The news: The share of rental applicants who are more than 90 days delinquent on student loans increased from 15% in January 2025 to 32% in May, according to a just-released TransUnion report. Credit score data reflects these delinquencies, with lower-scoring consumers faring the worst: 63% of near-prime consumers fell into the sub-prime range from January to May, more than any other bracket.

Delinquencies were already creeping upward: 6.1 million customers had a student loan delinquency added to their credit file between February and April of this year, according to a FICO study. The impact has been especially acute for Gen Z, with more than a third—or about twice the overall population—having open student loans.

Zoom out: FICO and the credit bureaus are adapting their models to more accurately reflect consumers’ creditworthiness. VantageScore, for example, incorporates alternative credit data like rent and utility payments alongside traditional loan repayment data. And FICO is building models that account for buy now, pay later activity, which may improve creditworthiness for millennials and Gen Zers.

Our take: Consumers’ struggles with student loan repayments highlight a problem for financial institutions (FIs) on the hook for private-loan defaults: Federal student loan borrowers may be prioritizing student loan repayments over credit cards and personal loans. This marks a change in the typical debt repayment hierarchy of mortgages, then auto loans, and then personal loans. And as consumers delay expensive financial decisions like buying a house in favor of reducing student loan debt, demand for credit like mortgages and auto loans will suffer.

FIs should prepare for a domino effect on their portfolios amid broader credit stress. Though their latest earnings suggest a healthy banking system, myriad economic risks and stressors for consumers could snowball into a much bigger problem.