One of the biggest questions that come up when considering student loans is whether they appear on your credit report and affect your credit score.
The straightforward answer is yes. Your student loans appear on your credit report and are factored into your credit rating, just like any other loan. How you manage your student loans can make an impact, so it's important to stay on top of the situation.
How Student Loans Can Impact Your Credit
Your student loan is considered an installment loan. Just like a car loan or mortgage payment, you make regular monthly payments until the debt is paid off. As a result, credit reporting agencies will treat them as installment loans on your credit report.
If you have student loan debt and make regular, on-time payments on it after graduation, your credit report will reflect that you are a conscientious borrower who is good at financial management. This could make you look appealing when you need to borrow more money in the future.
On the other hand, failure to pay your student loans on time, letting your student loans fall into collections, or defaulting on student loans will also go on your credit report and can negatively impact your credit score. This can, in turn, affect your ability to get other loans in the future or receive good deals on financing.
When Do Student Loans Appear on Your Report?
Applying for federal student loans doesn’t show up on your credit report until you actually take out a loan. If you still need additional funds beyond federal student loans to pay for your college expenses, though, you may decide to shop around for private student loans.
Hard inquiries are reflected on your credit report, so make sure that a private lender only does a soft inquiry when giving you a rate quote. After you've done some comparison shopping, you can submit a full application. However, it's worth noting that most inquiries won't impact your score by more than about five points, so it shouldn't significantly affect your credit.
Your student loans will usually show on your credit report while still in college and still technically in deferment. However, this does not typically have a dramatic effect on your ability to get non-educational loans since many lenders are more interested in your current monthly payment obligations, which are zero while still in school, as opposed to your actual loan balances.
When Do Student Loans Have a Negative Impact?
As with any loan, making late payments can impact your credit. With federal loans, your delinquency won't be reported to the three major credit bureaus until you're 90 days delinquent, so you have a little time to catch up if the situation is very temporary or if a missed payment was an oversight.
Once your loan payment has been delinquent for 270 days, it's considered in default. A student loan default could remain on your credit report for seven years. It can take years to reestablish good credit once your loan goes into default. The government can garnish your pay and withhold any federal income tax refund you might have counted on to get out of the situation.
There are some federal benefits you might not be eligible for if you're in default. Talk to your servicer about rehabilitation options so you can reposition yourself to take advantage of programs and protections available to borrowers.
Private lenders aren't required to follow the same guidelines as federal student loan servicers, and they might not wait 90 days to report a missed payment. They might also have different guidelines for default. Each private lender is different, but as soon as yours starts reporting missed or late payments, that can begin pulling down your credit score.
What If You Can't Pay Your Student Loans?
It's not unusual to have problems repaying your loans once you're out of college and have entered the workforce (or are trying to do so). If you're having trouble making your loan payments, you have options.
One of the first moves to make is to consider income-driven repayment. If you have qualifying student loans, you might be able to shift to a plan that allows you to make payments based on your income—including reducing your required monthly payment to zero.
When you're on income-driven repayment, each payment is considered paid "as agreed." Additionally, payments made while on one of these plans also "counts" toward the 120 qualifying payments needed to obtain Public Service Loan Forgiveness.
Deferment or Forbearance
Depending on your personal situation, you may be eligible for temporary deferment or forbearance to lighten your student loan burden.
Both a loan forbearance and deferment will allow you to stop making payments for a certain amount of time or reduce payments temporarily. With a deferment, no interest accrues on your loan while you're not making payments. With a forbearance, interest continues to accrue. A deferment or forbearance doesn’t hurt your credit score since that is considered “paid as agreed.”
Double-check the conditions of your deferment or forbearance, however, so you understand when the situation ends and you're expected to resume making payments.
Some private student lenders also offer forbearance programs. However, these vary by lender and there are no uniform standards. If you're having trouble paying your private student loans, contact your lender as soon as possible to see what types of arrangements they have for borrowers facing hardship.
If you took out multiple student loans during your college career, it can be confusing and it may look messy on your credit report. You also may be more apt to miss a payment because your various loans have different payment due dates and payment amounts.
It may be helpful to use a direct consolidation loan for your federal student loans so you will only have one monthly payment to make. Direct loan consolidation might also extend your payment period, making your monthly obligation more affordable and easier to manage.
It's also possible to refinance your student loans. Note that refinancing makes use of a large private loan to pay off your smaller loans. You can refinance federal student loans using a private student loan, but once you do, you lose access to programs like income-driven repayment and federal loan forgiveness.
Refinancing your federal student loans into private student loans may not be the smartest idea as it means you could lose certain protections. For example, borrowers who refinance their federal student loans into private student loans could miss out on the waiver of federal student loan payments and interest due to the coronavirus pandemic that is in effect until Jan. 31, 2022.
Consider using direct loan consolidation on your federal loans and refinancing any private loans you have. If you have good credit, refinancing before you start missing payments can help you lower your interest rate, extend your loan term, and potentially reduce your monthly payment so it's more manageable.
The Department of Education extended the waiver of loan payments and interest on privately held Federal Family Education Loan (FFEL) borrowing. FFEL loans are no longer being issued, so this relief applies only to existing loan holders. Any payments made retroactive to March 13, 2020, when the pandemic crisis was declared, will be returned to loan holders.
Forgiven loans, which are typically treated as taxable income by the Internal Revenue Service, are tax-free if forgiven between 2021 and 2025, according to the American Rescue Plan Act of 2021.
The Bottom Line
Because both federal and private student loans are included in your credit report, it's important to pay attention to them and make your payments on time and in full when possible.
The worst thing you can do is ignore your loans when you can't pay them. Missing payments will eventually catch up to you and negatively impact your credit score, affecting your ability to make better financial choices in the future. If you're experiencing economic hardship and struggling to make your payments, contact your loan servicer or lender as soon as possible to review your options.