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Paying Back Student Loans

Student loans are great resources for the vast majority of both undergraduate and graduate students who do not have the personal or family resources to pay for college outright. The best part about student loans is that they are somewhat “backed” by the government, and re-payment does not have to begin until the student graduates. Many lawyers and doctors, who have years of schooling beyond the bachelor’s degree, find this particularly appealing, because graduate school is expensive and there is little time for jobs to pay tuition and other expenses.

Then comes graduation, and the beginning of the re-payment. Usually, payments plans are not horrible, and interest rates are relatively decent, however, if a great deal of debt has accumulated, it can be cumbersome to the professional just starting out. The student has three choices at this point:

Begin the payments as scheduled
Try to get a consolidation loan with a lower overall payment
Apply for a deferment of loan payment

Whichever choice is made, the debt becomes a part of the individual’s credit history and begins to be reported on a credit report.

Credit Reports and Student Loans

Each student loan will be reported, along with payment history. So, if you begin paying your loans back, be certain to follow the timeline and make these payments on time. Late payments will be reflected on the report and can lower your score.

If you have obtained a consolidation loan, be certain to make that payment on time as well. A consolidation loan will likely be quite large, and it is will become an important part of your credit report and score.

If you have applied for and received a deferment, you will not have to begin payments, however, the loan will still appear on your credit report. It will show as “deferred,” however, credit bureaus will look upon it as a part of your total debt, and all debt is one factor in your total score determination.

Until recently, student loan deferments will pretty much ignored by creditors who were considering loaning individuals money. This is no longer true, however, particularly in the mortgage loan industry. Even if you are not required to make payments, mortgage lenders look at the loan and factor in an amount that would be a normal monthly payment when they are tabulating your total monthly debt. This can be a “deal breaker” if you are trying to get a mortgage loan.

So, the things to remember are this: If you start paying back your student loans, make all payments on time; if you find the re-payment plan difficult, get a debt consolidation loan, wipe the student loans off your credit report, and make all payments for you new loan on time. If you should come into some “windfall” cash, use it to pay down this debt. If you obtain a deferment, remember that the deferment will not take the debt away temporarily. It will be reported and will be used in determining your overall credit rating.