09th Jan 2008
Student Loan deferment/forbearance and your credit rating
I was asked if putting your student loans into deferment or forbearance would have a negative effect on your credit rating. As usual, I have to say “it depends.” In this case, it seems to depend upon the lender, and the credit rating service.
First, you will need to understand the difference between deferment and forbearance.
Deferment is a time when you can suspend payments on student loans. This is the more common situation, and you can get a deferment for such reasons as being in school, graduate studies, and economic hardship.
Forbearance is another way to get your loan payments suspended, and it is usually reserved for situations when deferment cannot be granted. Here is a good website which explains both situations in more detail: http://studentloan.citibank.com/slcsite/repay/defer/1a6b.asp
Be aware that, in both cases, interest will continue to accrue on your loan, and it will need to be paid at some point. So the amount of your loan will continue to increase, even if you are not making payments for a time.
If the credit bureau (Experian, Equifax, or TransUnion) sees that you are not making monthly payments on a loan, they may consider this a negative. You would have to write the credit bureau and explain. If you otherwise have good credit, it probably won’t affect it much. If your credit score (FICO) is low, it would be another thing that would lower your score even more.
Here is a good article from eHow with some suggestions: http://www.ehow.com/how_2002591_avoid-loan-deferment.html
I am now very much clear about my vision, as far as the deferment is concern.
Thanks a lot.