Credit can have serious impacts on student loans

When students in Mississippi prepare for college and graduate programs, they are likely concerned about their academic and professional resumes. Higher education is becoming increasingly competitive and it is important to demonstrate relevant achievements.

What may not be as apparent is that young adults should similarly prepare their financial histories, including their credit card debt. Just as academic credentials play a large part in securing a place in the world of higher education, a person's financial history play a role as well. It can ultimately affect whether a person is able to afford the academic institution they wish to attend.

A study recently examined this very issue, specifically exploring the impacts of a credit score on an individual's ability to secure loans and other funding for school. The study reveals that the government does evaluate prospective students' credit histories. And, if they have adverse credit histories, such as having delinquent payments for more than 90 days or having a debt within the last five years subject to default, garnishment or the like, they will not qualify for loans like federal PLUS loans.

One interesting fact that was uncovered is that many young adults do not even have a credit score. There is trend developing where young adults avoid credit cards altogether because they do not want to pay interest. However, this choice can devastate future academic plans if the prospective student is unable to secure enough funding with loans that do not require credit checks.

On the flip side, once student loans are secured the loans can also have impacts on a student's credit score. This usually occurs when a student runs into financial challenges down the road and is unable to make payments on the loans. When the borrower defaults or fails to pay, this failure immediately impacts an individual's credit score.

Luckily there are ways in which to avoid the devastating impacts of financial events on your credit score. Deferment or forbearance of loans is one tool. These devices essentially allow a borrower to delay repayment based on hardship.

Source: foxbusiness.com, "How Credit Scores Impact Some Student Loan Approvals," Michelle Crouch, Aug. 8, 2013

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