Having to pay back student loans is undeniably frustrating, but believe it or not, there’s an upside: Student loans can help your credit if you pay them back on time.
Student loans are considered a “good” type of credit, and therefore if you make your payments on time they can greatly improve your FICO credit score. On the flipside, defaulting on your student loans or failing to pay on time can quickly send your credit score spiraling in the wrong direction.
There are many factors at play when it comes to student loans, though, and we plan to address them in greater detail at our upcoming Financial Fitness class Oct. 17 at 6 p.m.
For one, if you have public student loans, there are more options when it comes to making your payments.
Defferals and Forbearances
If you are unable to pay for a period of time, your loan company may allow your loan to be deferred or go into forbearance.
A deferral is when you don’t have to pay back your loan for a specified period of time but do have to make payments on the interest that accrues during that time. “For example, if you have a $10,000 student loan in deferral, you do not have to pay any of that $10,000 back. You may, however, still have to pay interest that accrues on the loan. If the loan carries 5% interest, you may still have to pay for this interest – in this case, about $41.67 per month,” according to moneycrashers.com.
A forbearance is made on a case-by-case basis and will allow you to hold off on making payments on your loan or interest payments for a set period of time.
Neither of these situations will harm your credit, but they may affect your chances of getting approved for a mortgage loan.
Public loans are also eligible for income-based repayment plans, meaning the payment amount is based on how much money you make. Enrolling in these programs also do not hurt your credit score; the most important thing is just to make those payments.
If you’ve made late payments or defaulted on your student loans, don’t worry! NeighborWorks Columbus is here to help.
Join us on Oct. 17 at 6 p.m. in our office (345 6th Street), and where we’ll discuss all this information in greater detail and go over solutions with you.