with student loan challenges. You're not taking on more debt. You're not gambling with high-interest credit. You're systematically building positive history that counteracts the negative marks from student loans.

Looking Forward: Long-Term Credit Health

Once you've stabilized your immediate situation, think long-term:

Diversify Your Credit Profile: A healthy credit profile includes both revolving credit (credit cards) and installment loans. If student loans are your only installment debt, consider adding a small credit builder loan to show you can manage different types of credit responsibly.

Keep Accounts Open: Length of credit history matters. Even after you've rebuilt your score, keep your credit-building accounts open. The longer they report positive history, the stronger your profile becomes.

Plan for Major Purchases: If you're hoping to buy a car or home in the next 1-2 years, start your credit rebuilding now. Most lenders want to see at least 12-24 months of positive history after negative marks.

Build an Emergency Fund: Many borrowers fall behind on student loans because of unexpected expenses. Even a small emergency fund ($500-1,000) can prevent one car repair or medical bill from derailing your credit progress.

Stay Informed: Student loan policies change. Forgiveness programs, repayment options, and borrower protections evolve. Stay connected with your servicer and follow trusted financial resources to ensure you're taking advantage of all available help.

The Bottom Line

Student loan struggles don't have to define your financial future. Yes, the damage to your credit score is real and significant. But it's not permanent, and you don't have to wait passively for it to heal.

By combining strategic student loan management (income-driven repayment, deferment when needed, or Fresh Start programs) with proactive credit building through tools like Ava, you can see meaningful improvement in weeks, not years.⁸

The key is taking action now. Every month you wait is another month of negative reporting, another month of higher interest rates on other debts, and another month away from your financial goals.

Millions of Americans are in the same situation you're in. The ones who will recover fastest are the ones who recognize that credit repair isn't passive—it's active, strategic, and achievable with the right tools and approach.

Ready to start rebuilding your credit while managing your student loans? Create your Ava account today and join the 74% of members who see credit score improvements in less than a week.¹ Your financial future doesn't have to wait.

Frequently Asked Questions

Can I improve my credit score while my student loans are still delinquent?

Yes. While the delinquent student loans will continue reporting negative information, adding new positive payment history through credit-building tools helps offset that damage. Credit scoring models look at your overall pattern, so consistent positive payments from sources like Ava's Credit Builder Card can start improving your score even before your student loan situation is fully resolved.

How long do student loan late payments stay on my credit report?

Late payments remain on your credit report for seven years from the date of delinquency. However, their impact on your score decreases over time, especially as you add new positive payment history. A five-year-old late payment hurts much less than a recent one.

Will using a credit builder affect my student loan payments?

No. Credit builders like Ava are separate from your student loans. They don't change your student loan terms, and there's no interaction between the accounts. You're simply adding a new positive tradeline to your credit report that reports independently.

How quickly can I realistically improve my credit score?

With tools that report daily like Ava, some borrowers see initial improvements within 7-10 days. More substantial improvements (50+ points) typically take 2-3 months of consistent positive payment history. Recovery to good credit (700+) depends on your starting point and the severity of negative marks, but many borrowers achieve it within 6-12 months.

What if I can't afford both student loans and credit building tools?

Contact your student loan servicer first to establish an income-driven repayment plan, which could lower your payment to $0 based on your income. Then, invest in credit building (as low as $6-8/month with Ava) as a priority. Think of it as an investment: the improved credit score will save you far more than $8/month through lower interest rates on other debts and better access to financial opportunities.

Should I focus on paying off my student loans or building credit first?

Do both simultaneously. Set up a sustainable student loan repayment plan (income-driven plans are ideal), then add credit building tools that work automatically in the background. You don't have to choose one or the other—and doing both produces faster results than either strategy alone.

Can credit building help if I'm already in default on my student loans?

Yes. Default is serious and should be addressed through programs like Fresh Start or loan rehabilitation, but credit building can still help. While in default, you can add new positive tradelines that help improve your score gradually. The combination of resolving the default and building new positive history is the fastest path to recovery.

How much does credit building cost compared to the interest I'm paying on damaged credit?

Ava's credit building program costs $96-120 per year. Compare that to the estimated $2,700+ per year in additional interest costs from having a damaged credit score. Even a modest credit score improvement (50-100 points) can save you thousands of dollars annually, making credit building one of the highest-return financial investments you can make.

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Sources and References

This article draws on data and research from the following authoritative sources:

1. Federal Reserve Bank of New York - Liberty Street Economics. "Student Loan Delinquencies Are Back, and Credit Scores Take a Tumble." June 2025. Link
   
   
2. Federal Reserve Bank of New York - Liberty Street Economics. "Credit Score Impacts from Past Due Student Loan Payments." March 2025. Link
   
   
3. Federal Reserve Bank of New York - Center for Microeconomic Data. "Quarterly Report on Household Debt and Credit, 2025: Q3." Link
   
   
4. TransUnion. "Following the Resumption of Federal Collection Activities in May, Nearly One in Three Federal Student Loan Borrowers Find Themselves at Risk for Default." June 2025. Link
   
   
5. Education Data Initiative. "National Student Loan Default Rate [2025]: Delinquency Data." July 2025. Link
   
   
6. Education Data Initiative. "Student Loan Debt Statistics [2025]: Average + Total Debt." August 2025. Link
   
   
7. CNBC. "Student loan default has 'dramatic and immediate' credit score impact, expert says — with drop of up to 175 points." May 2025. Link
   
   
8. CNBC. "Late student loan bills can drop credit scores by up to 171 points, Federal Reserve warns." March 2025. Link
   
   
9. CBS News. "Student borrowers' credit scores are taking a hit. Here's why that matters." May 2025. Link
   
   
10. Yahoo Finance. "9 million student loan borrowers are about to see their credit scores drop." March 2025. Link
    
    
11. U.S. News & World Report. "Do Student Loans Affect Your Credit Score?" September 2025. Link
    
    
12. TransUnion. "Do Student Loans Affect Credit Scores?" Link
    
    
13. ConsumerAffairs. "What Percent of Student Loans are in Default? 2025." March 2024. Link
    
    
14. Citizens Bank. "How do student loans affect your credit score?" Link
    
    
15. U.S. Department of Education - Federal Student Aid. Various reports on student loan default rates and statistics. Link

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