With low interest rates and favorable payment terms, many students and parents take advantage of student loans every year. What loan recipients sometimes fail to realize is that these are installment loans which stay on the credit report until they are completely paid off, or longer. Federal law changes have eliminated the statute of limitations on student loan collections and made it almost impossible to discharge a student loan in a bankruptcy.
Time Limits
Student loans remain on a credit report for the entire life of the loan. Automatic removal of the loan from the credit report does not always happen when the loan is repaid. The payment history shows on the credit report for up to seven years. Delinquent student loans appear on the credit report for an indefinite time. If you miss a payment, the missed payment will show on your credit history for over seven years. Loans being repaid by garnished wages show as being transferred to the government.
Delinquency Reporting
According to the Fair Credit Reporting Act, accounts placed in collections may appear on the credit report for seven and a half years. The timing of the reporting begins 180 days after the first delinquency. Delinquent federal student loans appear on the report until the delinquency is resolved. Delinquent private lender student loans follow the Fair Credit Reporting guidelines and drop off after seven years.
Consolidating Student Loans
Credit reports often show multiple listings of student loans because each disbursement shows as a separate loan. Students will typically have loan disbursements for each semester attended. After graduation, students sometimes elect to consolidate loans, which may cause a slight decrease in credit score. The consolidated loan may reflect as a new loan, which is the reason for the decrease. A solid payment history will quickly counteract the decrease. If the consolidation is simply a transfer to an existing account, the credit score impact will be insignificant.
Student Loan Help
The government helps individuals with defaulted loans with repayment options that enable them to resolve the delinquency. Forbearance is an option that allows individuals to defer payment for up to one year. Lenders sometimes offer loan rehabilitation, in which the negative information about a defaulted loan is expunged from a borrower's record if certain criteria is met.
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