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    2 Replies Latest reply on May 9, 2013 2:34 PM by pandoraj

    Student Loans and Your Credit

    deltacredit2013 Adventurer

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      If you are trying to get a business loan for your business, student loans on your  personal credit could stand in the way- especially if they are in default.  Unlike other types of unsecured debt, Federal Student Loans that go in default never go away.  They serve as a permanent negative remark on your credit.  Fortunately, there are options that you have that can be of great benefit to your credit restoration.

      When it comes to student loans there are basically 4 options you have:  1) Deferring the payment.  Upside: This will stave off payment until you are able to pay.  Downside: It continues to accrue interest and your debt to credit ratios suffer. Also, it does not contribute to your payment history. 2) Interest Only Payments.  Upside:  Low monthly payment and your debt to credit ratios don't go above 100% (this happens when the amount you owe exceeds the limit of the loan due to interest accrual.)  Downside:  The debt never goes away  3) Income-Based Payments.  Upside:  Scaled payments based on your income.  Downside:  You have to be careful that they are reporting that you are "current" since you really aren't meeting the minimums and of course you have to continuously prove your lack of income.


      Your last option is to rehabilitate the loan.  Upside:  One you have rehabilitated the loan, you can arrange for all negative marks on your credit removed.  Downside:  It takes 10 months to work and you will not know what your payments are until they have worked you through it (very reminiscent of the HARP loan experience if you've had the pleasure of living through that.  The BIG plus is that the rehab program is the ONLY option you have to remove bad payment history.  If you are in default on your student loans, the best option is NOT to just pay it off.  It is best to rehab it.


      Hope this helps.

      -Michael Holmes