Home > Student Loans > The Ultimate Guide to Student Loans

Comments 5 Comments
Advertiser Disclosure


The figure is staggering: Americans owe $1.1 trillion in student loan debt, which is second only to mortgages in terms of household debt. The Consumer Financial Protection Bureau recently released a report detailing the hardships facing some of those borrowers, warning about a “domino effect” on the economy.

The average balance is more than $26,000 for someone with student debt, and one in eight borrowers owe more than $50,000, according to the CFPB. And some debtors are struggling to repay huge debts, such as the person who told us about his struggle to pay back more than $150,000 in student loans despite a good job.

Student Loans & Credit

Student loans generally help your credit scores, as long as you pay them on time. That’s generally true, even if you owe fairly large balances. Surprisingly, even loans in deferment, forebearance or being paid through IBR are generally not reported negatively or considered negative by most credit scoring models. A few borrowers who never missed a payment have complained, however, that the way they are reported (with multiple accounts listed for the same loan) caused their credit scores to drop.

Of course if you are late on payments on one of these loans, your credit scores will suffer. And parents, grandparents or others will also likely find their credit scores hurt if the student they co-signed for pays late or defaults, or if they find they can’t keep up with parent loans they took out themselves to finance their children or grandchildren’s educations.

But keep in mind, even when payments are made on time, many lenders look at debt ratios in addition to credit scores. In other words, they want to know if the borrower can handle the payments on the new loan in addition to their current debts. From that perspective, school loans can keep young people (and plenty of older ones, too), from buying a car or even from buying a home.

Good Debt? It’s Still Debt

Even though these loans are generally considered “good debt” because they can help those with a degree to increase their earning power, a significant portion of those who took them out don’t graduate, find themselves with more debt than they can manage, or aren’t able to find jobs that allow them to repay their loans. As a result, student loan defaults are skyrocketing.

Once in default, borrowers may find themselves dealing with aggressive debt collectors or collection tactics. They may even be sued for a student loan in default. Older borrowers who are near or in retirement are may have part of their Social Security checks seized to help pay back defaulted federal loans. And just as disturbing, members of our military are reporting serious student debt problems.

Borrowers of all ages who can’t keep up may find themselves needing a crash course in how to deal with collection agencies.

For those who become disabled and cannot work, new rules will make it easier for them to discharge their debt due to disability. That’s the good news. The bad news is that a discharge will likely trigger a 1099-C for the canceled debt. That means the amount forgiven is reported as income, and unless the borrower qualifies for the insolvency exclusion, they may find they have a new debt — this time to the IRS. At a minimum, the confusion over the paperwork required to claim this exclusion may require the help of a tax professional and cause considerable stress.

It’s extremely difficult to discharge student debt in bankruptcy, though that doesn’t mean that at least a few people might try to find loopholes they can use to get around that roadblock.

How to Dig Out of Student Loan Debt

Digging out from under student loan debt can feel as daunting as facing that first year of college. Just trying to figure out how much you owe — and to whom you owe it — can be tough, both for some recent graduates, as well as those who have tried to ignore their debt for a while. The federal National Student Loan Data System (NSLDS) is a good place to start, as most federal loans will be included in that database. Try to get a handle on the big picture so you can develop a game plan for tackling your debt.

One of your first tasks should be to find out whether you qualify for loan forgiveness programs. Those programs are limited, but if you do qualify, you may get some or all of your debt forgiven, and unlike the disability discharge, you may not have to pay taxes on the forgiven amount, depending on the program.

Are you able to make your payments on time each month? Then look for ways to pay off your loans faster.

If, on the other hand, you are having trouble keeping up with your payments, then you’ll first want to know your rights, which include the right to counseling, information from the loan servicer, deferment and reduced payments. Forbearance or deferment may help you temporarily reduce or suspend your payments, but for a longer term solution, check out IBR. The Income-Based Repayment and Pay As You Earn programs allow those with federal student loans to reduce their payments based on their income, if they qualify. Payments can go as low as $0 a month for someone who is not working. Balances are forgiven after 10, 20, or 25 years in the program. (The length of time varies by program and depending on whether or not employment is considered public service.)

If you have already defaulted on federal loans you may even be able to use IBR to get out of default. There are fewer options for getting out of default with private loans, however.

Image: Digital Vision

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team