By the fourth quarter of 2016, Americans held $1.3 trillion in student loan debt. The delinquency or default rate for the same period was 11.2 percent, worth nearly $147 billion. These statistics indicate the growing influence of student debt in American life.
Despite helping borrowers earn their degrees, student loan debt stifles the American dream after graduation for many individuals. Making loan payments means less money to put toward buying a home, starting a family, or simply paying rent. For those Americans who become delinquent on payments — or worse, default on their loan — the damage is even greater because their credit score suffers.
Losing control of your student debt and failing to regularly make payments can put you behind the eight ball for future plans and restrict your financial freedom. But all is not lost if you’re struggling to meet your student loan obligations.
How Student Loan Debt Impacts Your Credit
Like a mortgage, auto loan, or credit card debt, student loans can both help and hurt your credit score. Making required payments in full and on time boosts your credit score and shows future lenders that you’re a reliable borrower. However, failing to make your payments on time will result in a falling credit score and could lead to future borrowing problems.
Missing payments or defaulting on your student debt can have a domino effect on your finances. In addition to making it more difficult to secure additional credit or loans in the future, a lower credit score can negatively affect your ability to obtain insurance, sign up for utilities, and get a cell phone plan. Additionally, some employers may not hire applicants who have previous debt problems and federal employees may be denied a security clearance.
What Happens if You Can’t Make Payments on Your Student Loan?
A 90-day late payment is considered delinquent and is reported to the three major credit bureaus. A federal student loan goes into default if you don’t make a payment for 270 days.
If you find yourself struggling to make payments, default should be the last resort. Depending on whether you hold federal or private debt, your best option is deferment or a modified payment plan, which can adjust your monthly payments based on your income. A deferment allows you to temporarily stop making payments and won’t impact your credit score.
Alternatively, some programs facilitate student loan forgiveness for borrowers who follow certain career paths, including entering public service or becoming a teacher.
What Should You Do if You Default on Your Student Loan?
Becoming delinquent or defaulting on your student loan is a serious event, but there are resources you can use to help repair your credit and limit the event’s impact on your future plans. Reputable credit repair services can help you leverage your legal rights under consumer protection laws so that your credit report remains fair and accurate.
Effective credit repair requires taking appropriate action with your creditors rather than simply creating ineffective disputes.
If you’ve found yourself in credit trouble due to student loans, the credit repair professionals at Lexington Law® can help. If you’re concerned about your credit report and the effects of your student loan payment history, contact us to learn more.