While college students are in the process of getting an education, usually the main focus that they have is doing whatever is required to earn their degree. And so, if paying for tuition means taking out a student loan, most are willing to do just that.
However, being that the average amount of student debt following graduation is around $27,000, before your child does apply for financial aid, it’s a good idea to discuss with them how much student loan debt can actually impact their credit score. The good news is that not all of the ways are negative. Indeed, there are some positive things that come with having a student loan too.
The Advantages of Having a Student Loan
If you have no credit history, one way to establish some is to take out a student loan and being that we all need credit in order to purchase things like a house and car, that can definitely prove to be beneficial. Also, due to the fact that student loan debt is an investment into your college education, credit reporting agencies don’t consider the money that they are owed to be “frivolous”; therefore, so long as payments are kept up, education loans are counted as being to be “good credit” ones. Another tip to keep in mind is that if you decide to defer your student loan, that also could work in your favor. That’s because when you go to a bank and ask for a deferment or forbearance, sometimes they will take into consideration how much money you may or may not have to pay back the loan and extend the time you are required to pay it. If this happens, your credit will not be negatively affected in the process.
The Disadvantages of Having a Student Loan
On the other hand, there are some disadvantages that come with having a student loan as well. One of the biggest ones is that when you apply for a loan, you are entering into a contract with a lending agency. When you don’t pay what you agreed to, this puts your loan into default and it can wreak havoc on your credit score. So much in fact that even if later down the pike, you decided that you needed to file for bankruptcy, you wouldn’t be able to dissolve your student loan debt. The good news is that if your loan did go into default and you made arrangements with your lender (or the credit agency that they gave the account over to), once you have brought your account current, it can immediately raise your credit score. As you’re processing all of this information, something else to keep in mind is that a loan is not considered defaulted until it is at least 60 days past due. This means that if you are only a few days or a couple of weeks late, your credit score will probably not be affected. However, all of this information should let you know that whether you to school on the campus of the University of Utah or GW online, if they do decide to take out a student loan, it’s a very important responsibility; one that you need to be financially prepared to deal with immediately following graduation.