Student loans are impacting renter credit scores: What operators can do

A sudden 100-point drop in a credit score causes all sorts of problems. It can hit someone’s ability to take out an auto loan, apply for a credit card, or rent an apartment.

This is a real problem millions of people are facing since the Department of Education resumed collection of federal student loan payments in May 2025, after having suspended referrals for collection since March 2020. Within the first few months of 2025, 2.2 million student loan borrowers had already seen their credit scores drop by 100 points or more.

It’s a challenge that multifamily operators need to contend with, said Aaron Victorson, Executive Vice President of Sales & Revenue Operations at TheGuarantors. When a delinquent student loan is factored into a potential renter’s credit score, it can affect their ability to qualify for an apartment, whether or not they can afford payments.

“The number of people that look high-risk on paper is already growing — the credit impact of student loans adds fuel to the fire.” he said. “Even renters with previously strong credit are seeing scores drop, which means more conditional approvals and more actual risk for operators. Multifamily teams need to lean on available solutions to keep occupancy steady while limiting exposure to bad debt.”

The impact of this move from the Education Department on multifamily operators depends on how they weigh student loan debt, Victorson said. For operators that factor it into their assessment of applicants, the result will be an immediate reduction in the number of potential qualified renters.

On average, operators look for a credit score above 600 to consider renting an apartment to a resident. In many locations, a drop below 600 points could present a significant barrier.

Even operators that don’t immediately factor a renter’s student loan debt into screening face a long-term impact, Victorson said. Student loans impact people for decades. The transition into serious delinquency has been the highest among borrowers 50 and older, at roughly 18%, followed by borrowers in the 40-49 age range, at nearly 14%.

The reintroduction of student loan repayments is even affecting the area of development finance, Victorson said. If fewer renters qualify and those who do carry higher risk, this could drive up bad debt while occupancy dips slightly, tightening net income and top-line revenue.

At the same time, strategies to attract renters, such as lowering rents, offering more concessions, or loosening screening standards, can further complicate the financial picture, Victorson said. This puts additional pressure on value-add projects that rely on projected occupancy, rent growth and collection rates to refinance or meet loan obligations.

“If you underwrote a project assuming fast double-digit rent growth — competing at the top of the market while keeping write-offs average — but then competition ramped up and those higher-paying renters started looking different financially, you probably ended up with a higher-rate loan than you ever intended,” he said. “This is particularly prevalent in areas of the country with a highly competitive market, like the Sun Belt, especially because that strategy worked 18-24 months ago when these decisions were made.”

Solution providers such as TheGuarantors help operators balance occupancy goals with the need to avoid costly defaults, Victorson said. Today, many operators are using Rent and Deposit Coverage solutions to widen their pool of potential renters and responsibly boost occupancy. Without this support, operators are often hesitant to approve renters that may not meet their traditional qualifications.

In addition, in the last 12 months, TheGuarantors has observed a steady decline in FICO scores due to several wider economic signals that multifamily owners need to monitor, Victorson said.

Credit card debt continues to rise, with nearly 7% of balances transitioning into delinquency over the last year. Auto loans are in a similar position: 5.1% of Americans are delinquent on at least one account. Overall, U.S. household debt rose by $167B from the fourth quarter of 2024 to $18.2T in Q1 2025.

Many operators mistakenly consider the income-to-rent ratio to be healthy, without considering all the other places that income has to go, Victorson said.

“With inflation on the rise and factors such as the potential for tariffs to hit the cost of goods, everything consumers need to spend money on other than rent are getting more expensive,” he said. “Rent is usually the last thing a consumer stops paying because housing is essential. They might keep up with their credit card for smaller purchases and their car loan to get to work, but when those start to slip, it’s a warning sign rent could be next.”

Growth in renter fraud also poses an ever-greater risk to multifamily operators, Victorson said. As credit scores are impacted by student loan debt as well as wider household debt, more people could turn to submitting fraudulent applications, which is increasingly aided by sophisticated artificial intelligence that is one step ahead of operators.

Since operators can’t screen for every eventuality or constantly track economic shifts, the solution is to bring in partners with expertise.

TheGuarantors can help operators reduce their bad debt by up to 70%. The company provides anywhere from six to 12 times the coverage operators would have gained from another option, such as a traditional security deposit.

Renters benefit from TheGuarantors coverage not only because it helps them secure an apartment, Victorson said, but also because it supports a stable, fully occupied community where operators can maintain the property and meet their obligations.

The impact of student loan payments resuming has become apparent very quickly, surprising both consumers and operators. “The market is shifting really fast,” he said. “One way or another, operators have to meet the market where the risk is, and using TheGuarantors is a quicker and easier way to do that rather than trying to screen perfectly.”