Here’s How Student Loans Affect Your Credit

At this point, pretty much everyone knows student loans are the worst — more often than not, however, going into debt is necessary to finance your higher education goals. But how do they affect your finances on a long-term scale, especially when it comes to your credit score? After all, your credit is a make-or-break factor in your future, and it affects your ability to buy a home, a car, or even start your own business.

In short, student loans can affect your credit just like any other loans — if you pay on time, they can help improve your score. However, if you’re late on your payments or don’t make payments at all, they could end up doing some real damage to your financial future. But it’s no accident that, in 2022, the amount of student debt in the United States has soared to nearly $1.75 trillion.

Put simply, a credit score is a numerical representation of how likely you are to pay your bills and debts. The more consistent you are with paying off your bills and debts, the higher your credit score will be. Conversely, the less consistent you are with paying off those bills and debts — say, you have a few (or more than a few) late or missed payments — the lower your score will be. This three digit number, which typically ranges from 300 on the low end to 850 on the very highest end, is used to determine your eligibility for mortgage and vehicle loans, credit cards, homeownership, interest rates, and more.

As of 2022, an estimated 46 million Americans have student loans, with an average debt of $28,400 for bachelor’s degrees alone, according to Student Loan Hero. And before debt payments were halted due to the coronavirus pandemic, some 11% of borrowers — or around 5,060,000 — were either 90 days late on payments, or in default on their loans.

Bonnie Latreille, the director of research and advocacy at the Student Borrower Protection Center (SBPC), told Elite Daily in May 2021 that people are saddled with debt as a result of policy decisions made at both the state and federal level. “States have pulled away from funding higher education,” she says. “If you don’t come from a family that is independently wealthy,” she adds, “your choices [are], take out student loans, or don’t go to school.”

“If you take out federal student loans, you have a lot of protections in terms of how you can repay your debt and what options are available to you,” Latreille says. “But private student loans don’t have those protections,” she adds. “The terms are so predatory,” students who borrow from private companies can end up paying for these loans for the rest of their lives, and they often go into default — which can do some serious damage to credit scores. “These companies have really high-cost loans” that are “designed to fail,” she says.

“The Department of Education’s own inspector general recently came out with a report [with] really staggering numbers about how many borrowers were not getting the right information when they called [loan servicers] with questions,” Latreille says. This includes servicers telling people they qualify for certain loan forgiveness programs when they actually don’t, not informing people when they actually do qualify for certain programs, or encouraging borrowers to go into forbearance — which can really mess up your credit score. “[Servicers] are playing a huge role in escalating the crisis,” Braxton Brewington, the press secretary for the Debt Collective, told Elite Daily in March 2022.

So, what are your options when it comes to protecting your credit score (and yourself) from these predatory lending practices? Brewington has a few suggestions: you can pay off your loans using an income-driven repayment plan, file a borrower defense to repayment application, fill out a public service loan forgiveness waiver, or file to get your debt canceled. He also strongly recommends against consolidating your student debt with a private company. “Once you refinance your loans with a private lender,” he says, “You’ll never ever again be eligible for the ‘benefits’ the federal government allows you.”

Brewington also strongly encourages borrowers struggle with their debt to join the Debt Collective. Collective organization, he says, “is the only way we’ve seen debt cancelled.” With “a union of debtors pushing cancellation for in broad swaths, and adding political pressure on the back end — we've seen that become successful,” he adds. “When you understand that [borrowers] have power, and we see our debt as assets, that's when we start to realize that actually we can really start to control this conversation.”