Is Student Debt Affecting Your Credit Score? What there is to know

At this point, almost everyone knows that student loans are the worst – most often, though, getting into debt is necessary to fund your higher education goals. But how do they affect your long-term finances, especially when it comes to your credit score? After all, your credit is a deciding factor in your future and it affects your ability to buy a house, a car, or even start your own business.

In short, student loans can affect your credit like all other loans, if you repay on time, they can help you improve your score. However, if you are behind on your payments or don’t pay at all, they could end up cause real damage to your financial future. But it’s no coincidence that in 2022 the amount of student debt in the United States has soared to nearly $1.75 trillion.

Simply put, a credit score is a numerical representation how likely you are to pay your bills and debts. The more consistent you are with paying your bills and debts, the higher your credit score will be. Conversely, the less consistent you are with paying off those bills and debts – say, you have a few (or more than a few) late or missed payments – the lower your score will be. This three-digit number, which typically ranges from 300 at the bottom of the scale to 850 at the top, is used to determine your mortgage and auto loan eligibilitycredit cards, home ownership, interest rates, etc.

In 2022, it is estimated 46 million Americans have student loans, with an average debt of $28,400 for bachelor’s degrees alone, according to Student Loan Hero. And before debt payments were halted due to the coronavirus pandemic, some 11% of borrowers – or around 5,060,000 – were either 90 days behind on their payments or defaulted on their loans. .

Bonnie Latreille, Director of Research and Advocacy at the Center for the Protection of Student Borrowers (SBPC), told Elite Daily in May 2021 that people are in debt as a result of political decisions made at the state and federal levels. “States have withdrawn from funding higher education,” she says. “If you don’t come from a family that is independently wealthy,” she adds, “your choices [are]taking out student loans or not going to school.

“If you take out federal student loans, you have a lot of protections about how you can pay off your debt and what options are available to you,” says Latreille. “But private student loans don’t have those protections,” she adds. ‘The terms are so predatory’, students who borrow from private companies can end up paying these loans for the rest of their lives, and they often default – which can make severe damage to credit ratings. “These companies have very expensive loans” that are “designed to fail,” she says.

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“The Inspector General of the Ministry of Education recently published a report [with] really impressive numbers on the number of borrowers who did not get the correct information when they called [loan servicers] with questions,” says Latreille. This includes service agents telling people they are eligible for certain loan forgiveness programs when they are not, not telling people when they are actually eligible for certain programs, or encouraging borrowers to apply. abstain – which can really ruin your credit score. “[Servicers] are playing a huge role in escalating the crisis,” Braxton Brewington, press officer for the Debt Collectivesaid Elite Daily in March 2022.

So what are your options for protecting your credit score (and yourself) from these predatory lending practices? Brewington has a few suggestions: You can repay your loans using a income-based repayment planfile a defense of the borrower to the request for reimbursementfill out a waiver of public service loan forgivenessWhere file to obtain the cancellation of your debt. He also highly recommends versus consolidate your student debt with a private company. “Once you refinance your loans with a private lender,” he says, “you will never be eligible for any ‘benefits’ the federal government gives you again.”

Brewington also strongly encourages borrowers struggling with debt to join the Debt Collective. Collective organizing, he says, “is the only way we’ve seen debt cancelled.” With “a union of debtors pushing for cancellation across wide swaths and adding political pressure on the back end – we’ve seen this become a success,” he adds. “When you realize that [borrowers] we have power and we see our debt as an asset, that’s when we start to realize that we actually can really start to control this conversation.

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