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How Do Student Loans Affect Your Credit Score?

How Do Student Loans Affect Your Credit Score?

A woman holding a phone that displays her credit score, in front of a latte and a laptop

Student loans are many people’s first ventures into the world of credit. Because of this, it can be confusing to navigate their impact on your financial future.

If you’re feeling lost, you’re not alone — that’s why we’ve put together this factsheet for how student loans affect your credit score.

How Is My Credit Score Calculated?

Your credit score is calculated by weighing your recent and long standing credit activity under multiple categories. There are several credit score types, but the most commonly known is the FICO score, which grades your credibility as a borrower on a scale from 300-850.

The following factors go into calculating your total credit score:

  • Payment history, 35% of your total score — A missed or late payment will hurt your payment history.
  • Credit utilization, 30% of your total score — This portion of your credit score considers the amount you owe against the total amount you can take out. A lower credit utilization ratio generally signals a borrower is not dependent on or overextending their credit.
  • Length of credit history, 15% of your total score — The longer you have a line of credit open, the stronger your credit score.
  • Recent credit activity, 10% of your total score — This indicates your current risk to lenders and will be impacted by the recent opening or closing of one or more lines of credit.
  • Credit mix, 10% of your total score — Shows a diverse use of credit rather than dependency on one form.

By creating a total score based on these factors, where 300 is considered poor and 850 is considered excellent, lenders can determine your risk and responsibility for future credit.

How do student loans affect my credit score?

Student loans are a type of installment loan, meaning you have agreed to pay back a specific amount of money during a set period. Like other loans, student loans appear on your credit report and play a role in building your credit score.

Most commonly, student loans affect your credit score by showing your extensive payment history and length of credit.

How Can Student Loans Hurt My Credit Score?

Your credit score takes a hit by being late or missing a payment. Other instances — like defaulting on your loan — can cause irreparable damage.

Additionally, if you decide to refinance or consolidate your student loans at some point, your longest line of credit will be reconsolidated into a new loan. If your student loan was your longest existing line of credit, this could impact the length of your credit history and lower your credit score accordingly.

Take Steps Toward Success with Landmark National Bank

When building your financial future, partner with a bank that has your back. At Landmark National Bank, our dedicated staff will help you find personal banking solutions that work for your goals — learn more about our services, or find a location near you and open an account today!

Should You Consolidate Your Student Loans?

Should You Consolidate Your Student Loans?

A pair of hands holding a pen and a clipboard that reads “student loan consolidation”

If you walked off the graduation stage with a degree, a sense of accomplishment, and a few student loans, you might be considering consolidating your student debt. While debt consolidation works well for some, it may not be the best fit for everyone. Keep reading to find out the pros and cons of student loan consolidation, and decide whether it’s the right choice for you.

What Does Consolidating Your Loans Mean?

In a broad sense, loan consolidation involves taking more than one loan and combining them into a single amount under one interest rate. Federal loan consolidation can only package together federal loans and won’t lower your interest rate, but may lower your monthly payments by extending the length of the loan.

On the other hand, privately consolidated student loans package these loans together through a private lender. It may lead to a lower interest rate but will not come with the same safety guarantees as federal loans.

Benefits of Consolidating Student Loans

Since private refinancing and consolidating federal student loans vary, some of their benefits do as well. However, one of the major benefits is to simplify your debt management. For some, this may make a significant difference in their ability to repay loans.

Secondly, there is potentially less financial burden by having more time to pay off a loan or lower your monthly bill. Also, a lower monthly bill increases your ability to pay above the payment, creating a snowball effect in repaying loans. Plus, if only some of your loans would benefit from consolidation, you can leave those others out and retain their separate benefits.

Risks of Consolidating Student Loans

Consolidation may extend your repayment period, but this may ultimately lead to more interest paid over time. Additionally, any unpaid interest will be added to the principal balance of a consolidated loan, meaning you could be paying interest on a higher loan than before.

If you’re consolidating with the federal government, your interest rate will be the weighted average of your loans’ interest rates. You can calculate this new rate to weigh the benefits or drawbacks on the official Student Aid website.

While refinancing with a private company can lower your interest rate, it will cost you the benefits and protections of federal loans — including income-driven repayments and loan forgiveness. It may also impact your credit score, if your student loans are your longest-existing lines of credit.

Should I Consolidate My Student Loans?

Student loans are notoriously tricky to navigate because there are so many variables — consolidation is no different.

The main advantage for most is to make one monthly payment at a fixed rate. If you’ve found yourself unable to keep track of your payments, this alone may be worthwhile. With the extended repayment periods, it’s unlikely consolidation alone will save you money in the long run.

To calculate the potential benefit of consideration, consider the following pieces:

  • Exactly how much do you owe?
  • Which company do you make payments to every month?
  • How much do you pay in interest, and how long will it take you to pay off your loans at your current rate?

Then, compare these answers with what you’ll pay if you consolidate. Results will vary for everyone, but the most important part is discovering what works best for you.

Find Long-term Success with Landmark National Bank

While you’re navigating student loans and post-graduate finances, it’s vital to partner with a bank you can trust. Having a personal checking account that gives you financial benefits may be the difference between paying off your loans and just keeping up with them.

Run by a dedicated team, Landmark National Bank offers high-quality financial services catered to your needs. Find a location near you or contact us with questions today!

How to Pay Off Your Student Loans

How to Pay Off Your Student Loans

A tiny graduation cap sitting on top of a pile of cash

Student loans. Just the mention of them will send shudders through entire generations of Americans, currently working their hardest to pay off debts before intense interest rates make those financial burdens even more stressful. There are a lot of approaches someone can take to give themselves breathing room—federal student loan debt relief, repayment plans, starting up a side hustle…but even then, the road is long, and it will require focus.

Landmark National Bank knows how to pay off student loans and wants to support you as you seek to improve your financial health by chunking your student loans as quickly as possible. Here’s some of our best tips and advice to expedite the long process of debt elimination, so you can feel confident that you’re taking every angle possible to reach financial enlightenment.

Create Clearly Defined Goals

Paying off student loans can be a daunting task. Most alumni find themselves overwhelmed by the amount of debt they have accumulated during their college years. However, with a little bit of planning and goal setting, it is possible to pay off student loan debt quickly and efficiently.

The key is to set clearly defined goals. Start by making an inventory of all your existing student loan debt and interest rates. Next, prioritize which debts you want to tackle first based on the principal amount and interest rate (typically, you want to prioritize the one with the highest interest rate, but if the principal amount of another is high enough that it will damage you more, crunch the numbers to prioritize the best option).

Once you have established these priorities, make a plan that outlines how much money you will allocate each month towards loan repayment. By breaking down your payments into smaller goals and committing yourself to achieving them, it will be easier for you to stay on track until your entire loan balance is paid off in full.

Repayment Plans
A woman working on her laptop, looking focused

There are ways for borrowers to pay off their loans faster and ease the burden of repayment. Repayment plans offer a variety of options to assist borrowers as they strive to pull themselves out of debt.

One popular way to speed up repayment is known as graduated repayment. This plan divides the loan into multiple payments over a longer period of time, with each payment increasing gradually as the borrower earns more money in the future.

Borrowers should note that overall interest paid may be higher on graduated repayment plans due to extended payment periods, but it can be worth it if they are able to save money in other areas or receive help from employers in terms of tuition reimbursement. This, however, is only one option, and you should explore more repayment plan possibilities.

Increase Your Income

Perhaps the simplest and most straightforward approach for paying off student loans faster is to increase the amount of money you make. Easier said than done, right? However, there are a few things you can do to try and increase your monthly income.

Ask for a Raise

If you’re the type to have a day job and you know you’ve been a strong worker, then there’s no shame in asking for a raise. The amount of value you’ve poured into the company warrants respect to your time and effort. Plan out how you’ll ask for a bump in your income at your next monthly or quarterly review, and what’s a realistic amount to ask about.

Hint: check online to see what others with your job title are making, and use that as a reference point. A good rule of thumb is not to ask for more than a 4.5-5.0% increase, but use your best judgment.

Pick Up a Side Hustle

Hustle culture has exploded across the country in the last ten years. Do you have a hobby or skill that could pull in some pocket change? Start selling your art, driving for a food delivery app, tutoring students from your local school, or any of the many, many other routes people are taking to bring in extra income.

Refinance Your Student Loans

Refinancing your student loans may be the most effective way to reach student loan debt relief. It’s a financial maneuver that can drastically reduce your monthly payments and help you save money in the long run. By swapping out high-interest loans for lower-cost ones, you can significantly reduce the amount of time it takes to pay off your student loan debt.

If you’re having difficulty managing the cost of your college education loan payments, refinancing or consolidating your student loans might be a great option for you. You could qualify for a lower interest rate or longer repayment term, both of which will make it easier to manage and put an end to debt repayment sooner than planned. Keep in mind that refinancing your student loans may have an impact on your credit score, so make sure to do your research if you’re in the process of buying a home.

Utilize Your Tax Benefits

A man taking notes with a smartphone and a pile of cash in front of him, depositing a coin into a piggy bank

The American Opportunity Tax Credit is one of many benefits available to borrowers who have qualified educational expenses during the tax year. This credit can reduce your overall tax liability by up to $2,500 per eligible student. This tax credit is a great idea for student loan borrowers who are still in school and want to get a financial head start. Additionally, if you qualify for the Lifetime Learning Credit, this can reduce your overall federal income tax liability by up to $2,000 per eligible student.

Alumni who are paying off their college loans may also qualify for other deductions or credits such as deductions for student loan interest or tuition and fees deduction.

Look Into Forgiveness Programs

Student loan forgiveness is an increasingly popular option for college graduates struggling to pay back their student loans. With the rising cost of tuition, many students are unable to cover the full cost of a college education without taking on debt. In response, the federal government has developed various programs designed to help borrowers manage and ultimately reduce their loan balances.

The most common type of student loan forgiveness program offered by the federal government is called Public Service Loan Forgiveness (PSLF). This program helps individuals who work in public service positions and have made 120 payments on their eligible federal student loans while employed at a qualifying employer. By meeting this criteria, borrowers can receive assistance from PSLF in eliminating their remaining balance due on certain types of student loans after 10 years of repayment. There are many other types of programs that can provide student loan relief as well.

Consider the SAVE Plan

As of October 2023, student loan payments have resumed after a several-year-long pause that began during the COVID-19 pandemic. In order to help make these payments more manageable, the Federal Student Aid Department instituted a new income-based repayment plan for student loans known as the Saving on A Valuable Education (SAVE) plan. This new program helps student loan borrowers by limiting payments to 10% of their discretionary income and caps interest, meaning that if your monthly interest charge is larger than your student loan payment, the extra interest will not accrue and your total balance will not get larger over time. This program is set to expand with more features in July 2024, including lower payments and possible forgiveness after 10 years of payments.

A Bank That’s In Your Corner

Now that you’ve been equipped with a few methods for how to pay off student loans more quickly, we want to offer you an option to make changes right now, today.

Through Landmark National Bank’s personal loans, you can take some of your scariest student loan debts (the ones with the highest interest rates) and consolidate them into a single, lower-rate payment. This way it’s both easier to track how much you have left to owe, and you reduce how much damage interest rates will do to your bank account over the long haul.

Pull yourself out of the trenches and reach out to our team of trained professionals, who will guide you towards financial clarity and walk you through your options for reclaiming your finances. Student loan debt relief doesn’t have to be a lifelong struggle, and you have all the power in the world to start transformation now. Open an account or apply for a personal loan at Landmark National Bank today!