How Long Can Student Loans Hurt Your Credit?

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Students often make mistakes and miss making payments for their student loans. This can cause distress and harm one’s credit, creating a burden that can have long-term consequences.Because student loans do not all work the same way, it is not always clear how long the mistakes might continue to affect your credit.

What is certainly clear is that mistakes made when paying off private student loans have a negative effect that will only disappear from your credit reports after seven years have elapsed from the date of your late payment. As such, any negative mark on a private loan (and the majority of federal student loans) shall stop harming your credit after that period.

But there is a special category of federal loan known as a Perkins loan, that stays on your credit report till you complete paying the entire loan, even if the loan’s tenure is over seven years. The different treatment accorded to Perkins loans was defined by provisions of the Higher Education Act. These are need-based types of loans that are given by colleges, and their interest is deferred until the time a student completes school. Perkins loans are the only types of student loans where any delinquency stays on one’s credit report up until the loan has been completely paid off.

The one thing that is common to all education loans, be they private or federal, is that they are exceedingly difficult to discharge during the bankruptcy process. In addition, federal loans must be reported to the three main credit reporting bureaus. For most of the other situations, credit reporting is done on voluntary basis. Nevertheless, the Department of Education, other bodies that offer federal student loans and guaranty agencies are required to provide information relating to the total loans extended, remaining balances, delinquency date (where the loan is past due) or default date (where the student loan is late by 270 days).

According to Persis Yu, a lawyer and student loan expert at the National Consumer Law Center, whereas there is no stipulation that loans paid on time should be reported, lenders must report any loan delinquencies and defaults. This means that there is almost no likelihood that the lender will choose not to report it and preserve your credit score.

Reports about loan delinquencies and defaults must be provided for seven years, but Yu observes that these can occur more than one time. When that happens, there is an additional negative item that will stay on the credit report for a seven-year period.

Credit Score Protection Strategy

There are a number of solutions for those who are worried that student loans might harm their credit in the long run. Firstly, formulate a plan to catch up if you are late in payments. If this proves challenging, enter into repayment plans-especially income-based repayment. Even though you are struggling when repaying your debt, paying in good time can stop student loans from harming your credit score. In case you have defaulted, repair your student loan. Only after succeeding in doing this shall the default notation be removed from your credit reports. The advantage of doing this is that there are some lenders who stop reporting the late loan payments preceding the default. If you have several student loans, it might be worthwhile to consider consolidating them in order to make repayment easier. But this will not make the initial late payment vanish from your credit report, it will only happen as time passes. With time, the more additional positive information that you have (without being tainted by negative informative information) the less effect it will have.

In the meantime, it is advisable to try and rebuild your credit using current and positive information. Ensure that you pay your credit card obligations promptly, and maintain a low balance in relation to your credit limit(which should generally be less than 30 percent, but aim at keeping it below 10 percent). In addition, make sure that you verify the accuracy of your free annual credit reports. Because mistakes occur in these reports, contest any incorrect information so that it is removed.Your credit scores are derived from the information contained in your credit reports and they influence your access to credit and the interest you will need to pay in order to get it.

Student Advocates is a privately owned company that helps consumers like you identify government programs that may be suitable to your situation, gather the relevant application documents, and then prepare those documents for your review and submission.  Our services are reasonably priced and our goal is to take the frustration out of the process. If you have questions about your student loans, please feel free to contact us. We’d love to have the opportunity to help you in any way we can.