Five Ways Student Loans Impact Credit. Federal Student Loans are Unique. Federal Student Loans are Unique

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1 Five Ways Student Loans Impact Credit Federal Student Loans are Unique Established credit is not needed No payment due immediately Variety of repayment options Ability to postpone payments Can combine several loans with one new loan Can rehabilitate a defaulted loan Federal Student Loans are Unique Therefore.its uniqueness can make it difficult to understand how these loans impact a borrower s credit report 1

2 We Will Discuss Five ways student loans impact credit Payments Delinquency Loan Default Loan Rehabilitation and Consolidation Deferment and Forbearance 1. HOW PAYMENTS IMPACT CREDIT True or False Borrower s loans are not reported to the credit reporting agencies until they go into repayment. A True B False 2

3 Student Loans Student loans are a type of installment loan Credit that is granted on condition of its repayment at installments, over a specified period of time until paid in full Credit report will specify that the installment loan is an education loan Before Repayment Begins Servicers must report loan information to the three national credit reporting agencies within 90 days of each disbursement Reported at the account level, not loan level Until borrower goes into repayment, the status is reported as open/in good standing Before Repayment Begins Status: Open/In good standing 09/2013 Deferred : Highest Credit/Original Loan Amount: $22,000 $22,000 3

4 After Repayment Once a borrower enters repayment, the monthly payment amount is reported Status reported as open/in good standing Repayment plan is not reported On-time payments can help a borrower build a strong credit history Shows creditors that a borrower knows how to manage credit How Payments are Applied Standard Repayment 1. Late fees (if any) 2. Accrued interest 3. Principal Income-driven Repayment 1. Accrued interest 2. Late fees (if any) 3. Principal Repayment Status Status: Open/In good standing 09/2013 $275 11/ Months Monthly $22,000 $20,459 4

5 2. HOW DEFERMENT AND FORBEARANCE IMPACT CREDIT True or False Deferments and forbearance are negatively reported on an individual s credit report? A True B False Deferment and Forbearance Deferments and forbearance do not negatively impact a borrower s credit report Status is reported as open/deferred Amount of principal could increase due to capitalization Unpaid interest is added to the principal at the end of a forbearance and possibly a deferment 5

6 Deferment/Forbearance Status Status: Open/Deferred until 12/ / /2015 Deferred $22,000 $20, HOW DELINQUENCY IMPACTS CREDIT True or False Delinquent loans are reported on a borrower s credit report once they become 30 days delinquent? A True B False 6

7 Delinquency Department strongly encourages servicers to wait until the borrower is at least 60 days delinquent to report to the CRAs However, a loan is considered delinquent 30 days after the due date Delinquency Servicers report delinquent status every 30 days once reported to the CRAs Will remain on the borrower s credit report until seven years from the date the loan was 30 days delinquent Delinquent Loan Status Status: Account past due 90 days 09/2013 $275 7/ Months Monthly $22,000 $20,459 7

8 Delinquency 35% of the credit score is represented by the individual s payment history Factors that negatively impact the payment history Number of delinquent accounts How late are the payments How recently did the late payments occur 4. HOW LOAN DEFAULT IMPACTS CREDIT True or False Loan default will remain on the borrower s credit report for seven years from the date the loan was reported 30 days past due. A True B False 8

9 Loan Default Once a loan has defaulted the status will be updated as 'claim has been filed with government For Direct Loans, once it has been transferred to the Debt Management and Collection Systems (DMCS) For Federal Loans, once claim has been paid by guarantor Loan Default Defaulted loan will also be reported as a 'collection account and will be listed in the collections part of the person s credit report Will remain on the borrower s credit report until seven years from the date the loan was 30 days delinquent Default Status Status: Claim filed with federal government 09/ /2013 $22,000 9

10 Administrative Wage Garnishment Administrative Wage Garnishment (AWG) Can withhold up to 15% of an employee's disposable income Garnishments are considered public record and can appear on an individual s credit report May remain on credit report for up to seven years Treasury Offset Treasury Offset Program (TOP) Department can request the Department of Treasury to arrange an offset to collect any defaulted student loan debt Not reported to the credit reporting agencies Judgments Borrowers who refuse to voluntarily pay may be sued in State or Federal District Court for the outstanding balance plus attorney's fees and court costs Judgments are considered public record and can appear on an individual s credit report May remain on credit report for up to seven years 10

11 5. HOW LOAN REHABILITATION AND CONSOLIDATION IMPACT CREDIT True or False Once a borrower resolves a default through consolidation, the default status is removed from their credit report. A True B False Direct Loan Consolidation Once the consolidated has been completed, the status of the loans that were included in the consolidation will change to transferred and/or paid in full Default notation will not be removed The new consolidation loan will reflect on the credit report 11

12 Old Loan After Consolidation Status: Transferred/Paid in full 09/ / Months Monthly $22,000 $20,459 New Consolidation Loan Status: Open/In good standing 08/2015 $ Months Monthly $20,459 $20,255 Rehabilitated Loan Once a borrower has successfully rehabilitated their loan, the loan will no longer be considered in a default status The default status reported by loan holder will be deleted from credit report History of delinquencies will remain 12

13 Old Loan After Rehabilitation Status: Closed due to transfer 1/2009 9/ / Months Monthly $28,640 $25,459 Old Loan After Rehabilitated Payment history: 2012 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Status Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Status 120 OK OK OK OK OK OK 2014 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Status New Loan After Rehabilitation Status: Open/In good standing 11/2015 $ Months Monthly $25,459 $25,459 13

14 CONCLUSION AND RESOURCES Educate Your Borrowers Help borrowers better understand their obligations as a borrower How and when students loans are reported on their credit reports On-time payments helps to build good credit Change their repayment plan if the one they have is unaffordable Educate Your Borrowers Help borrowers better understand their obligations as a borrower Deferments and forbearance do not negatively impact their credit Loan delinquency and default have serious negative implications 14

15 Annualcreditreport.com Myfico.com Bankrate.com Optoutprescreen.com Creditkarma.com Mint.com Mymoney.gov Myeddebt.ed.gov Resources Thanks for Attending 15