President Trump's Student Loan Debt Collections Restart Impacts Gen Z Credit Scores

What's Happening?

A recent FICO analysis reveals that the average American credit score has decreased by two points to 715 since 2024, marking a second consecutive year of decline. This trend is attributed to inflation, high interest rates, and changes in student-loan repayment policies. Gen Z, defined as individuals aged 18 to 29, has experienced the most significant impact, with an average credit score drop of three points. The analysis highlights that 14.1% of Gen Zers saw a 50-point decrease in their credit scores over the past year. The resumption of student loan collections under President Trump's administration, after a five-year pause, has contributed to this financial strain. The New York Federal Reserve reports that 10.2% of student loans are in serious delinquency, and FICO notes that 6.1 million consumers had delinquencies added to their records from February to April 2025.

Why It's Important?

The resumption of student loan collections and the resulting credit score declines have significant implications for Gen Z's financial future. Lower credit scores can hinder access to loans, rental applications, and higher credit limits, affecting their ability to secure housing and other financial opportunities. The policy changes under President Trump's administration, including the elimination of income-driven repayment plans, have increased the financial burden on borrowers. This situation could exacerbate economic disparities, as Gen Z faces challenges in building savings and benefiting from stock market gains. The potential for increased delinquencies and defaults could further strain the economy and impact consumer spending.

What's Next?

As Gen Z borrowers navigate these changes, they may need to adjust to the new repayment realities to avoid negative consequences such as wage garnishments and collections. The introduction of Buy Now, Pay Later loans into credit scores could further affect credit ratings. Policymakers and financial institutions may need to consider additional support measures to help borrowers manage their debt and improve financial literacy. The long-term impact on Gen Z's financial stability and economic participation remains a critical area of concern.