How much of an impact will a default on an education loan have on a credit report?

Q: How much of an impact will a default on an education loan have on a credit report?

A: Education loans are a very different breed of credit. Each time a student applies for more funding, it will appear as a new account on your credit, so you are eventually left with a series of separate student loan accounts in your credit history.

What becomes a problem is that when you are late on one of these payments, it will post as a late payment to multiple accounts. This means that if you had been approved for student loan financing 10 times, and you were late making your payment in June of this year, your credit report will show 10 individual accounts, each with a late payment from June 2012, which means that you have 10 delinquent accounts in total. This can have a devastating effect on your credit scores.

Because of the multiple account occurrences, federally guaranteed student loans that have defaulted can update negatively on your credit profile for seven years from the date that the loans are paid off. Most negative credit information is reported for seven years from the date of the delinquency.

The laws regarding student loans and bankruptcy are much more restrictive than those surrounding regular debts. Because the government wants receivables paid, they have rigid guidelines in place that make student loan debt nearly impossible to be discharged in a bankruptcy.

For more info about student loans you can visit Consumer Financial Protection Bureau site or government sites that focus on defaulted student loans.

In some cases, student loan delinquencies can be removed from credit.  Feel free to contact me directly to discuss tracy@northshoreadvisory.com .

Filed Under: Credit