Student loans and what they could mean for your credit

Making your payment plan work for you

A student loan can be one of the biggest long-term debts you might take on. Like a mortgage or auto loan, lenders expect you to make on-time payments on a student loan until it's paid off. Missing a payment can impact your credit. Let's review student loan types and explore some different payment strategies.

Student loan types

There are two primary loan types that can help you pay for college if you apply and are approved: federal and private loans. Here's the difference between the two:

• Federal student loans: These are government loans offered by the U.S. Department of Education, and the government sets the interest rate on the loan each year. You can generally qualify for these loans even if you have no credit history.
• Private student loans: These come from banks, credit unions or other financial organizations. You usually have to pass a credit check or need someone to co-sign on these loans if you don't already have credit history.

Your repayment options may differ depending on the type of loan you have. Federal student loans may offer you some protections during the repayment process. For example, if you get a job in the public sector, the government may forgive your loan after a certain number of years of making on-time payments. Each lender may have different options for loan forgiveness and income-based repayment.

Student loans and credit

A student loans may help you build credit, as long as you are consistently making payments on time. Keep in mind that your payment history can have a large impact on your VantageScore^® 3.0 credit score. If you already have credit cards or an auto loan, a student loan can add a different type of credit to your report, which can also improve your credit health.

Payment strategies

It's important to pay your student loan on time. Here are some strategies to help you stay consistent:

• Pick the right repayment plan: You typically agree to payment terms when you take on your student loan. However, it's a good idea to revisit those terms after graduation because you might be able to change your payment plan to one that fits your needs. There are multiple repayment options1 for federal student loans, each with different features. Some private lenders may also offer different payment plans.
• Set up autopay: You can enroll in autopay to avoid forgetting a payment. When you sign up, your bank will automatically send the monthly payment from your account to your lender so that you don't have to.
• Make extra payments: Consider making an extra student loan payment if you have money left over at the end of the month. This won't reduce your next monthly payment, but it will shorten the life of your loan by taking payments off at the end. Make sure your loans don't come with prepayment penalties if you pay them off early.
• Refinance: If you have good credit and a history of making your payments on time, you might be able to refinance your student loan to get a lower interest rate. This can reduce your monthly payment, freeing up money to fund other financial goals.

Whichever strategy you choose, making on-time payments is critical to maintaining your credit health.

Options if you can't pay

Things happen. You might find yourself struggling to make your payments. If you do, contact your lender, review your payment options, and request a change to your payment plan. You may also think about consolidating or refinancing your loan to lower your monthly payments.

Forbearance and deferment are two options that may be available if you can't repay your federal student loan. With both options, you can temporarily stop making payments but interest will continue to accrue on the loan during these periods. Contact your lender or loan servicer to find out if you qualify.

Both forbearance and deferment can help you avoid defaulting on your loan, but they're not long-term solutions. They are temporary and should only be used as a last resort.

Paying off your student loan can be a long-term process. It's important to review your progress every once in a while to make sure you're on the right track. Use this time to also think about whether you want to make changes to your repayment plan based on your financial situation and goals.

Key takeaways

• You might have different repayment options available to you depending on the type of loan you have, either federal or private.
• Making your student loan payments on time is a good way to build your credit health.
• Forbearance and deferment are two options that could be available if you can't repay your federal student loan. These should be used as a last resort.
• Don't forget to periodically review your student loan repayment plan to make sure it makes sense based on your financial situation.