Paying student loans will boost your credit but may harm your health, a recent survey said. (iStock)
Only 33% of student loan holders have been making regular payments since they started up again in October – and about half are looking to use an income-driven repayment plan or are seeking outright forgiveness, according to a Civic Science survey.
Student loan payments picked up again last October after a 42-month payment and interest accrual pause. After a more than three-year pause, many Americans have had to make significant adjustments to their household budgets to afford their student loan payments. Roughly 58% of student loan holders said that they are at least “somewhat” or “very” concerned about paying their student loans, and more than 60% of borrowers said their student loan debt is impacting their ability to save for retirement. This concern pushes many borrowers to seek ways to suspend loan repayment, even if it means that interest will continue to build on the debt.
“New data reveal a plurality of loan holders have deferred their loans, but 14% report they have one or more loans currently in forbearance, meaning having received a temporary pause on repayment for up to 12 months, while 14% say it’s likely they will apply for forbearance,” the survey said. “Perhaps more concerning, 9% of borrowers have defaulted on their loans, and 6% expect they will go into default. If repayments continue as they have been, the majority of student loan holders will experience forbearance, deferment, or default at some point,” the survey said.
If you’re having trouble making payments on your private student loans, you won’t benefit from federal relief. However, you could consider refinancing your loans for a lower interest rate to lower your monthly payments. Visit Credible to get your personalized rate in minutes.
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Paying your student loans will help boost your credit score
Borrowers who are up-to-date with payments have seen their credit scores boosted, but this comes in exchange for greater stress, the survey said. Regular student loan “repayers” and those who plan to start making regular repayments soon are the most stressed.
Continued payments against open loans or lines of credit are reported to the three main credit bureaus and become part of credit reports. Regular, on-time payments can help boost credit scores and can be an essential factor in how much they improve.
This should be an important consideration for borrowers considering homeownership. Buyers can save additional money on home financing by understanding and improving their credit profile. A Zillow analysis showed that borrowers with an excellent credit score – between 760 and 850 – could save up to $103,626 in mortgage interest payments over the life of a 30-year fixed-rate loan, based on a typical home priced at $354,165.
If you’re considering becoming a homeowner, it could help to shop around to find the best mortgage rate. Visit Credible to compare options from different lenders without affecting your credit score.
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SAVE plan under legal scrutiny
A Kansas federal judge recently ruled that only three of the 11 states that filed two lawsuits against President Joe Biden and the U.S. Department of Education to stop the SAVE Plan could proceed with the case.
The plaintiffs argued the new regulations would harm them in three ways: by reducing revenue for the state public instrumentalities that own student loans, reducing tax revenue and creating competitive harm to their ability to recruit and retain employees for state public service employment.
U.S. District Judge Daniel Crabtree in Wichita ruled that the states of South Carolina, Texas and Alaska “just barely” alleged enough facts to find they had legal standing to challenge the Biden administration’s plan in court.
“Plaintiffs have shouldered their burden to show that the new regulations, more likely than not, will injure South Carolina, Texas, and Alaska’sAlaska’s public instrumentalities,” Crabtree wrote. “The other eight states—those without a public instrumentality participating in the student loan market – haven’t shouldered their burden to show that the regulations will cause them any direct harm.”
The lawsuit sought to halt the SAVE plan immediately, arguing that the U.S. Department of Education has no authority to alter student loan repayment plans. This would essentially cancel more than $156 billion in student loan debt and harm state revenue because it reduces those states’ ability to collect income tax revenue on the forgiven debt.
The lawsuit also argued that the U.S. Supreme Court ruled that Biden’s original forgiveness program violated federal law and that only Congress can authorize the forgiveness of student loans, which requires spending taxpayer money.
Private student loan borrowers can’t benefit from federal loan relief. But you could lower your monthly payments by refinancing to a lower interest rate. Visit Credible to speak with an expert and get your questions answered.
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