Does a Student Loan Deferment or Forbearance Impact Your Credit?

student loans

There’s no denying that getting a college degree is one of the best things you can do to pursue a prosperous future, but this professional head start can come at a steep cost. Over the past few years, student loan debt for the country has topped $1 trillion, leaving over 40 million Americans in a serious financial predicament.

Unfortunately, accompanying the ever-increasing mountain of student debt is the avalanche of loan delinquency. Recent graduates accustomed to the college lifestyle, often without the means to repay debt, are being severely ensnared in an endless cycle of late payments and possible default. While the future of a college education hangs in the balance, today higher education is still a necessity that often leads to significant debt for many Americans each year.

Don’t let student loans ruin your FICO score before you even get a chance to build credit in the first place. If hard times come knocking after graduation, loan deferment or forbearance are viable safeguards against overwhelming loan payments.

Deferment vs forbearance

If you’re having trouble making ends meet due to student loan payments, loan deferment or forbearance can offer some temporary relief. With that said, it’s important to recognize the difference between these two payment reprieves before taking action.

Deferment and forbearance both effectively put your minimum loan payments on hold in instances of economic hardship. A key distinction between these two options is whether interest continues to accrue:

  • Deferment: For government-subsidized loans, interest payments are suspended. Deferment is more difficult to qualify for, but will save you money on interest as it will not accrue during the time of deferment.
  • Forbearance: Your monthly loan payments may be reduced or put on hold, but you will continue to accrue interest on the outstanding balance of the loan regardless of the forbearance.

Both options offer a safety net for individuals in over their heads in a sea of student loan debt, but does this financial relief come at a cost to your credit score?

Does deferment or forbearance negatively affect credit?

If the cost of student loan payments is too overwhelming, don’t hesitate to seek out deferment or forbearance, especially since it will have less of an impact on your credit score than would a reported late pay or defaulted loan status.

A common misconception is that pausing student loan payments will wreak havoc on your credit. In reality, suspending payment through deferment or forbearance should not significantly impact your credit score but may create some volatility once the loan status is updated to reflect the requested change. Meanwhile, not making loan payments that you can’t afford and running the risk of late payments is far more costly to your credit score than putting loan payments on pause.

The importance of credit repair

While loan deferment or forbearance are good options to help you protect your overall credit if needed, chances are there are other financial factors at play that affect your ability to pay your bills and thus threaten your credit score.

If you’re not meeting your financial goals, it might be time to conduct an in depth review of your credit score. After all, a less-than-stellar credit score can negatively impact overall financial security from high interest rates to the inability to secure a loan.

If poor credit is impacting your ability to achieve financial success, consider learning more about the credit repair process. For more than 20 years, Lexington Law has helped consumers improve their understanding of their credit score while distinguishing itself as a leader in the credit repair industry. If poor credit is inhibiting your ability to pay off loans or stands in the way of financial goals, contact Lexington Law today.



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