Defer'd Student Loans lower scores?

Hi there! I don't think that they do lower your scores although the applying for loans might lower them a little. I had undergrad loans and worked for a couple of years and then went to grad school. Paid for fully by loans. My score was never below the mid 600s. My undergrad loans were all deferred while I was in grad school. Also, my loans are all now in forbearance b/c I was laid off recently and my scores are 740, 699, 674.

 

I don't know for sure the answer to your question, but I do know a few things. My student loans are currently being deferred as well. I read that when you apply for a mortgage or any loan, they will take into your account your ability to pay all of your debts. If you have loans that you are not currently paying, then they have no way of knowing how well you will be able to keep up with those payments. If they give you a 30 year mortgage and in 3 years you have to pay both the mortgage and those student loans, who is to say that you'll be able to do it? By leaving them in deferrment, you have not established a payment history and so they have no way of knowing what you can do. It's too risky for them. I have no idea if paying the student loans will improve your scores with the credit reporting agencies, but I am pretty sure that mortgage lenders will look more favorably on the fact that you are able to make the payments now.

 

Della

Generally Stafford Loans do not lower your scores while you are in school. There is no credit check and they are not influenced by your credit in any way. While your loans are in deferment, normally they do not apply to your Debt ratio either. If you start making payments early, then that will affect your debt ratio and lower it. That is not a good thing. It sounds to me as if there are other factors that are affecting your scores and you may want to pull reports to check their accuracy.

Good luck with school and later home hunting.


fla-tan

 

I don't think this is entirely true. My student loans are currently in deferrment and they are most definitely showing up on my credit report and the debts are listed in my total debt/income ratio.

I also have a good friend whose student loans are in deferrment and will be completely dissolved by the government in 2 years because she is working for a social services agency. She recently tried to get a mortgage and the lender told her that even though she didn't EVER have to pay those loans, they wouldnt' give her a mortgage because they couldn't guarantee that she wouldn't quit her job before her two year period was up and then have to pay them back. And since she had no payment history on those loans, they had nothing to go on and felt she was too big of a risk because of her total debt/income ratio.

Maybe not all mortgage lenders will do that, but this is what she was told and what I've experienced.

 

I agree, your Stafford Loans will show up on your credit reports. However, in most cases, if your loans are in deferment they should not count against debt ratios. It sounds like the mortgage lender was just using that as an excuse not to do the loan which had other problems.


fla-tan

 

Possibly... But her FICO score was in the low 700s.

Honestly though, why wouldn't it count? It can't stay in deferment forever. Eventually you will have to pay it, and I see no reason why they shouldn't take that into consideration when determining your ability to pay a 30 year mortgage. It's different if you rack up a lot of debt later (post-mortgage), but this debt is already there. It's already determined that it will have to paid. And the monthly payments can already be calculated.

Believe me, mine are in deferment and I'd love to "not" count them when I go for a mortgage next year. But I've been told otherwise. So I'm curious as to where you got your info.

Thanks!

 

I've been told by a mortgage broker that they don't factor them in if they're not in re-payment. Keeping them out of re-payment will make you look better on paper...

As far as effecting scores, how are the loans not in re-payment being reported? I've seen (myself and SO) def. student loans being reported as open, unknown, etc., etc. So, if you really think they're hurting your score, take a look at exactly how they are being reported at each CRA.

 

I just applyed for my first student loan (Unsubsidized Stafford) and I know that The interest on those types of loans will continue to accumulate even in deferrment unless you elect to pay off the interest only each month.
If you have an UNsubsidized student loan and you pay the interest off monthly , I am guessing that they will report that payment history but does anyone know how this actually looks on a CR? Thanks Diane

 

Well, I'd certainly take fla-tan's word on this subject as he is a mortgage broker, so he has probably seen more than just one case of someone trying to obtain mortgage w/ student loan in deferment.....

But I can also provide specific experience on this.....I had a significant amount of student loans from college and grad school when I applied for a mortgage last year. They were in deferment, and were ignored in the calculation of my debt ratios. They were also ignored when I applied for a home equity loan this year. The lenders were Bank of America and Provident Bank.

To the original poster - what are the reasons given by the CRA's for why your scores are low? I know that mine (even ones I previously made payments on) show up as "too new to rate", which I suspect definitely does not help my credit score.

 

Also...keeping loans in deferrment for "forever" is technically possible......all it takes it 2 classes (in person or online) per semester. At community colleges it can bes cheaper than the montly payments, and this way I can pay the principle down directly.

 

That is EXACTLY what I am doing believe it or not. I am taking two classes this Semester and as long as I take at least two in subsequent semesters my student loans will be in deferment. However I am electing to pay the interest as I go. I do not mind paying off the student loans early either it just depends on my finacial situation at any particular time. We will be applying for a mortgage in two years so I either want to pay them or keep them in deferrment until after the mortgage.

 

Thanks for all the info. regarding getting a mortgage with loans in deferment. Sorry I was skeptical. It just didn't make sense to me, and one lender verified what I was thinking, so that of course made me even more skeptical. But I'm going to tell my friend to go to another lender, and next year when I apply for a mortgage, I'm going to do so while my loans are still in deferment and see what happens. Thanks!