If you’re worried that a late or missed student loan payment will hurt your credit report, you’re not alone. According to a 2017 analysis by the Consumer Federation of America , on average, more than 3,000 borrowers default on their federal student loans a day. In fact, the analysis indicates there were more than 1.1 million federal student loan defaults in 2016.
Keep in mind that you don’t have to default on your student loans to experience consequences of nonpayment. Even if your payment is only one day late, your loan can be considered delinquent and you can be charged a penalty fee for missing that payment.
Failure to pay your student loans could be reflected on your credit report. Delinquent payments could lower your credit score and negatively affect your finances; potentially impacting your ability to qualify for something like a new credit card, car loan, or mortgage.
Defaulting On Student Loans
If your student loan continues to be delinquent, the loan may go into default . The point when a loan is considered to be in default varies depending on the type of student loan you received.
For a loan made under the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan (FFEL) Program, you’re considered to be in default if you don’t make your scheduled student loan payments for a period of at least 270 days (about nine months).
For a loan made under the Federal Perkins Loan Program , the holder of the loan may declare the loan to be in default if you don’t make any scheduled payment by its due date.
The consequences of defaulting on your student loans can be quite severe, including the following:
• The entire unpaid balance of your student loans, including interest, could be due in full immediately.
• The government can begin to garnish your wages by up to 15%, meaning your employer is required to withhold a portion of your pay and send it directly to your loan holder.
• Your tax return and federal benefits payments may be withheld and applied to cover the costs of your defaulted loan.
• You could lose eligibility for any further federal student aid.
If you are having difficulty making regular payments on your student loans, there are steps you can take before the consequences of defaulting kick in. For instance, you could apply for a student loan deferment, which allows you to temporarily stop making your federal student loan payments.
You could also apply for student loan forbearance to temporarily reduce the amount of your payments. You could also contact your loan servicer to discuss adjusting your repayment plans. Another alternative could be refinancing your student loans—if you extend your term length, you may qualify for a lower monthly payment. Note that while these options provide short-term relief, they generally will result in paying more over the life of the loan.
How Long Do Student Loans Remain on a Credit Report?
If your loan delinquency is reported to the credit bureaus, it will remain on your credit report for seven years. The exception to this is a Federal Perkins Loan , which is a low-interest federal student loan for undergraduate and graduate students who have exceptional financial need.
This type of loan will remain on your credit report until you pay it off in full.
How Do I Dispute a Student Loan on My Credit Report?
Periodically checking your credit report is a good habit to get into. You can request a free report from each of the three major credit agencies—Equifax, Experian, and TransUnion—each of which are required by law to give you a free report every 12 months.
There are three reasons your student loan might have been erroneously placed in default and reported to the credit bureaus by mistake. Here’s how to begin the process to correct these errors:
1. If You Are Still in School
If you believe your loan was erroneously placed in default and you are attending school, contact your school’s registrar and ask for a record of your school attendance. Then call your loan servicer to ask them what your record shows in regard to school attendance.
If they have the incorrect information on file, provide your loan servicer with a copy of the records you obtained and request that your student loans be accurately reported to the credit bureaus.
2. If You Were Approved for Deferment or Forbearance
If you believe your loan was erroneously placed in default, but you were approved for (and were supposed to be in) a deferment or forbearance, there is a chance your loan servicer’s files aren’t up to date. You can contact the loan servicer and ask them to confirm the start and end dates of any deferments or forbearances that were applied to your account.
If the loan servicer doesn’t have the correct dates, provide documentation with the correct information and ask that your student loans be accurately reported to the credit bureaus. Under the Fair Credit Reporting Act , a borrower may appeal the accuracy and validity of the information reported to the credit bureau and reflected on their credit report.
3. Inaccurate Reporting of Payments
If your loan has been reported as delinquent or in default to the credit bureaus, but you believe your payments are current, you can request a statement from your loan servicer that shows all the payments made on your student loan account, which you can compare against your bank records.
If some of your payments are missing from the statement provided by your loan servicer, you can provide proof of payment and request that your account be accurately reported to the credit reporting agencies.
In all three cases, if you believe there is any type of error related to your student loan on your credit report, it’s best practice to also send a written copy of your dispute to the credit bureaus so they are aware that you have reported an error.
Why Your Student Loans Should Stay on Your Credit Report
As you may have gleaned, you can’t actually remove your student loans from your credit report. The only thing you can do is dispute the student loans on your credit report if they are being reported incorrectly. However, there’s a bright side.
It’s actually not a bad thing that your student loans are on your credit report. If you’re paying them on time each month, that looks good on your credit report.
It shows lenders that you are responsible and when they lend you money, you’re more likely to pay it back diligently and in full.
If you’ve run into some trouble paying your student loans on time because your income isn’t where you would like it to be, try to figure out how to make your loans more affordable, either with a federal income-based repayment plan or by refinancing with an extended loan term.
Then start making your payments by the due date each month, and you may see that in time your student loans become a more positive mark on your credit report. As we mentioned earlier, remember that while these options provide short-term relief, they generally will result in paying more over the life of the loan.
Refinancing Your Student Loans
Student loans getting you down? If you qualify, refinancing your student loans with a private lender like SoFi allows you to consolidate multiple student loan balances into one brand-new loan, hopefully with a lower interest rate. One good thing to know, however, is that refinancing federal loans with a private lender means you’ll lose federal benefits like forbearance, deferment, and the income-based repayment plans we mentioned above.
If you’re looking to simplify your monthly loan payments and potentially lower your interest rate, or lengthen your loan term to lower your monthly payments, take a look at SoFi student loan refinancing.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website on credit.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.