Student Loans and your Credit Score

Your credit is not a factor in applying for a Federal Student Loan, but it is one of the first things considered when a private loan is applied for. Private loans will not usually be issued to those with a credit score of less than 650, or those who have filed bankruptcy within a 90 day period. If you have filed for a bankruptcy within the past 90 days, your application for a Federal Student Loan will most likely be rejected as well.

It is important to check your credit score at least once per year. There are three major credit reporting bureaus that are required by law to provide one free credit report to you each year. You must request a report each year from these credit bureaus as they are not automatically sent to you. The three major credit reporting bureaus are Experian, Equifax, and TransUnion. If you have requested a current copy of your credit report, look it over thoroughly and verify that the information there is correct and current. You do have the right to challenge any inaccurate information with your creditors.

Repaying your Federal Student Loans

Making Standard Monthly Payments

The best route for staying current and in good standing when paying back your Federal Student Loans is to make steady monthly payments in full. Once you enter repayment your loans are automatically situated on a Standard Repayment Plan. This means that you will be required to make 10 years or 120 regularly scheduled payments that are each 10 of your balance. Paying 10 of the balance each month will allow you to pay your loans in full at a term of 10 years.

Graduated Repayment Plan

If 10 of your current balance is an unreasonable amount for you to commit to paying each month you may consider using a Graduated Repayment Plan to pay out your loans. This means that you are still able to pay the loans off in the shortest term (10 years/ 120 payments), but your monthly payments would start out low and gradually increase over time. This is often a great option for those who have just graduated and are new to repayment. You will have an opportunity to pursue gainful employment and work your way up from very minimal payments while staying in good standing with your loans. The worst thing you can do is disregard your monthly payments because they are to high for you and your family. This will cause delinquency and even default. These situations will absolutely negatively impact your credit score.

Alternative Repayment Options

Some students and their families may need alternative options in repaying their loans than the Traditional Repayment Plans offer. If this is the case for you, please search your qualifications for Income Driven Repayment Plans and Federal Relief Programs. These programs offer the borrower alternative repayment options based on the household income and family size. The current options for Income Driven Repayment are IBR, PAYe, REPAYe and the ICR. When correctly enrolled in these programs, the Federal Government may offer relief of your loan balance at the end of your term. Although these programs do extend your term in repayment to 20-25 years, the benefit of having a monthly payment that is comparable to your income can easily be outweighed.

Did You Know?

Lenders expect you to follow the guidelines of the repayment plan you have entered into. Repaying loans early can often relieve the burden of another monthly payment, but it may put you in a negative light when applying for future loans. Paying your loans in full, or early will eliminate the interest that the lender is expecting to gain from supplying or managing your loan(s). This will make future lenders hesitant to work with you unless you can show that issuing you the loan will be beneficial to them.

Delinquency

Delinquency means late or missed payments. After six months or 270 days without issuing a payment on your loans, your account is classified as defaulted. These are the worst situations to end up in. It will leave you ineligible to return to school, cause creditors not to trust you for future loans, negatively impact your credit score, and take time and effort on your part to recover from.

If you have missed payments. Please seek an Income based option immediately. Once you begin satisfying these terms of the IDR, you will spike your credit score back up to its previous standing. Do not hold off or try missing payments with the hope of catching up later. As soon as you are aware that you will not be able to cover  payment(s), seek help restructuring your loan. Once you have recovered from a delinquency or default, check with your service and the credit reporting agencies to verify that information has processed and updated properly.

The advantages to Federal Student Loans are vast. Again, research your options and be prepared.

In the credit industry Student Loans are considered great. Take advantage of this because the impact on your credit is not as severe as with most loans.