About two-thirds of all undergraduates graduated with some amount of debt in 2008. Those with debt had an average burden of $23,186, according to FinAid. Having a large student loan debt seems like it would harm a credit score, but it does not; it could even boost your score. Like all things in the credit world, this may not hold true, however; there are several factors that could make you too risky to lenders if you have student loans.
Impact on Credit Score
Student loans do not automatically hurt a credit score. They have less of an impact on scores than revolving loans, such as credit card debts. This phenomenon occurs because revolving loans affect credit utilization -- how much of your available credit you use compared to your limit -- while installments do not. Make prompt payments on your installment and your score should increase. On the other hand, if you miss payments, your credit score will decline. For most students, school loans make up the bulk of their credit profile, so a good payment history is vital.
Income Factor
No matter how good your credit score is, your income must cover your debt service and living expenses. If, for example, you want to get a mortgage, lenders will consider your student loans. Usually they will not approve a mortgage loan unless your total monthly debt payment falls below 36 percent of your monthly income -- including the mortgage, according to Janet Bodnar at Kiplinger.
Cosigning a Loan
Parents who cosign a student's loan also bear the responsibility of that debt and its status with the lender. That means if the student fails to make a payment on time, the negative information will go on both reports. This will also factor into debt-to-income calculations for both cosigners.
Tips
Call your lender as soon as you have problems or see a potential problem with making your monthly student loan payment. Lenders are often willing to at least grant forbearance -- where you only make interest payments for a temporary period. When you receive any disposable income, such as a tax refund check, put as much of that as possible towards your loan to pay it off faster. One caveat: if you have other debts with a higher interest rate, pay those off first.
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