Credit Reports and Student Loans

For many, the only way to afford higher education is to step into the convoluted world of student loans. These loans add up quickly and can negatively affect a new graduate's credit score before they can manage to obtain a job that pays well enough to repay the loan. How can these loans damage your credit score?


The Dangers of Cosigning for Student Loans

Getting a student loan depends on a variety of things, the most important being how it's going to be paid back. When giving loans to 18 year old high school graduates, that burden of payment often falls upon the parent. In many cases, graduates are unable to obtain student loans without a parent, guardian, or other employed adult cosigning on the loan.

If you co-sign on a student loan, you agree to take all payment responsibility if the other person named on the loan refuses to repay it. Because of this, the loan will appear on both of your credit reports and if it isn't repaid, it can potentially decimate an otherwise perfect credit history. This can also create difficulty if you plan on obtaining a loan in the future. When you apply for a loan, you have to provide your income information, and student loans are no different.

When creditors calculate your debt-to-income ratio, they use that information to determine if you are going to be able to make the payments on your new loan. To determine this ratio, add up all of the payments from the debts listed on your credit report, and divide them by your monthly income.

Overall, to maintain your ideal credit history, you need to have a debt-to-income ratio of 36% or less.

Delinquent Payments are All The Same

Delinquent student loan payments are no different than any other delinquent credit payment. The only difference is what is known as the deferment period. This is a period of time during which payments are not required. Usually, this includes the time that the student is in school and up to 6 months after graduation.

The late payments will stay on your credit history for 7 years from the date that the payment was due.

It may be difficult to keep track of the loans, because in many cases student loans are issued per semester. In these cases, you may have a variety of different loans on your credit report. Unfortunately, student loan debt is one of the few that cannot be discharged by declaring bankruptcy, so it is important that these debts are repaid on time to make sure that they do not damage your credit score.

If repaying the loans is difficult with your current income, make sure you contact your lender and find out what consolidation options are available to you. These may reduce your monthly payment or eliminate them all together, depending on the amount you owe and your current income.

Does having multiple student loan listings on my credit history look bad?

Almost every student loan lender in the country splits its loans up into individual accounts based on the amount of money that was loaned for each semester.  This doesn’t look bad to potential lenders; it’s just how things are done in the world of student loans.  You are effectively applying for a new loan each semester, and your credit report reflects that.

Borrowers might be a little confused after graduation.  Instead of making multiple smaller payments toward the balance of each loan, most lending companies will consolidate your payments into one monthly charge. This payment is still applied to the balance of each loan, so as long as your one monthly payment is made on time, none of your loans will be treated as delinquent, preventing any negative strikes on your credit report.

When it comes to student loans, most lenders don’t look at the number of accounts.  Instead, they’ll simply take into account the total amount of money that you owe, and whether or not your payments have been made on time.

Consolidating your student loans is a great option if your payments are becoming difficult to maintain.  It is also useful if your loans are not all from the same company, or are spread out among multiple lenders. When you consolidate your student loans, you are effectively taking out another loan to pay off all of those smaller loans.  This new loan will have a lower interest rate and often a much longer repayment period. This new consolidated loan will also often have a much lower monthly payment, making it easier to maintain.

The only real negative of debt consolidation is that even though you have a lower interest rate, you are taking longer to pay off your debt, meaning in the long run you are paying more to repay your student loans.

What does it mean if my student loan is listed as transferred or closed?

If your student loan is listed as transferred/closed on your credit report, it doesn’t mean that you are no longer responsible for the payments. It simply means that your debt has been sold to another company.  While the account under the original company name will no longer show a balance, the account history will remain on your credit report for 7-10 years, depending on whether or not there was any delinquent activity on the account.

A new account, reflecting the company that your debt was sold to, will also appear on the credit report, with information reflecting the status of your account including whether or not the loans are in forbearance or deferment.


If you haven’t obtained any student loans yet or even if you have, hopefully this will answer a few of your burning questions about those loans and how they can affect your credit history. Many fields offer loan repayment programs as well, if you enter into a career in your chosen field.