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5 Ways Student Loan Default Can Hurt You and Loved Ones

April 22, 2015
Credit Score, Personal Finance, Student Loans
5 Ways Student Loan Default Can Hurt You and Loved Ones Story
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The tower of debt that’s often attached to a college degree can be intimidating. But when it comes to paying back student loans, borrowers must put their fears aside and attack debt systematically or face potentially long-lasting credit consequences. Here are five things to expect should you not pay your student debt:

1. Your credit score will plummet

Several factors go into calculating your credit score, but payment history is the most important. Not paying your student loans on time hurts your payment history record, and hurting your payment history record lowers your credit score, plain and simple. As a borrower, you want your credit score within a reasonable range, and having a higher score is never going to burden you in the credit approval process.

 2. Your credit report will be tarnished for 7 years

Applying for a car loan, a mortgage or even more student debt can all get harder when students don’t make their loan payments. Credit reports are like memory-foam mattresses: If you alter their shape, they’ll eventually bounce back — but it might take a while. A “while” in this case generally means seven years, the length of time late payments can stay on your credit report, affecting your creditworthiness the whole time.

 3. You won’t be able to get other loans

This one almost goes without saying. If you’re already not paying off an existing loan, new lenders will likely hesitate when considering you for a new loan. On the other hand, if your payment history is untarnished, you may qualify for lower interest rates, ultimately keeping more money in your pocket over time.

Nerd Tip: Overborrowing can be easy to do and hard to resolve. As a rule of thumb, try to keep your total loan amount less than your expected first-year salary after graduation.

4. You may not be able to rent an apartment

Running a credit check is standard procedure for landlords during the renter-approval process, and if you’re the type of person who fails to pay debts on time, landlords will probably assume you’ll do the same when rent is due. Not paying student loans can result in a new landlord requiring a higher deposit at the beginning of a lease. In more competitive rental markets, it might mean missing out on an apartment entirely.

 5. Your parents’ credit may suffer, if they co-signed

If you have a co-signer on your student loans, the decisions you make affect more than just you. Most students taking out college loans do so with the help of a parent. But by co-signing, parents are making themselves fully responsible for the debt. If a student stops making payments, parents’ credit can suffer just as much as the student’s.

The moral of the story is to pay your student loans on time. Remember, bankruptcy can’t usually erase student loans, and issuers can put liens on bank accounts of those borrowers who refuse to pay. If making your student loan payment is truly impossible, deferment or forbearance may be options to consider as they generally don’t negatively affect your credit score. Either way, it’s best to plan ahead and design a payback strategy that works best for you.

Kevin Cash is a staff writer covering credit cards and consumer credit for NerdWallet. Follow him on Google+.

Image via iStock.