Many students depend on federal financial aid to pay for a college education. If you accepted federal student loans while you were attending college, you must eventually repay those loans in full. If you are unable to make the payments, you may qualify for a deferment, which allows you to postpone payments for up to 12 months. If your student loans are in deferment status, they will not have a negative affect on your credit report.
Federal Student Loans
The U.S. government offers loan programs that can help you pay for your college education. Direct subsidized loans are loans that the federal government subsidizes and that require you to show financial need to qualify. Direct unsubsidized loans do not require a showing of financial need. Unlike subsidized loans, interest begins to accrue on an unsubsidized loan as soon as the school receives the funds. You may qualify for both a subsidized and unsubsidized loan. In addition, Direct PLUS parent loans are available if you need additional funds.
Repayment
Repayment of student loans begins after you finish school, drop out or enroll less than half time in school. Once of these events takes place, you must begin repayment after a six-month grace period unless you request a deferment or forbearance. Although you may have numerous reasons for requesting a deferment or forbearance, common reasons include returning to school, unemployment or that repayment will create a financial hardship.
Deferment and Your Credit Report
The major credit bureaus receive reports of student loans. If you request and receive a deferment on your student loan, your loan will show that it is not in repayment status. Since the loan does not show that payments are due, it will not affect your credit rating. For example, a lender looks at your monthly income and monthly expenses, along with your overall credit score, when you apply for a mortgage. Your expenses cannot exceed a certain percentage of your income to qualify for a loan. Lenders will not consider student loans that are in deferment when calculating your monthly expenses.
Considerations
While a loan in deferment will not affect your credit report, a late loan payment will definitely have a negative affect on your credit rating. In addition, if you request a deferment when you are already behind on your payments, approval of the deferment will not fix the negative impact of the late payments. A deferment will also not erase any past due amounts currently due. It is best to apply for a deferment as soon as you foresee the possibility that you will not be able to make a payment. You can locate deferment forms on the Federal Student Aid website (see Resources).
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