How Bad Credit Affects Student Loans

Bad credit is no deterrent to obtaining a student loan for college, providing the applicant qualifies for non credit based federal student loans. An increasing number of students are also reliant on private student loans to cover any shortfall in expenses once other means of financing college have been exhausted. If the applicant has bad credit it will be impossible to obtain a private loan without a willing co-signer, and a low FICO score will also have a detrimental impact on the interest rate offered.

The majority of young students will have had little opportunity to have either established or ruined their credit by the time they think of college. However it is can be a relatively easy matter to acquire bad credit whilst in college. Profligate or irresponsible use of credit cards, and failing to make timely payments on other loan obligations, can result in a poor credit reputation.

Nothing short of an actual default on a federal student loan will result in further federal loans being advanced to qualifying applicants. Students must give consideration to any intention to return to education after graduation, as repairing a default on a federal loan involves enrolling in a program which takes nine months to repair the damage.

Where bad credit has the most severe impact on student loans is if the student wishes to consolidate private student loans after graduation. Without good credit the interest rates will be at the high end which will mean the total cost of repaying the loans will be much higher. Consolidating with another lender may be ruled out as an option, as will the chance to negotiate a lower interest rate.

Bad credit can occur as the student begins to repay the student loans acquired in college. Late or missed payments will soon result in a low credit score. If the student has private student loans this will also affect the co-signer. Not only will their credit rating be tarnished by the student’s failure to make payments in a timely fashion, they will also lose the right they expected to be released as the loans guarantor.

Those who struggle to repay their student loans should be aware of the consequences of a possible default. Student loans are non dischargeable and will be pursued by lenders trying to recover any resultant debt. Federal collectors will use wage garnishment and other methods to ensure they receive their payments. Default on a private student loan may result in a court judgement to recover payments.

Student loans can be far easier to obtain than to repay. It is a fiscally wise move to try and establish good credit both prior to, and during college. An excellent credit score can open doors but bad credit reduces financial options.