Underwriter: 5 Things You Should Know About Student Loans

As an underwriter who reviews credit: When it comes to student loans and credit scores, there are ten facts you need to know…
But before we get to that, let’s talk a little bit about student loans. These loans are “unsecured loans,” meaning that there is no collateral backing them. Whereas a car can be repossessed if not paid on time, no one can take away education!
That said, as with any other loan, a credit score will drop if you are late or skip a student loan payment; it will increase when student loans are paid on time.
Making payments on student loans offer a great opportunity for young adults to begin building their credit score. When lenders see young people can make payments on time and in full, credit score will go up and they will be more likely to get mortgage loans in the future.
On a personal note, this is important because you will need credit when applying for a mortgage job. The employer might run a credit check, assuming that your credit score is a good indication of whether you are responsible or not. And a landlord will definitely run your credit before renting a home to you. So if you have student loans take them seriously and pay them on-time or defer the payments.
With all this in mind, here are the first five things you should know about student loans and credit.
Student Loans and Credit, Fact #1:
In 2001, 31 percent of college graduates were living at home. That number grew to 45 percent by 2013.
Because it’s harder than ever to find a job, remember that the economy might not allow for a person to repay your student loan debt.
Student Loans and Credit, Fact #2:
Many mortgage lenders will qualify a borrower off of a lower payment on their student loan that what appears on the credit report. Because there are so many options to repay student loans, such as “income-based” what shows on the credit report may be inaccurate. Additionally, credit reports are highly likely to be inaccurate with student loan payment amounts, sometimes stating they are actively paying when they are in deferment and vice versa.
Student Loans and Credit, Fact #3:
As a person in the mortgage business, if you cannot make a student loan payment, ask for forbearance, a short-term agreement that allows you to make smaller payments, or no payments at all. Otherwise, your credit score will be harmed. Keep in mind that when payments are not being made, interest continues to accrue and the amount due grows larger. Many mortgage lenders randomly check your credit and in many cases this is required by law.
Student Loans and Credit, Fact #4:
When a person applies for a student loan deferment or payment reduction, their credit might or might not be pulled. If the credit is pulled, a credit inquiry will be added to their credit report. This might cause the credit score to drop. As an Underwriter you will see a credit inquiry and you will be required to ask and confirm why their credit was pulled. You may not want to lend to a person in financial distress.
Student Loans and Credit, Fact #5:
With this in mind, consider that students who are positioned to pay back their loans before graduating will enjoy a faster ride to good credit. Even though a lot of student loans do not require repayment until after graduation, credit scores might be higher if repayment is started early. Keep in mind that some employers will run a credit check when you apply for a mortgage job, so having a high credit score could behoove you.
Some people have speculated that if borrowers pay back their student loans too fast, they will lose credit points (presumably because the maximum interest on the loan will not be accrued if the loan is paid off early). I think this is a bogus claim. Credit-scoring bureaus are not interested with your creditor’s ability to earn the most interest, but rather with ability to repay loans on time…just as you are UNDERWRITER!


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