Category: Student Loan

Monitoring Your Credit Score: Subsidized vs Unsubsidized Student Loans

Student Loan and Credit

Guest article from Credit Zeal

When going to college, one of the biggest challenges you’ll be faced with is how to pay for it. After filling out the FAFSA, you might find that you’ve been approved for both subsidized and unsubsidized loans. If so, you’re probably wondering which is best for you. What is the difference between the two? How do they affect your credit score?

Let’s start answering these questions by first defining each type of loan and helping you identify the benefits of each. Then we can determine which is ideal for your situation.

Subsidized Loans: Learn Now, Pay Later 

First, let’s start with subsidized loans, as these are generally the more favorable option – if you are eligible for them. The catch is that they are more difficult to qualify for.

To obtain a subsidized loan, a student must demonstrate a financial need to have the aid paying for their educational expenses. They come with lower loan limits compared to unsubsidized loans. In addition, they are available to undergraduate students only. However, if you meet these requirements to get subsidized loans, they tend to be the best option for you.

Why? What makes subsidized loans so great?

The primary benefit of these loans is that, while you are enrolled in college, the Education Department pays the interest that accrues on them until the time that you graduate. This means that when you graduate school, you will owe the same amount that you borrowed on your subsidized loans – and not a penny more. You also don’t need to start making payments on these loans until you graduate.

Unsubsidized Loans: Getting You the Money You Need 

To contrast, unsubsidized loans start accruing interest from the moment you take out the loan – just like most loans work. However, because these loans are for educational purposes, you will not be required to start making payments on them until you have graduated from your university. This allows you to get through school without worrying about how you’re going to make your next payment – however, that interest is adding up all the while.

The benefits of unsubsidized loans lie in the fact that they are much easier to qualify for. In addition, students are typically able to qualify for them in higher amounts – getting them the funds that they need to pay for their education.

What About Your Credit Score?

Before you take out loans to help you pay for school, it is normal to wonder how this is going to affect your credit. Are student loans bad for your credit? Does subsidized vs unsubsidized make a difference in terms of credit?

First of all, student loans are not bad for your credit at all. In fact, they are a great way to establish your credit history. Many college students have not been in the game of establishing credit for very long, but student loans are a great way to get started. Student loans are considered “good credit” whereas things like credit cards aren’t viewed as favorably by banks.

Fortunately, both subsidized and unsubsidized loans are viewed similarly in terms of your credit score. Having either type of loan is good for your credit – as long as you make your payments after graduation.

If you do need help with improving your credit score you may want to consider working with a reputable credit repair service. Lexington Law has more than 20 years’ of credit repair experience and have helped more than half-million clients

So, Which Type of Loan Is Right for You?

In the long run, you will save more money by opting for subsidized loans and paying less money in interest. However, you may not be offered enough money to get you through school with subsidized loans alone. If you are offered both types of loans, the decision that many students make is to take out the subsidized loans they are offered and supplement them with the unsubsidized student loans to get the rest of the funds that they need.

Remember, you don’t have to take out the entire amount that you are offered! You have the option to take only what you need to help you save money in interest in the long run.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

arrow Read this post

Don’t Let Student Loans Keep You From Buying a Home

student loans and home buying

For many people, buying a home feels like “the next step” on the checklist of life goals. But it can be an intimidating project — especially if you feel held back by your student loans. About 37 percent of Americans between the ages of 18 and 29 report having outstanding student loan debt.

But student loans don’t have to stand in the way of your homeownership dreams. Here is how you can work around them to get approved for a mortgage you can afford:

Establish strong credit history

More and more people these days are wary of credit cards, which is not surprising since Americans hold more than $1 trillion in credit card debt. . But the truth is, not having a credit card could negatively impact your credit. The longer and more stable your credit history, the better you look to lenders — and credit cards are one of the easiest ways to establish credit history. It’s also good for your credit to diversify your debt between revolving credit (like credit cards) and loans.

Consider getting a credit card and only using it for a few necessities, like groceries or gas. And make sure to pay off the balance every month so that you don’t get caught in a cycle of credit card debt.

Improve your credit score

A strong credit score is one of the most important factors when applying for a mortgage. A 690 credit score or higher is generally considered good. Anything less than 560 is considered poor.

If you need to fix your credit score, here are a few tips:

  • Pay all your bills on time and consistently.
  • If you have a lot of credit card debt, make higher payments to lower your balances and get your credit utilization rate below 30 percent.
  • Check your credit reports to make sure everything is accurate. If anything appears fraudulent, it’s important to initiate a credit dispute immediately.

Lower your debt-to-income ratio

Your debt-to-income ratio (DTI) is also an important factor in whether you are approved for a mortgage. A debt-to-income ratio of 43 percent is usually the highest that will be approved (lower is better.) If you are one of the twenty-five percent of student loan borrowers with $43,000 or more in loans, and you are on the standard 10-year plan with a 5.7 percent interest rate, your monthly payments are probably about $471. Depending on your income and other debt, this could be eating up quite a bit of your DTI.

You can lower your DTI by paying down your debts. You may also consider consolidating or refinancing your student loans. You will probably need to extend the terms of your student loans, but you could secure a lower monthly rate in the process.


One of the best things you can do to prepare for the home buying process is to save money for a down payment. If you have a down payment of at least 20 percent of the purchase price, you are more likely to get approved for the mortgage and get a lower interest rate. You will also pay a lower monthly payment, and you won’t have as many fees (like mortgage insurance). A 20 percent down payment isn’t the end-all and be-all, but it is a good goal to strive towards.

Is it the right time to buy?

Depending on your financial situation, you may want to consider delaying your home-buying dreams until you have time to plan, save and improve your credit. Consider contacting a credit repair company to learn more about how to improve your credit score. The housing market will still be there when you are ready.


If you want help assessing your credit, or if there are negative items you would like to see removed from your credit reports, contact the legal credit repair experts at Lexington Law Firm today.

Learn how you can start repairing your credit here, and carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

arrow Read this post

3 Things to Consider before Paying Off Your Student Loan Debt

student loan debt

With lots of talk these days about the heavy burden of student loan debt, it’s easy to become worried about your own debt. But whether you’re in school right now or a recent graduate facing the first of your monthly loan payments, it’s important to take a step back and consider the big picture.   

Forty-four million Americans are currently paying off $1.4 million in student loans, with the average graduate approaching $40,000 in student loan debt, according to 2017 statistics. It’s safe to say that paying down debts will be a major undertaking for many people over the course of several years.

But at what additional expense? Will you have to forgo a home, a car, or some other major milestone? How much will you have to scale back your everyday life? In an effort to pay down your loan as quickly as possible, you could inadvertently be giving up more than you need to.

Before you embark on your student loan repayment plan, make sure you’re thinking about other important goals, too. Let’s talk about what those are and how to enable a fuller life as you pay off your loan.

1: Make it a goal to buy a home

Yes, you read that right. It takes some discipline and planning, but student loan debt doesn’t have to prevent you from buying a home.

Here are some tips:

  • Keep your other debt low. Mortgage lenders suggest keeping your debt-to-income ratio at 36 percent or less, including your mortgage payment. That means carefully watching what you spend on credit cards and limiting other loans. It’s a good idea to pay down as much of your other debt as you can before you apply for a mortgage.
  • Refinance your student loan. If your debt-to-income ratio is still too high even after paying down your other debt, talk to your loan officer and ask to negotiate a new payment plan. For example, you may be a good candidate for an income-driven repayment plan. This option resets your monthly payments based on your current income. It makes your payments more affordable and helps reduce your debt-to-income ratio.
  • Save for upfront costs. When you are ready to buy a home, you’ll need to have cash on hand for a down payment and closing costs. Home buyers are traditionally advised to put down 20 percent. But some banks and first-time homeowner programs will accept a lower down payment by requiring that you pay for mortgage insurance, for example.
  • Stick to what you can afford. Balancing a mortgage and your student loan means you shouldn’t expect to buy your dream home right off the bat. Instead, aim for small and basic. With good payment habits and a steady income, you can always work up to your dream home later. Until then, make sure you’re only looking at what you can afford.

2: Start planning for retirement

You may be wondering: I just graduated — how can I think about retirement already? Getting a job and paying off your student loan should absolutely be a priority. But your long-term financial security is important, too.

Some people feel a lot of urgency to get student debt off their books as soon as possible to save money on interest. After all, if you’re on the standard 10-year repayment plan for federal loans, that’s 10 years of interest you’ll owe plus the principal. Focusing solely on paying down your loan seems to make a lot of sense.

But if you’re okay with carrying your student debt for awhile, you can also spend the time saving for retirement. Take the extra income you’re tempted to put toward your loan and put it into a retirement fund instead. The sooner you can invest in your financial future, the better you’ll be in the long run. You may find that the tradeoff in paying loan interest can be found in earlier retirement and greater ease of living later on.

3: Don’t forget to have fun

Enjoying life when you have student debt isn’t necessarily irresponsible or even impossible.

Think about it this way: your education is an accomplishment you’ll likely never regret. But you may regret postponing recreation or relationships in sacrifice to your student debt. In fact, feeling like you can participate in your own life makes your student loan less of a burden and keeps you motivated to pay it off.  

Try these:

  • Whenever you can, set aside extra money in a “fun” fund, even if it’s $5 or $10 at a time. Go for inexpensive entertainment like happy hours or movies. And take advantage of free fitness classes or music shows. Just be sure to avoid overspending or paying with credit.
  • Set goals for yourself. For example, every six months you could treat yourself to a nice dinner or a massage. Or if your fund has grown enough, plan a weekend getaway with friends. Whatever feels financially feasible for you, don’t be afraid to do it and reward yourself.

Thinking about student debt differently

The reality is that you may not be able to buy a home and save for retirement and have all the fun you want while paying down your student loans. Much of what you’ll be able to do depends on your employment and the amount of income you’re earning.

Instead, pick one or two goals to incorporate into your budget. As you earn more income, you can increase your goals and the amount you put toward them. Just don’t let your student loan dampen your zest for life or rule all your financial decisions.

And no matter what, make all your loan payments on time since it’s critical to maintain good credit when you’re paying off debt. Also remember to check your credit report yearly to get an accurate sense of your financial health and to address any issues that could be hurting your credit score. If you do get into some credit trouble, there are professional experts who can educate you on how to fix bad credit.

All of these habits will help you live within your means, earn a better credit score, and achieve some of life’s most satisfying milestones, even as you pay off your student debt.  

If your credit score is suffering from unpaid student loans or you’ve gotten behind on any other loans and your credit score has suffered, Lexington Law can help. Contact our legal credit repair experts today to learn how you can use credit laws to your advantage and repair your credit today.

Carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

arrow Read this post

How Does Refinancing a Student Loan Affect My Credit?

refinancing student loan

Like millions of other Americans, you’re heading out (perhaps for the first time) into the workforce, equal parts excited and stressed out. Why? Because you’re now saddled with student loan debt.

It’s a frustrating conundrum: If you hadn’t pursued higher education, could you hope to earn what you’re earning now? Probably not. But, if you hadn’t racked up so much student debt, would your lower income go further? Possibly.

But there’s no use crying over spilled milk. What you have now is a significant debt and (hopefully) a career you’re passionate about. Now’s the time to think about long-term stability, not to rehash past decisions. And, of course, to do what’s best for your long-term stability, you need to consider how your student loans are affecting your credit score.

How do student loans impact your credit score?

As a recent graduate, your student loans may be the first major debt you’ve ever incurred. Even if you have a well-established credit history, they’re likely one of the more sizeable debts on your record. Therefore, how you manage them can have a huge impact on your credit score and your future opportunities for vehicle loans, mortgages, and other forms of credit.

So, the first (and most important) thing to recognize is the need to make sure your student loans are paid on time every month from the first payment on. Whether they’re federally backed or private, your credit score will be harmed if payments are late or if you default on these loans.

On the other hand, paying them off in a timely manner, consistently, may be one of the only ways a young graduate can boost their credit score since most do not have other forms of credit in their name that factor into FICO score calculation. Even for older graduates, consistent and timely payments on any debt can help improve a credit score.

That being said, if and when it becomes possible to refinance your student loans, there may still be valid reasons to consider doing so.

When may refinancing my student loans be a bad idea?

Before diving into when refinancing can benefit you, it’s important to understand what you’re giving up if you go forward with a student loan refinance.

The majority of student loans are issued through the federal government. These loans are generally offered with no disqualifications for poor or no credit, and with a competitive interest rate (at the time of issuance). Additionally, federal student loans include some potential benefits that most private loans do not. These include:

  • Income-based repayment plans
  • Loan forgiveness programs
  • Deferment or forbearance under federal rules

While each of these features have rules that apply, they can be valuable stop-gaps in circumstances where you may otherwise fall into late payments or default. If your circumstances are such that you can take advantage of these options — even if you don’t need to right now — it may be in your best interest to keep your federal loans and continue to pay them off as your circumstances allow.

To be clear: private lenders are unlikely to offer any of the above options once the refinance goes through, and current legislation doesn’t allow you to maintain these benefits once you refinance your federal student loan.

When may refinancing my student loans be a good idea?

Refinancing and/or consolidating your student loans through a private lender makes good financial sense when both of the following conditions are true:

  • If you obtained your loans at an interest rate that is far higher than what you qualify to receive through a private lender today, and
  • If you’re already employed and can expect to have consistent, adequate income for the next several years.

For example, lowering the interest rate will lower the monthly minimum payment. This makes each month’s payment easier to cover, and therefore lowers the chances of paying late or defaulting on the loan. The lower monthly payment might also allow you to pay extra to the principal balance of the loan each month, enabling you to pay the loan off early.

In either case, if refinancing the loan allows you to more effectively maintain consistent, on-time payments, it’s going to improve your credit score.

What about applying for the refinance? Doesn’t that hurt my score?

This is a frequently asked question when it comes to credit in general, and the answer is equally true for student loans:

Calling around and researching the best rates from various lenders during a short period of time results in a number of “soft” credit inquiries. In other words, the various lenders you speak with will pull your credit report, but the reporting agencies can see that they’re all doing so for the same reason, and so the impact is negligible.

However, actually going forward with an application for refinancing results is a “hard” credit inquiry, which negatively affects your credit score for a short period of time. .

So, if you’re interested in exploring student loan refinancing it’s important to weigh the potential drawbacks and benefits and to evaluate how it could potentially impact your credit score in the long run. Here are a few tips to consider in order to make the best decision for your particular situation:

  1. Do your due diligence first and gather as much information as you can before contacting lenders.
  2. Then, set aside a day or two to make all the necessary phone calls and get all the quotes you need to make an informed decision.
  3. Finally, when you’ve compared all the options and settled on the best choice for your long-term financial stability, only apply for that refinance option.

To summarize, refinancing a student loan can have either a positive or negative impact on your credit. It depends on how you manage the loan: if you’re maintaining consistent, timely payments for the entire life of the loan, it’s going to make a positive impact regardless of who holds the note. If you’re unable to pay on schedule or if you default on the original loan or a refinanced one, it’s going to have a negative impact on your credit.

The key is to view your student loans just like any other form of credit and manage them responsibly until they’re paid off. By doing so, your student loan will work for the benefit of your credit score.

If you need additional help with a credit clean up, contact a credit repair specialist today. You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

arrow Read this post

How Will Student Loan Forgiveness Affect Your Credit?

Student loan forgiveness

If you’re struggling to repay your student loans, you might qualify for student loan forgiveness. The Federal Student Loan Forgiveness Program is an option for individuals who meet certain qualifications. Forgiveness may be possible if you are:

  • A full-time teacher
  • A public service or non-profit employee
  • A student or recent student of a school that has closed
  • Totally and permanently disabled

But if you’re trying to repair bad credit, you should be aware of the impact student loan forgiveness could have on your credit. Read on to find out how student loan forgiveness works, and how it could impact your credit score.

How Does Student Loan Forgiveness Work?

If you’re having difficulty repaying a Federal student loan, the Federal government may be willing to forgive some or all of your student loan debt. That means you will not be required to make any more payments on your student loans.

There are four basic types of student loan forgiveness, although there are several other less common types as well. The basic types include:

  • Teacher Loan Forgiveness—For people teaching full-time for five years in a low-income school district.
  • Public Service Loan Forgiveness—For non-profit or government employees who are repaying their Federal student loans based on income.
  • Closed School Discharge—For current students or recent students of a school that has closed. Most applicants were students at ITT or Corinthian College.
  • Total and Permanent Disability Discharge—For those with total and permanent disabilities.

How Does Student Loan Forgiveness Affect My Credit Score?

If your loan is in good standing, loan forgiveness won’t affect your credit at all. But if you’re working to repair bad credit, you should know that student loan forgiveness could negatively impact your credit score. If you fall behind in your payments, it will be reported to the credit bureaus. But when your loan is forgiven, the lender isn’t required to remove the previous negative credit history. So, even though your debt is canceled, your credit score is still impacted.

How Can I Fix My Credit Score if My Loan Is Forgiven?

If you receive forgiveness on a loan that isn’t in good standing, you can submit a credit dispute for anything in your credit report that is inaccurate. Disputing a credit report involves writing a letter to the credit bureaus that explains the error and requests the error be removed.

You can find credit dispute letters online, or talk to one of our credit repair experts to get professional help to repair bad credit and dispute the error.

carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

arrow Read this post