Harv's Corner 06/02/2025

Harv's Corner

I believe . . . 
The U.S. government should support free college for its young citizens because it represents a strategic investment in the nation's future prosperity and global competitiveness. By eliminating the financial barrier of tuition, a larger segment of the population, particularly those from lower socioeconomic backgrounds, would be able to access higher education. This would lead to a more educated and skilled workforce, fostering innovation, boosting economic growth through increased consumer spending and tax revenues, and reducing reliance on social safety nets. Ultimately, free college is an investment in human capital that yields substantial returns for individuals and the nation as a whole, ensuring a more equitable and robust society.

Millions with late student loans are hit with bad credit
Drop is akin to filing for bankruptcy and could lead to pricier loans.
By ABHA BHATTARAI
​The Washington Post

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Millions of Americans are suddenly facing dramatically lower credit scores from delinquent student loans, making it tougher for them to secure housing, insurance, car loans, even employment at a vulnerable time for the U.S. economy.

Credit scores dipped by more than 100 points for 2.2 million delinquent student loan borrowers and 150 points or more for over 1 million in the first three months of 2025, according to an analysis by the Federal Reserve Bank of New York. It's the kind of credit score drop that follows a personal bankruptcy filing. About 2.4 million of those Americans previously had favorable credit scores and would have qualified for car loans, mortgages or credit cards before these delinquencies were reported, researchers said.

The slide in credit scores could lead to pricier loans for millions as borrowing costs are near 20-year highs. The Federal Reserve has signaled that it doesn't plan to cut interest rates right away.

Already there are signs that lower credit scores are making it harder for more Americans to get loans, with rejection rates for auto loans, credit cards and mortgage refinancing all ticking up in February, compared with a year earlier.

Tina Johnson was two days away from finalizing the purchase of a used Nissan Pathfinder when she got notice that her preapproved loan was no longer valid. Her credit score had fallen from 650 to 418 after she missed $440 worth of student loan payments that she didn't realize were required again. Although the U.S. Department of Education said lenders would send borrowers a bill at least three weeks before it was due, Johnson said she was never notified that payments needed to resume.

"Nothing, no email, no phone call, no letter — I could've avoided all this if I had known," said Johnson, 44, who lives in Fleming County, Ky.
Johnson's expected car payment of $350 a month nearly doubled overnight, making it unaffordable for the DoorDash delivery driver. She's stuck with her 12-year-old Nissan Altima for now. Johnson says she's also putting off other plans, including borrowing against her home to repair her roof and going back to school for a bachelor's degree .

"I took care of the accounts, but there's nothing else I can do," she said. "It'll take me years to get those 200 points back."

Federal student loan payments were paused early in the coronavirus pandemic in March 2020, offering millions of Americans relief at a time of economic upheaval and high unemployment. Although payments started back up in late 2023, the Biden administration offered a yearlong grace period. That ended on Sept. 30, but millions of borrowers have yet to make a payment on their student loans.

This month the federal government restarted collection efforts for defaulted student loans and said it will resume seizing wages, tax returns and Social Security payments this summer, making the stakes even higher.

Nearly 1 in 4 borrowers required to make loan repayments were more than 90 days behind at the end of March, according to the Federal Reserve Bank of New York analysis. And although younger Americans tend to hold the most student debt, borrowers ages 40 and older are most likely to be behind on their loans, suggesting that years of inflation are making it harder for middle-aged Americans to keep up with payments.

"This is the beginning of something big, and we need to be paying attention," said Dominik Mjartan, chief executive of American Pride Bank in Macon, Ga. "There's a very high cost to having a low credit score in America. Your cost of living goes up — your cellphone bill, your utilities, your insurance payments, everything. And that trickles down through the economy."

Credit scores, which generally range from 300 to 850, offer a snapshot of a person's financial history that takes into account debt levels, bill-paying record and length of credit background. They're used by lenders of all types, as well as landlords, employers, insurance firms, cellphone providers and utility companies to gauge how likely someone is to make loan payments on time. A good credit score, generally 670 or higher, can translate to lower interest rates and higher credit limits, while a subprime score, under 620, can disqualify borrowers from most conventional loans.

"It's been a major hit to credit scores, and for a lot of people, has been enough to put them in subprime territory, making it very difficult to get loans at decent interest rates," said Stefania Albanesi, an economics professor at the University of Miami and a former researcher at the New York Fed. "And while credit scores can drop quickly, they recover very slowly. Even if you've gotten back on track with your payments, it can take years to get back to where you were before."

Kayla Moore found out in March that her credit score — a "good" 730 — had fallen by more than 100 points to become subprime after three missed student loan payments of $30 apiece.

Moore, who had already paid off $5,500 in loans, said her father had offered to cover the last $1,000. She didn't realize those payments had slipped through the cracks until she got emails from Credit Karma and Experian. She immediately paid the balance in full but says her credit score has barely budged, to the mid-600s.
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"I basically lost my mind when I saw what had happened," said Moore, 24, who works at a bank in Chicago. "I really wanted to move to a nicer apartment this year, and now I'm worried they're going to see my credit score and immediately deny me."