Another Option To Consider If You Cant Afford Your Student Loans
If you struggle to make your monthly student loan payments, deferment, forbearance, and income-driven repayment plans are all good options. But they all increase the amount youll pay in interest over the life of the loan.
Of course, thats much better than dealing with the consequences of a default. However, theres one other alternative to consider early on: refinancing your student loans.
Many student loan refinancing companies can help you get a lower interest rate, lower monthly payment, or both. They can do this by offering lower interest rates than you get with some student loans and longer repayment periods.
That said, these lenders typically require a solid credit history and good income. So you may need a cosigner if your credit and financial profiles arent strong. If you can qualify, though, it could help alleviate some of your problems.
How To Find Out Whats On Your Credit Report
The best way to find out exactly whats on your credit report would be to download your free credit report from AnnualCreditReport.com, the only source for your reports authorized by Federal law. This website doesnt give you your credit score for free, but most banks and credit card companies do for their own customers.
You can request a free copy of your report every 12 months from each credit reporting company. You dont have to pull them all at once I typically recommend staggering them throughout the year so you always have a free one available or so you can monitor your credit more frequently.
Its important to know that there might be slight differences in your credit score and/or credit reports from each of the three credit reporting bureaus. This can be because:
- Your credit information might not be reported to all three credit bureaus
- You mightve applied for credit under different names which can cause fragmented or incomplete files at the credit reporting agencies
- Lenders report credit information to the credit bureaus at different times
- The credit bureaus might record, display or store the same information in different ways
If you find inaccurate information on your credit report or accidentally miss a payment and its hurt your credit score, theres recourse.
How Long Can Student Loans Hurt Your Credit
We get questions and comments from distressed student borrowers wondering exactly how long missteps in repaying their student loans are likely to continue to hurt their credit. It can feel like student loans cast a very long shadow that is hard to escape.
How long student loan problems can affect your credit isnt always clear, because they dont all work the same way.
One thing is clear: If you have private student loans, they should be treated like any other negative event, cycling off your credit report after seven years from the date of the late payment. So a negative mark on your private loan will cease to hurt your credit after that time frame.
But there is one type of federal loan a Perkins loan that can stay on your credit report until the loan has been paid in full, even if it is longer than seven years. This is not true for other types of student loans. The special treatment of a Perkins loan was a provision of the Higher Education Act. Perkins loans are distributed by colleges, and they are a need-based type of loan, with interest deferred while the student is still in school. No other type of student loan delinquency stays on your credit report until the loan is paid off.
Delinquencies and defaults are reported for seven years, though Yu notes that those can happen more than once, and if that happens, there will be a new negative item that will be on the credit report for seven years.
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Student Loan Disability Discharge And Your Credit Report
If you receive a student loan forgiveness disability discharge, your credit report should state that you no longer owe the debt.
However, the Consumer Financial Protection Bureau has said that your credit report could keep your federal loans on the report during the three-year monitoring period . On your report, you may see the notation assigned to government before the mention eventually falls off.
The simple act of the debt being forgiven could also change your credit score. After all, your credit mix and amounts owed two of five will be affected by the discharge. Of course, youd probably rather have your education debt forgiven if it only means a temporary and likely insignificant drop to your credit score.
How To Write A Goodwill Letter To Your Lender
If youve a missed or late payment reflecting on your credit youd like removed, the first step is to communicate with your lender about getting back into good standing with your account.
Once thats done, ask your lender for a goodwill adjustment to remove the negative reporting from your credit reports via phone with a customer service representative. If that doesnt go far, write your goodwill letter via snail mail or email to the customer support department for your lender.
The best advice I can give for writing this letter is to be honest, sincere and definitely polite. Make sure to include:
- Name, address, phone number, email and your account number
- Explain why youre writing and what caused the error
- Tell them what you did to correct the issue so it wont happen again
- Explain how this negatively affects you
- Ask for a goodwill adjustment to have it removed
- Tell them youre grateful for their consideration
- Also include supporting evidence if applicable
Again, guard your heart because creditors arent required to consider your request. You might not even get a response, even if they do adjust it for you! If you havent gotten a response or noticed a change on your credit reports within a month or two, you can follow-up by phone, email or snail mail.
How To Bring Your Credit Scores Back Up After Delinquency
The good news is that even if the lender is unwilling to remove the delinquencies, the late payments will have less of a negative effect on your credit as time passes. You can help your credit recover by continuing to make all payments on time going forward. In addition, you can improve credit scores if you:
- Bring any other past-due accounts current. Your payment history is the most important factor in credit scores, so making sure all accounts are current is key.
- Pay off any outstanding collection accounts. Although paying off a collection account does not automatically remove it from the report, some credit scoring models may exclude a collection account from the score calculation once it shows as paid in full.
- Pay down balances on credit cards and keep them low. Your utilization rate is an important factor in scores, so keeping your revolving account balances low can help build your good credit. If possible, you should pay your balances in full each month.
- Order your free credit score and focus on the risk factors provided. When you get your credit score from Experian, you will also get a list of the top factors that are impacting your score the most.
- Sign up for Experian Boost. You can add positive utility, cellphone and certain streaming service payments to your Experian credit history with Experian Boost. These positive payments can help increase your score right away.
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Can You Remove Student Loans From Your Credit Report
If the information about your student loans is legitimate, removing it from your credit report is generally not an option.
One thing to keep in mind is that some companies may promise they can remove student loans from your credit report even if the negative information is accurate these are often scams.
Contacting Your Loan Servicer
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How Can Student Loans Affect Credit Reports
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- Student loans may be one way to establish a good credit history – if paid as agreed
- Student loans impact your debt to income and debt to credit ratios
- Loans may appear on your credit reports even while deferred
If youve been to college or plan to send a child to college you may be familiar with the concept of student loans.
According to the U.S. Department of Educations Office of Federal Student Aid, in 2018, there are more than 42 million total federal student loan borrowers in the United States, amounting to approximately $1.4 trillion in outstanding debt.
“Sometimes classified as ‘good debt,’ student loans may be one way to establish credit history if they are paid off responsibly,” said Zehra Mehdi-Barlas, director of public relations for Global Consumer Solutions at Equifax. “Establishing a responsible credit history may also lead to other opportunities for vehicle loans or mortgages. But student loans are not commitments that should be entered into quickly or without doing thorough research.”
Similar to other financial commitments, student loans can appear on . Since credit scores are calculated using information from credit reports, on-time payments — and late or missed payments — can impact credit scores.
Here are some general facts about student loans and credit.
If possible, you may want to consider starting to make payments on student loans before you graduate, as it may reduce how much interest youre paying overall.
Refinancing Your Student Loans
Student loans getting you down? If you qualify, refinancing your student loans with a private lender like SoFi allows you to consolidate multiple student loan balances into one brand-new loan, hopefully with a lower interest rate. One good thing to know, however, is that refinancing federal loans with a private lender means youll lose federal benefits like forbearance, deferment, and the income-based repayment plans we mentioned above.
If youre looking to simplify your monthly loan payments and potentially lower your interest rate, or lengthen your loan term to lower your monthly payments, take a look at SoFi student loan refinancing.
If youre ready to see how refinancing your student loans could help you achieve your repayment goals, check out SoFi student loan refinancing.
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How Do Student Loans Show Up On Your Credit Report
One of the biggest questions that come up when considering student loans is whether they appear on your credit report and affect your credit score.
The straightforward answer is yes. Your student loans appear on your and are factored into your credit rating, just like any other loan. How you manage your student loans can make an impact, so it’s important to stay on top of the situation.
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The Impact Of Late And Defaulted Student Loans
Payment history is often one of the most important factors in determining your , according to the CFPB. And the CFPB says that even a single reported late payment can hurt your scores.
According to the Department of Education , your federal student loan is delinquent after you miss one payment. And if you continue to miss payments, your loan might go into default.
Many federal loans are considered in default after 270 days. If you have private loans, check with your lender about its policies.
The DOE says having a defaulted student loan can have a significant negative impact on your credit for years. And the consequences of a default can go beyond any impact on your credit.
Defaulting on your student loans can also cause the entire loan amount to be due immediately. If a loan is sent to collection, you may have to pay additional fees on top of your loan balance.
In some cases, your lender can even take you to court. And that can cause things like wage garnishment. That means part of your paycheck automatically goes toward paying your debt.
If you have a co-signer on your loan, it could affect them too. Remember, co-signers are ultimately responsible for the loan if you canât pay.
What to Do if You Fall Behind on Student Loans
Itâs important to take defaulted student loans seriously. And as soon as you fall behind, consider reaching out to your lender or loan servicer to see what relief options you might have.
Amount Of Time A Defaulted Student Loan Debt Will Remain On Your Credit Report
Typically, a defaulted debt, including student loan debt, will be taken off your credit report after 7.5 years from the date of the first missed payment. Though, it is important to understand that the 7.5 year period applies to private student loans. In contrast, if you defaulted on a public student loan, the amount of time it will remain on your credit report is actually 7 years from the date of default OR from the date the loan was transferred from the guarantor of a Federal Family Education Loan to the Department of Education. There is also a very big exception to the 7 year rule – Perkins loans never age off while a balance is owed. This means if you took out, and subsequently defaulted on a Perkins loan, the trade line will continue to show until the student loan is paid off, even after 7.5 years have elapsed. The only way to get a Perkins loan removed from your credit report is to pay the loan off or to consolidate the debt with another loan.
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The Response To The Advisory Opinion Letter
In a couple of days I received a letter via snail mail that upon further consideration my payment history was being revised!
Within a few days I logged in to check and my credit report for another matter and noticed it had shot way up they had removed my late payments!
And what was great was that my credit score had made an astronomical leap. The removal of the late payments coincided with me paying of all my credit card debt and a slew of hard-pull inquiries dropping off my report so my credit score jumped from the 500s to the 800s!
I couldnt believe the change and I was on my way to getting some pretty great credit cards.
When you research the authority of Section 623 and this FTC advisory opinion youll come across a lot of varying accounts and opinions. There are a lot of accounts of using this opinion not working and some others who have had success like I did.
Dont get too discouraged by the negative accounts. I almost never sent in my second letter because it seemed like a wasted effort but thank God that I did I dont even want to think about where my credit score would still be right now if I hadnt.
If you have some late payments that hit while you were supposed to be in an in-school deferment status or in forbearance then I definitely recommend giving this method a try.
Try the good-will letter first and if that doesnt work then youre next step could be using the FTC advisory opinion Section 623. Remember, theres no harm in trying.