Tag: student loans

Bankruptcy and Student Loans

Those looking to wipe the slate clean and start anew might be disheartened to learn the bankruptcy facts about bankruptcy and student loans.
As you review your assets in preparation for bankruptcy, you may be wondering how many debts you will be able to discharge. If you are like most people, you might still have some student loans left to pay. Unfortunately, the law surrounding bankruptcy and student loans states that you cannot discharge your student debt obligations in a bankruptcy filing.
Bankruptcy and Student Loans Fact #1: You cannot discharge student loans in a normal bankruptcy.
Even though you can have credit card, mortgage, and auto loans discharged during bankruptcy, some debt obligations will stay with you through bankruptcy. You are still responsible for paying alimony, child support, taxes, fines, and student loans through the bankruptcy process. Like the other listed responsibilities, student loans are considered exempt from the bankruptcy process, whether they are federal loans or private student loans. In the case of federal student loans, the government can seize your tax refund or garnish your wages to make sure it collects its money.
In a few situations, student loans can be legally discharged, but they are rare. If you die or are declared 100 percent disabled, your student loan debts will be discharged, and your estate will not be responsible for your debts. In the case of disability, your credit score will not be harmed by the student loan discharge. If you attended a school that closed before you were able to complete your academic program, your student loans will be canceled, relieving you of the responsibility to repay them at all.
Bankruptcy and Student Loans Fact #2: You can request a hardship hearing.
When it comes to bankruptcy and student loans, you should also know this: You can request a hardship hearing during your bankruptcy and present your case to a special judge, requesting that the student loans be discharged. A discharge of student loans after a hardship hearing is extremely rare, but if you think you have a good reason why paying your school loans presents a hardship, talk to a qualified bankruptcy attorney.
Remember, though, that everyone declaring bankruptcy is having a hardship, so your situation will need to be particularly dire. Getting your student loans discharged is a little like getting out of jury duty!
Bankruptcy and Student Loans Fact #3: Some federal programs will pay your student loans for you!
Another interesting fact about bankruptcy and student loans is that you might be able to discharge your student loans by participating in federal programs that relieve some or all debt obligations in exchange for working in programs like Peace Corps, AmeriCorps, or Vista. These service programs might give you a flat amount of money or they could offer to shave a percentage off your loans. By serving in Vista or the Peace Corps, you won’t be making much money, but you could be relieved of as much as 15 percent of your student loans.
If you are currently struggling to repay your student loans, make sure you explore your bankruptcy options before defaulting, including debt consolidation loans. If you talk to your lender, you might be able to arrange a loan deferment or a forbearance, which grants you temporary relief by postponing your loan payments for a specified period of time. You can also work out a different payment plan with your lender to help you make payments every month. Remember that removing a student loan is all but impossible, so you might as well start finding ways to repay your student loans as soon as possible.
If you are struggling with bankruptcy and student loans, it stands to reason that you might have a poor credit score. One way or another, start learning how to build credit so you can build your credit score to 720 as quickly as possible.

Student Loans and Credit: 9 Things You Must Know!

What’s the relationship between student loans and credit scores? You might be surprised! In this article, we take a look at the nine things you should know about student loans so that you can build a great credit score.
Nine Things You Should Know About Student Loans and Credit
First a little background. Student loans are unsecured loans (without any collateral backing them) issued to help with the costs of tuition, books, board, and other school-related expenses. As with any other loan, your credit score is deeply impacted by your student loan. When you make your student loan payments on time, your credit score will improve. If your payments are late or if you skip a payment, your score will drop.
Student loans are a great way for young adults to begin the all-important task of showing lenders that they can handle debt. If lenders see that you can make payments on time and in full, your credit score will go up and you will be more likely to get larger loans in the future.
This is important because you will need credit upon graduating from college. Your first employer might run a credit check, assuming that your credit score is a good indication of whether you are responsible or not. And a landlord will definitely run your credit before renting a home to you.
With all this in mind, here are nine things you should know about student loans and credit.
Student Loans and Credit, Fact #1:
When you apply for a student loan, your credit might or might not be pulled. Some lenders do require a credit score, but others do not. If your credit score is pulled, a credit inquiry will be added to your credit report. This might cause your score to drop, but the impact will be minimal.
Student Loans and Credit, Fact #2:
About 30 percent of your credit score is determined by your outstanding debt: the ratio of how much you owe versus how much you have paid. The more you have paid and the less you owe, the better your score. If your payments are being deferred until you have graduated, or if you have deferred payments for another reason, the ratio will not be in your favor, and your score might drop. However, it will start to increase after about six months of timely payments.
Student Loans and Credit, Fact #3:
With this in mind, consider that students who are positioned to pay back their loans before graduating will enjoy a faster ride to good credit. Even though a lot of student loans do not require repayment until you have graduated, your credit score might be higher if you start repaying the loans immediately. Keep in mind that some employers will run a credit check when you apply for your first post-college job, so having a high credit score could behoove you.
Some people have speculated that if borrowers pay back their student loans too fast, they will lose credit points (presumably because the maximum interest on the loan will not be accrued if the loan is paid off early). I think this is a bogus claim. The exact details of credit-scoring formula have not been released, so I cannot definitely confirm this theory one way or another, but I seriously doubt its accuracy. Credit-scoring bureaus are not interested with your creditor’s ability to earn the most interest, but rather with your ability to repay your loan on time. The bureaus want to know that you will pay your debts on time. Paying your student loans sooner rather than later is a wise thing to do because your debt-to-principal ratio will drop and your score should increase.
Student Loans and Credit, Fact #4:
Before you leave college, avail yourself of the opportunity to receive exit counseling, a service most schools offer to prepare their students to repay federal student loans. This counseling can provide you valuable information about your rights and responsibilities and the terms and conditions of your loans.
Student Loans and Credit, Fact #5:
Once you begin repaying your loan, never miss a payment. Here’s something you might not know about student loans and credit: 35 percent of your total credit score will be drawn from your payment history on credit cards and loans.
Student Loans and Credit, Fact #6:
If you cannot make a payment, ask for forbearance, a short-term agreement that allows you to make smaller payments, or no payments at all. Otherwise, you will harm your credit score. Keep in mind that if you do not make payments, interest will continue to accrue and the amount due will grow larger.
Student Loans and Credit, Fact #7:
Keep in touch with your lender. If you are struggling with your payments, never wait until the lender approaches you or until a delinquency notice is logged on your record. Instead, initiate communication with your lender. Talk about forbearance or student loan consolidation.
Student Loans and Credit, Fact #8:
Student loans can never be discharged during bankruptcy.
Student Loans and Credit, Fact #9:
Making regular payments on your student loans is a great way for young adults to begin building their credit score, setting the foundation for better loan terms and lower interest rates on future loans, and saving bundles over the course of a lifetime. But this isn’t enough. As you move on after school, you should try to incorporate different types of credit into your finances while keeping current on your payments. The mix of credit you have makes up 10 percent of your score. The credit scoring bureaus want to see that you can handle a variety of types of loans—from credit cards to student loans to car loans.
Now that you know the nine important facts about student loans and credit, be sure you learn the 35 facts the banks don’t want you to know! These money-saving tips and insider secrets about credit scores can help you save a bundle and position yourself for success.