How a Deferred Student Loan Affects Your Credit Rating

It is important to understand that a deferred student loan is much different than a defaulted student loan. A deferred student loan is one where you as the borrower have made arrangements with the lender to postpone payments based on a variety of factors, most commonly, economic hardship. A defaulted student loan is a loan that hasn’t received any payment for the last six to nine months. A defaulted loan will have a dramatically negative effect on your credit score, as it shows you have not only not met your payment agreement, but you have failed to make necessary arrangements with your lender. A deferred student loan on the other hand, will show as “paid as agreed” on your credit rating, actually doing more to help it in the long run.

What is a Deferred Student Loan?

A deferred student loan is a loan where the lender knows the borrower will not be making payments for up to 12 months, as a result of life circumstances. Since the lender approves it, the borrower suffers no credit damage during the deferment period. Payments will be required at the end of the deferment period, and are purely optional during the deferment. Making small payments during the deferment will help reduce the overall debt when the loan enters repayment status.

How to get a Student Loan Deferment

Contact your lender, or loan servicer as soon as you know you will not be able to pay the loans. Talk to them about why you need the deferment, and see how they are willing to help. Most of the time, the lender will have no problem helping you. They will place the loan in forbearance, where no payment is required but interest will accrue, until the deferment is approved so you can skip a payment or two, without any credit damage. Fill out and return any required paperwork as soon as possible to ensure the process runs smoothly. If you have a loan through a private lender, it may be slightly more difficult to obtain a deferment. Even still, contact the lender to see what you can do to keep the accounts in good standing.

Why Deferment is Better than Default

A defaulted loan will report negatively to the credit bureaus, and it will give the government the right to offset any tax refunds, garnish your wages and overall make life difficult for you. Once a loan is in default, it cannot be deferred, or consolidated in hopes of saving you money. Deferment will give you a chance to get your finances under control, stop payments while a consolidation is in the works, and keep your credit in good standing. Remember, credit damage can prevent you from getting financing for a vehicle, or a home, and may even prevent you from getting credit cards for emergencies.


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