Will Getting a Student Loan Deferral Hurt My Credit Score?

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Will Getting a Student Loan Deferral Hurt My Credit Score?

No, a student loan deferment has no effect on your credit score. However, in certain cases, your credit score might be better off if you avoided taking it. Continue reading to find out how it works.

Key Takeaways

  • Because it happens with the lender’s consent, a student loan deferment has no direct influence on your credit score.
  • Student loan deferrals may lengthen and raise the amount of outstanding debt, which can harm a credit score.
  • Deferring payments until an account is late or in default may also harm one’s credit score.

How Does Deferring Student Loans Affect My Credit?

A student loan deferral or deferment allows you to postpone making payments on your debt—principal, interest, or both—for an extended period of time. Under some conditions, your lender may grant your postponement request.

These conditions usually entail your incapacity to work: temporary complete disability, rehabilitation training program, parental leave (for example, pregnancy or caring for a recently adopted or newborn kid), or unemployment. Alternatively, they might indicate extra study, such as a medical-school residency, a full-time graduate fellowship, or at least half-time enrolment at an appropriate institution. Deferrals are also permitted for specific sorts of occupations, such as public service (e.g., joining the Peace Corps or the Armed Forces) or teaching in a specified region or school system when teachers are in short supply.

Borrowers undergoing cancer treatment may postpone loan payments for up to six months after the treatment is completed. 1

Your credit score represents whether or not you are fulfilling your financial responsibilities to creditors. Nonpayment is a classic example of failing to satisfy commitments. Student loan deferments, on the other hand, are a different story. You’re not just choosing not to participate: Your lender has authorized your repayment suspension request. So you’re keeping your part of the bargain with your lender. As a result, the deferral will have no effect on your credit score.

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Drawbacks of Student Loan Deferrals

However, postponement might have an indirect impact on your credit score in a variety of ways.

Waiting Too Long

People often wait until they are behind on payments before requesting a deferment. Unwise decision. Once you’re 30 days past due, your lender might record your payment to the credit bureaus as “late,” which will reduce your credit score. When your loan payment is 90 days late, it is considered “delinquent,” and when it is 270 days late, it is considered “in default.” You can guess how either state affects your score. Deferral will not lower the score any more, but it will also not help it recover much.

More Debt

If you do not pay down your loan debt during the deferral period, your credit score may fall somewhat over time. As you are aware, the total amount you owe in comparison to the amount borrowed influences your credit score, and the less you owe, the better. In this scenario, your debt is not expanding, but it is becoming older, and its age might sometimes have a greater impact on your credit score.

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Maximum number of years that student loan payments may normally be postponed 2

Furthermore, if you have a private loan or a government unsubsidized loan, interest will continue to accumulate throughout the deferral period, which might lower your credit score. If you do not pay your loan interest and allow it to be capitalized (that is, added to the principle), the total amount you owe over the life of the loan may be more.

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On the plus side, if your credit score is lower than it would be otherwise because you owe such a significant amount on your student loans, it should begin to rise once you resume repayments.

The Bottom Line

A student loan deferment has no direct impact on your credit score. However, it doesn’t help matters either. Depending on your circumstances, a loan deferment may not be the best way to cope with your student debt. Consider refinancing or income-driven repayment alternatives before committing to this course.

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