Home > Credit Score > Does the Way Student Loans Are Reported Hurt Your Credit?

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Student loans usually help students build a positive credit history, provided they are paid on time. But one borrower is convinced that the way his student loans have been reported has caused his credit scores to drop. “Jim” writes:

I hope you can help me understand why my credit report and credit score are being affected by my student loan disbursements. Each disbursement has its own account number from the lender, like Sallie Mae, but if I contact Sallie Mae, I only have one account number for the entire student loan. Why are the disbursements treated as individual accounts and not added to only one account?

I have monitored my credit scores since my first disbursement was made back in 2006. When a disbursement is made, they report it to the three credit reporting agencies as a new account, but the student loan lenders only have one account on file for the full amount of the loan.

Jim’s upset because he has been monitoring his credit scores, and each year his scores have dropped. The student loans are the only new activity on his reports, he insists. (Wondering how student loans may be impacting your credit? Check out Credit.com’s truly free Credit Report Card for an easy to understand overview of your credit, along with your credit scores.)

I’ve heard this type of complaint before, so I decided to take a closer look. First, it’s important to understand how these loans are given out, or “disbursed.” A student may get one federal loan for the year, but it will usually be doled out in two or more disbursements. “Federal law requires at least two disbursements,” says Mark Kantrowitz, publisher of Finaid.org. In most cases, one disbursement will be made in the fall when the school year starts, and the other in the spring. “Colleges can get a waiver of the multiple disbursements rule if they have a default rate under 10%,” he adds. “Colleges would like to do monthly disbursements to avoid students running out of money mid-semester, but current regulations don’t permit that for federal loans, so typically students get one disbursement per semester.”

Sallie Mae spokesperson Patricia Nash Christel told me that individual disbursements are still considered part of the same loan. “Sallie Mae customers have a unique customer ID. Each loan could have more than one disbursement, but they would still be only considered one loan and reported as one loan.”

She also noted that it is possible that some undergraduates can have both federal and private loans. Jim says he has federal loans and a private education loan through his credit union.

How Many Loan Are We Talking About?

While there are plenty of statistics about student loan debt, it is difficult to track down the average number of student loans a borrower holds. Kantrowitz ballparked it at 6-8 loans for a Bachelor’s degree recipient, though the figure could be as high as “16 for 4 years, 20 for 5 years.” He notes that after graduation, many borrowers consolidate their loans with one federal loan and one private loan, which would bring the number of open accounts down to two.

If these disbursements are treated as separate loans, can that hurt your credit scores — even if the loans are paid on time?

Barry Paperno, a credit scoring expert told me that his colleagues in the credit reporting industry are “well acquainted with the practice this reader describes (and) acknowledged that they get frequent calls from unhappy consumers when they see the multitude of accounts reporting.”

He adds: “Regardless of the reason why lenders report this way, the reality is these are all considered separate loans, with different open dates, by the scoring models.” That may not always be a bad thing, however:

Fortunately, for student loan borrowers, installment balances don’t have the same scoring impact as revolving balances do in utilization calculations. But a few of the areas where student loan borrowers can be negatively impacted by this manner of reporting are:

1. When newly reported, each disbursement/loan is considered a new loan by the scoring formula, which can mean a slight reduction in score due to the presence of a “new account” each time; and

2. With each new disbursement appearing as a new loan, the borrower’s ‘average age of accounts’ can remain low and result in a lower score than if the average age were higher.

Kantrowitz is doubtful that the way these loans are typically reported creates a problem. “Multiple disbursements of a single loan should not affect the credit score, aside from the increases in debt outstanding. The number of disbursements does not normally affect credit scores. Perhaps if they were recorded as separate loans, but that does not happen with experienced lenders,” he insists.

In the meantime, Jim still believes that his student loans are not reported accurately, and that his credit scores have suffered as a consequence. It’s unclear exactly how serious of a problem this is for most borrowers, though.

One this is clear: Payment history is still the main factor that will determine how a student loan impacts one’s credit history. So no matter how many loans students have, they need to make sure they are keeping track of all their loans and paying them on time.

What do you think? How have your student loans impacted your credit scores? Share your story in the comments below.

Image: Tulane Public Relations, via Flickr

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  • Currentstudent

    Seriously, I had a student loan years ago thru Sallie Mae which I paid $50 a month which seemed like forever. I always wondered why my credit score was low even though I had good credit habits. I finished paying that in 2005. Now I have started school again since December and my first 2 loans have just shown up dropping my Transunion score by over 40 points and Equifax over 60. I got those scores from Creditkarma. I have no idea what my score or the effect on Experian is.

    It seems to me that FICO is the one responsible since it is there system all the credit bureaus use. We should all petition FICO to look at these loans differently, creating a different sector for student loans alone instead of grouping it with installment loans. Also FICO has recently changed their program to reflect paid collections as no longer affecting your score and medical collections to effect your score less.

    Either way I am afraid as to how this will turn out for me in the end since I have a dropping score to look forward to every 6 months for few years. Question? If you pay a little bit on each every month for say $5 to $10 while still in school, can that help raise your score so the next hit does not hit so hard. Can a cushion be created somehow?

    • http://www.Credit.com/ Gerri Detweiler

      Are you saying that the student loans have just appeared on your credit reports? Is the information positive? If there is no negative information then it’s quite possible the hit you saw will level out over the next year when these are no longer brand new accounts…(New accounts are a risky factor but over time that effect tends to even out.)

  • http://www.Credit.com/ Gerri Detweiler

    If they were discharged they should show a zero balance. Do they?

  • http://www.Credit.com/ Gerri Detweiler

    I’d suggest you file a complaint with the Consumer Financial Protection Bureau. If enough students in this situation complain they will take a look at it.

  • luann

    My daughter is starting a SUNY school and she is able to take out an unsubsidized fed loan for about 5k. The balance I can take out under the Federal Plus Loan at 7.9%. This would either by in my or husbands name. Should we do this for 4 years and then also for my son who is 2 years behind her or should we have them try to take a Sallie Mae with one of us as a co-signer? this is all overwhelming confusing. I don’t want to make an error with all of this money for such a long period of time. This is also in hopes they will give me so many loans…. HELP

  • Kim Blaise

    I’m very upset with the credit score system. My daughter just turned 21 and she had acheived a score of 739. Once her last federal student loan was reported her score dropped 54 points to 685. She’s still in school, her third year and not required to start paying it back yet. How is this possible?

    • Credit.com

      A new account opening does have the potential to lower your score, at least initially until the account has a time to age a bit so that may be one reason why her score dropped. However, it’s impossible to tell for sure unless you were able to compare the previous score with the new score and the individual credit reports for each because there are any number of things that may have changed in her credit reports, other than the new student loan. For example, if she had higher balances on her credit cards being reported in the latter report, in combination with the new account opening — it would cause more of a drop. Another thing to keep in mind it’s possible that the scores you’re comparing may be two entirely different scores. Because scores vary by model and bureau, it’s important to make sure you’re comparing like scores. Gerri Detweiller goes into more detail on this issue here: 3 Reasons Why Your Free Credit Score Looks Wrong

  • rene davila

    One question;
    If the borrower of a student loan dies, is the spouse liable for that loan???

    • Credit.com

      It depends. As long as you don’t live in a community property state, and you weren’t a co-signer on the loan, you’re not liable. On the other hand, if you live in a community property state it’s a little more complicated and will depend on the type of student loan and your state laws.

      If you live in a community property state and your spouse dies, you’re typically liable for your spouse’s debts even if your name isn’t on them. Fortunately, student loans are a little different. If the student loan was a federal education loan, the loan is discharged on the death of the borrower and you’re safe. If the student loan is a private student loan, there are only two types of private student loans that discharge upon the borrower’s death — the Sallie Mae Smart Option Loan and the New York HESC NYHELPs loan. For all other private student loans, the lender will first attempt to collect from the borrower’s estate. If there is no estate, it will attempt to collect from a co-signer (if any), then it would fall to the spouse but it will depend on the community property laws in your particular state. Many community property states have exceptions for education debts so that the spouse isn’t responsible unless you co-signed the loan. If you live in a community property state it’s worth checking into the laws to confirm whether or not your state has an exception for student loan/education debts.

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  • Mercedes

    One of the best things I did was actually read the entrance counseling information on my loans. I have since left college and completed a debt consolidation program. After the debt was consolidated, all the individual accounts were closed as ‘paid in full’ and I only have one account showing (the one from my consolidation lender). I would recommend consolidating the federal loans, and if you have private loaned either pay those off or do a separate consolidation if they are too much. I also recommended researching loan forgiveness programs that correlate to your profession. For example, I’m a social worker and I qualify for a public service loan forgiveness program. I have heard there are similar programs for those in the medical profession (including nurses) and in business. Debt is a problem in our country; but, we as consumers also have to educate ourselves. Reality is lenders make tons if money when we’re uneducated and when we default.

    Side note: while in school, your loans WILL appear as separate accounts. Unless you chose to start paying in school, there is no reason to worry about it. After you graduate, talk to your lender, establish a payment plan, and ask that they losnd be consolidated under one payment. If your lender does not do this, or will not work with you, research the debt consolidation programs I discussed above, or another private student loan consolidation company yo get the loan taken from that lender. I’ve also heard of people who compounded their loan with their mortgage. Although I’m not familiar with this, it wouldn’t hurt to talk to your mortgage lender if possible.

    Good luck everyone.

    P.s.– I did this all on my own. My single mother refused to help pay for any of my education and I put myself through undergraduate and graduate school.

    • Gerri Detweiler

      Congrats! It sounds like you are off to a great start. Maybe you’ll want to think about volunteering for a financial literacy program like Junior Achievement. Your experience can help other students avoid expensive mistakes!

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  • vennansha

    I have the same problem as Jim. My Sallie Mae loans are reported as individual loans for each year that I took out a loan. I have loans from my first time getting my bachelors degree and when I decided to do a career change a couple years ago.As a result I have 10 separate loans listed in my credit report. I believe that this is affecting my credit score because it states that my score is low because I have many loans even though they’re all from the same company. When I asked them if they can change it to make it look like 2 separate loans they said no.

  • rick h.

    I have a problem. I co-signed a student loan for a girlfriend about 4-5years ago, we have now went our seperate ways and she is refusing to pay on it. It’s really messing up my credit. How should I handle this situation? Would it be better if I paid the monthly payment till it’s paid then take legal action? HELP!

    • TLP

      When you co-signed the loan, you promised to pay off the loan if she didn’t. That’s what co-signing is. The only one entitled to take legal action here is the lender- against you and your ex-girlfirend, if the loan isn’t paid off. You BOTH signed for the loan. If you can afford to make the payment, you should. It’s your debt, too, so just get it paid off and put it behind you as a lesson learned. And don’t ever co-sign anyone’s loan again!

    • DDH


      You co-signed the loan, that makes you equally responsible if she doesn’t pay (which is what you say is happening). I don’t know if there is any legal action you can take, unless there was some sort of written agreement between you two, and even then it may not make a difference since you did co-sign.

      I would just pay it. That’s what I’m doing with a loan I co-signed for my twin brother. I am not letting his single loan screw up my credit report/score. His loan is one of the next accounts that I’ll be aiming to pay off. At least it isn’t all that expensive of a monthly payment (at least for me), but still have not been happy with him over this for several years.

    • Jim W

      You signed the loan just as your ex GF did. In effect the lender gave you the money and you gave it to your ex GF. No different than if you bought her a pair of shoes on your own credit cad, you would have to pay it. You are no more or no less responsible for it. You have no recourse, all you can do is pay it or allow it to default, destroying your credit.

    • Jimmie

      Rick, Unfortunately YOU co-signed. Which makes you responsible if she doesn’t pay. I’m not sure if there is any sort of legal action you can take against her. This happened with my parents, they co-signed for a sibling’s house which got foreclosed on. When the bank came after my sibling & my parents, my sibling filed for bankruptcy….leaving my parents with the bill. My mom had to go to court and pay the bill. The good thing is, my sibling and parents have worked out a plan where they are paying my parents back slowly, but there is nothing legal they could do in this situation……pay it and try to talk to her to see if there is a way she can start paying soon or pay you back. She did sign a bank note stating she would pay it with you, after all.

    • Gerri Detweiler

      Rick – Jimmie and DDH are correct. Since you cosigned you are responsible. And if it doesn’t get paid it will just get worse. I’d suggest you pay and then see whether you can take the borrower to small claims court to try to collect.

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  • Melody Miller

    Keep me posted.

  • clk

    I have student loans through two lenders, but if you look at my credit report it looks like I have clse to 20 different loans. Its absurd. Getting ready to sue the lender.

    • Gerri Detweiler

      We will be very interested to hear how this goes.

    • Aries

      I’m in the same boat.. I have “15” loans from Sallie Mae and 2 private. I can’t refinance my $7000 car because of the amount of open credit lines i have!! This is stupid!!

      • Gerri Detweiler

        Aries – Interesting. Can you elaborate a little more? Are you making one payment for those 15 loans from Sallie Mae? What specifically did the lender state when it rejected your application to refinance?

  • http://www.interpretiveleadership.com Mary Swenson

    One of the biggest problems is that the jobs aren’t there and if you attend a for profit university there is real bias in human resource departments that put a solid students application in the trash as they go from selective to traditional degrees. Consequently the consumer has been duped and now set up to be unable to repay no matter how well qualified for the position. Older students can’t work, take care of families or retrain any other way and they are left in the same boat late in life without being able to discharge in bankruptcy. Certainly people can petition the FSA if something overtly fraudulent has occurred in the course of a degree but good luck with that, they won’t respond-ever. It is not good for the country to release oversight from any of our colleges. Even the public institutions have sovereign immunity and courts rule for the conglomerates 90% of the time. We need a strong Bill of Rights for students and equal protection under the law. Hang tough.

  • http://wh.gov/XDhX TZ

    My credit score has been destroyed by my student loans that I can’t afford. My private loans are through Sallie Mae with ridiculous interest rates. They call me and offer me ways to lessen my student loans but refuse to send me anything in writing. They call me upwards of 10 times a day and every time I tell them to send me the offers they are offering me over the phone in writing they say they cannot. I have even asked for supervisors and they still tell me they can’t send me any information on the over the phone offers until after I sign up for them and schedule the payments out. I have upwards of 150k in student loan debt because of 13.9% interest rates. I will never be able to pay them off in my lifetime. That’s why I setup a petition to the government to allow for them to be discharged in bankruptcy (http://wh.gov/XDhX). I feel like it was unfair to ask an 18 year old to sign papers that they didn’t understand. Also I was promised the world by my school and did not get anything they promised. I ended up having to go back to school to get the skills my 1st college promised me. Luckily my work paid for my 2nd degree. Unfortunately I still can’t afford the 1500$ a month payments my loan vendors are asking from me. I’m slowly drowning in these loans with no way out. Kids need to be educated in high school on how student loans work and how interest rated work. That is part of my petition, students need to take a class in high school or their first class in college on what student loans are, how interest works, and the consequences. If this would have been taught to me I wouldn’t be in the situation I am in now.

    • Marcus

      I whole whole- heartly agree..well said. I didn’t have a clue! And now that I caused that debt at 18…and is now 45. My first student loan…Im still paying for it! I had to spend more to go back to school to get a skill. Our minds truely was not able to talley up the bill that we were creating! Plus I was in the slow not liking math type of student. Low income family. At 18… I thought it was free money!

      • Currentstudent

        Loans over 20 years old are supposed to be able to get discharged in Bankruptcy or something like that. If I were you I would look into it for sure.

    • k. heil

      You know what, stop your complaining and pay the money back!
      You borrowed it with the knowledge of how much it would cost in the end.
      I’m tired of the free loaders on the American tax system.
      Suck it up and PAY IT BACK!!!!!!!

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