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Is Student Debt Affecting Your Credit Score? What there is to know

At this point, almost everyone knows that student loans are the worst – most often, though, getting into debt is necessary to fund your higher education goals. But how do they affect your long-term finances, especially when it comes to your credit score? After all, your credit is a deciding factor in your future and it affects your ability to buy a house, a car, or even start your own business.

In short, student loans can affect your credit like any other loan – if you pay on time, they can help improve your score. However, if you fall behind on your payments or make no payments at all, they could end up significantly harming your financial future. But it’s no coincidence that in 2022 the amount of student debt in the United States has soared to nearly $1.75 trillion.

Simply put, a credit score is a numerical representation of how likely you are to pay your bills and debts. The more consistent you are with paying your bills and debts, the higher your credit score will be. Conversely, the less consistent you are with paying off those bills and debts – say, you have a few (or more than a few) late or missed payments – the lower your score will be. This three-digit number, which typically ranges from 300 at the low end to 850 at the high end, is used to determine your eligibility for mortgages and auto loans, credit cards, homeownership property, interest rates, etc.

In 2022, an estimated 46 million Americans have student loans, with an average debt of $28,400 for bachelor’s degrees alone, according to Student Loan Hero. And before debt payments were halted due to the coronavirus pandemic, some 11% of borrowers – or around 5,060,000 – were either 90 days behind on their payments or defaulted on their loans. .

Bonnie Latreille, director of research and advocacy at the Student Borrower Protection Center (SBPC), told Elite Daily in May 2021 that people are in debt as a result of policy decisions made at state and federal levels. “States have pulled back from funding higher education,” she says. “If you don’t come from a family that is independently wealthy,” she adds, “your choices [are]taking out student loans or not going to school.

“If you take out federal student loans, you have a lot of protections about how you can pay off your debt and what options are available to you,” says Latreille. “But private student loans don’t have those protections,” she adds. “The terms are so predatory,” students who borrow from private companies can end up paying off these loans for the rest of their lives, and they often default, which can seriously hurt credit scores. “These companies have very expensive loans” that are “designed to fail,” she says.

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“The Inspector General of the Department of Education recently released a report [with] truly staggering figures on the number of borrowers who were not getting the correct information when they called [loan servicers] with questions,” says Latreille. This includes service agents telling people they are eligible for certain loan forgiveness programs when they are not, not telling people when they are actually eligible for certain programs, or encouraging borrowers to apply. abstain – which can really ruin your credit score. “[Servicers] play a huge role in escalating the crisis,” Debt Collective press officer Braxton Brewington told Elite Daily in March 2022.

So what are your options for protecting your credit score (and yourself) from these predatory lending practices? Brewington has a few suggestions: you can repay your loans using an income-based repayment plan, file a Borrower Defense of a Repayment Demand, complete a utility loan repayment waiver, or file a cancellation of your debt. He also highly recommends versus consolidate your student debt with a private company. “Once you refinance your loans with a private lender,” he says, “you will never be eligible for any ‘benefits’ the federal government gives you again.”

Brewington also strongly encourages borrowers struggling with debt to join the Debt Collective. Collective organizing, he says, “is the only way we’ve seen debt cancelled.” With “a union of debtors pushing for cancellation across wide swaths and adding political pressure on the back end – we’ve seen this become a success,” he adds. “When you realize that [borrowers] we have power and we see our debt as an asset, that’s when we start to realize that we actually can really start to control this conversation.