Student loans are a type of installment loan, similar to a car loan, personal loan, or mortgage. They are part of your credit report, and can impact your payment history, length of your credit history and credit mix. Paying on time could help your score.
How Student Loan Forgiveness Affects a Credit Score. The impact of student loan forgiveness depends greatly on a borrower's unique credit profile. Some may see a slight dip, but forgiveness will have a net positive effect for most.
A fixed rate will not change for the life of the loan. If your loan was disbursed before July 1, 2024, you likely have a different interest rate.
We've mentioned that your student loan won't appear on your credit report, so it won't help or hinder your credit score in a direct way.
Carrying student debt can affect your ability to buy a home if your debt-to-income ratio is too high. If you have too much student loan debt, you won't be able to save as much for retirement. Student loan debt can lower your credit score, especially if you fail to make on-time payments.
Independent undergraduates and dependent students whose parents are unable to obtain PLUS Loans: $57,500 (including up to $23,000 subsidized). Graduate and professional students: $138,500 (or $224,000 for certain medical training) including undergraduate borrowing (including up to $65,500 subsidized).
Your interest charges will be added to the amount you owe, causing your loan to grow over time. This can occur if you are in a deferment for an unsubsidized loan or if you have an income-based repayment (IBR) plan and your payments are not large enough to cover the monthly accruing interest.
Student loans disappear from credit reports 7.5 years from the date they are paid in full, charged-off, or entered default. However, education debt can reappear if you dig out of default with consolidation or loan rehabilitation. Student loans can have an outsized impact on your credit score.
The short answer is yes, credit card debt forgiveness can negatively affect your credit score. However, the impact depends on various factors, including your current credit score and the specifics of your debt settlement agreement.
Your student loan servicer(s) will notify you directly after your forgiveness is processed. Make sure to keep your contact information up to date on StudentAid.gov and with your servicer(s). If you haven't yet qualified for forgiveness, you'll be able to see your exact payment counts in the future.
Student loans add to your debt-to-income ratio
Student loans increase your DTI, which isn't ideal when applying for mortgages. Most mortgage lenders require your total DTI ratio, including your prospective mortgage payment, to be 45 percent or less, though it's possible to find lenders that will accept a higher DTI.
Reasons why your credit score could have dropped include a missing or late payment, a recent application for new credit, running up a large credit card balance or closing a credit card.
If you default on your student loan, that status will be reported to national credit reporting agencies. This reporting may damage your credit rating and future borrowing ability. Also, the government can collect on your loans by taking funds from your wages, tax refunds, and other government payments.
Both federal and private student loans fall off your credit report about seven years after your last payment or date of default. You default after nine months of nonpayment for federal student loans, and you're not in deferment or forbearance.
The maximum Federal Pell Grant award is $7,395 for the 2024–25 award year (July 1, 2024, to June 30, 2025).
Federal Student Loan Interest Rates
Both loan types come with a fixed interest rate, and with either type, you can defer payment until six months after you leave school. For the same loans originated during the 2023-2024 school year, the interest rate was 7.05%. For 2024-2025, the fixed interest rate is 8.08%.
Data Summary. The average federal student loan payment is about $302 for bachelor's and $208 for associate degree-completers. The average monthly repayment for master's degree-holders is about $688.
For example, the interest on a $30,000, 36-month loan at 6% is $2,856. The same loan ($30,000 at 6%) paid back over 72 months would cost $5,797 in interest. Even small changes in your rate can impact how much total interest amount you pay overall.
If you make your monthly payments on time, student loan debt won't necessarily harm your credit score. On the other hand, if you are late on payments (considered "delinquent"), in default (late on payments for 270+ days) or see your debt go to collections, this can cause your credit score to drop.
According to a recent Forbes Advisor and Talker Research survey of 2,000 adults, one in three respondents said they regret using student loans to finance their education and would not choose that route again if given the opportunity.
1. Payment History: 35% Your payment history carries the most weight in factors that affect your credit score, because it reveals whether you have a history of repaying funds that are loaned to you.