When Student Loans Are Killing Your Credit Score: A Guide

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Stanley tate

Student Loan Lawyer

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Checked annualcreditreport.com and noticed your student loan debt is killing your credit score? Let's fix that.

As you know, a good credit score can make all the difference. You'll qualify for major credit cards, get higher credit limits, get lower interest rates, etc.

But how do you that when your credit report shows missed student loan payments and charge offs?

The short answer? Challenge the inaccurate negative information.

At the end of this post, I'll show you how to do that (you can jump there now) but before I do that, I'll answer these questions:

1. How Do Student Loans Affect Credit Scores

Let's start with the basics.

Student loans, like auto loans and home mortgages, are "installment loans".

Installment loans are types of loans that have a fixed number of payments to pay off the loan balance.

Credit card debt, on the other hand, is a revolving credit/debt. That type of debt has a balance and payments that go up and down depending on how much you use your credit card.

Your FICO score looks at your credit file for a mix of car loans, personal loans, credit card debt, etc. to help determine your score.

What's a FICO Score

FICO is the most widely used credit scoring model by private lenders and other financial institutions. There are other credit scoring models like Vantage Score, TransRisk, etc.

A healthy credit mix by itself, isn't enough, however, for a good credit score. You'll also need to make timely payments and keep your balances low on your credit cards (i.e. have low credit utilization).

2. How Student Loans Help a Credit Score

This is one is pretty straight-forward.

Student loans can help your credit score if you pay your loans on time.

Payment history makes up about 35% of your credit score.

And since you'll be paying on your student loans for years, your student loans can add a massive boost to your credit score for literally decades.

Thankfully, getting an affordable payment that you can keep up with is pretty easy to do with federal student loans.

The same isn't true with private student loans; those are a lot harder for student loan borrowers to maintain their monthly payments.

They simply don't offer the same flexible student loan repayment options as do federal loans.

When you're struggling to make your private loan payments your best bet is to ask your loan servicer for alternative repayment options.

Another option may be refinancing your private loans with another private lender.

Not everyone will be able to do this, however.

Refinancing your private loans with a private lender involves a credit check, a review of your loan amounts, your finances (wages and savings), and overall debt-to-income ratio.

Few student loan borrowers — especially those with high student loan debt — can survive such a close look.

3. How Long Do Student Loans Stay On Credit Report

So long as you’re current, your student loans will remain on your credit report until you pay them off.

That changes when you default.

After you default on a student loan, it will stay on your credit report for 7 years.

Related: How to Get Your Tax Refund Back After It's Been Offset for Defaulted Student Loans

Here’s where things get tricky.

Depending on what type of student loan it is the student loan could reappear.

Let me explain.

If the student loan is a private student loan or Direct Loan, once the loan is off your credit report it’s likely gone forever.

Just because a student loan falls off your credit report doesn’t mean you no longer owe it. With a private student loan, you’ll owe it until you pay it off or the statute of limitations lapses. But if it’s a federal student loan, there is no statute of limitations. That means the federal student loan will no longer be on your credit report but you’ll owe it until you die.

But if you have a Federal Family Education Loan, the game changes.

With a FFEL loan, when you default, the loan is transferred from the FFEL guarantor agency to the Department of Education. When that happens, your student loan can appear on your credit report for 7 more years.

4. How Long Do Defaulted Student Loans Stay On Credit Report

Typically, negative items will stay on your credit report for seven years from the date you stopped making your monthly payments.

Student debt and negative marks are a little different: The time frame changes depending on the type of loan.

For private loans, the timeline is 7 years from your last monthly payment.

For federal loans, the time frame is either:

  • 7 years your student loan defaults or
  • 7 years from the date your loan is transferred from a FFEL guarantor to the Department of Education.

About Perkins Loans

Negative information from a Perkins Loan will continue to be reported to credit reporting agencies (Equifax, Experian, and TransUnion) until the loan is paid in full, even if it remains unpaid for longer than 7 years.

The special credit reporting treatment Perkins Loans receives comes from Section 10877cc(c)(3) of the Higher Education Act.

5. What Happens if Your Student Loans Aren’t On Your Credit Report

Pay attention:

Just because major credit bureaus like Experian stop showing your student loans, doesn't mean you no longer owe for them.

You’ll still owe your student loans until:

  • You pay them off
  • The statute of limitations lapses
  • Get them forgiven or canceled
  • Or discharge them in bankruptcy

Of course, if it’s a federal student loan, there is no statute of limitations. So you’ll owe your federal student loans until you get rid of them one way or the other.

And since there's no statute of limitations, I don't care if you hire a credit repair professional and they get your student loans removed from your credit history and your credit score goes up by 300 points.

Your federal loans will stay with you forever.

6. Do Student Loans Go Away After 7 Years

With credit reports, student loans are like other collection accounts: they go away after 7 years.

But unlike those other debts, just because a student loan has been removed from your credit report doesn’t mean you no longer owe that debt. You’ll likely still owe for your student loans until you die (at least if they’re federal).

7. What Does Student Loan Permanently Assigned to Government Mean

When your credit report shows a remark stating “student loan permanently assigned to government” what’s likely happened is that you defaulted on a student loan the government insured. Once you defaulted, the insurance kicked in, the government paid off the loan, and the lender assigned the loan to the Department of Education.

Following the assignment, the government will place your loan with one of its collection agencies like Conserve, General Revenue Corp., or Professional Bureau of Collections of Maryland.

From there, you’ll need to work on getting out of default through consolidation or rehabilitation.

If you choose rehabilitation, you'll have to make 9 on-time payments over 10 months. During those 10 months, your payment can be as low as $5. After you complete the rehabilitation program, your federal loans will be sent to a new servicer. You'll need to contact the servicer to get into a repayment plan like the Income-Based repayment plan or the Revised Pay As You Earn plan.

8. What is the Process for Removing Student Loans From Credit Report

Removing student loans from your credit report is fairly simple (in theory).

You ask the student loan company to remove the late payment history from your report. (This is called "Pay for Delete".)

But they may not be willing to do that unless you settle with them.

And settlements take money.

So if you don’t have money for a settlement and you still want to get your student loans removed your credit report, what do you do?

In that case, send a dispute letter to the credit reporting agency detailing the inaccurate negative information.

When sending the letter, you also want to:

  • Include copies of documents that support your position
  • Clearly identify each item in your report you dispute
  • State the facts and explain why you dispute the information and
  • Request the negative items be removed or corrected

Finally, send the letter by certified mail, "return receipt requested".

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Hey, I’m Tate.

I'm a student loan lawyer that helps people like you with their federal and private student loans wherever they live.

Read a bit about me & how I got started with student loans.

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