Four Tips for Those with Outstanding Student Loans

New Federal laws make it next to impossible for someone under 21 to get a simple credit card, yet the same people can obligate themselves to tens of thousands of dollars in student loan debt with absolutely no problem. This, of course, makes no sense as student loan debt is arguably worse than credit card debt. Student loan debt is close to $1 trillion and growing.

More students have had to take out student loans because the cost of education has increased, their parents don’t have the money to help them and there are fewer part time jobs for students to help with expenses. The problem multiplies when the loans become due six months after graduation, and they can’t find a job and are unable to begin paying the loans.

According to the U.S. Bureau of Labor Statistics, the unemployment rate is decreasing for 20 to 24 year olds with a Bachelor degree.  The unemployment rate was 6.2 percent in November 2011 compared to 8.6 percent a year earlier.  This rate is lower than the overall employment rate but keep in mind that the unemployment rate in 2007 was 2 percent for college graduates.  Those who graduated in 2009 and 2010 are having difficulty breaking into the job force.  Employers would rather hire students right out of school, instead of those who have been unemployed for a while.

I have seen various unemployment rates for recent college graduates from many sources, which have been higher than stated by the U.S. Bureau of Labor Statistics.  If you are one of those who is unemployed, underemployed or just debating whether to pay your student loans, here are four tips:

Four Tips

1. Consolidate multiple loans into one giant one. Student loans are reported to the credit bureaus on a disbursement basis. For example, if you take out five loans to pay for college, then you’ll have five unpaid loans on your credit reports. The fewer the number of loans on your credit report, the better your credit score.

2. Make all payments in a timely fashion. A missed payment on a student loan is just as damaging as any other loan. Just because student loans can be deferred for years doesn’t mean due dates are optional. Just like mortgage, auto and credit card companies, student loan lenders have the same ability to report late payments and defaults to credit reporting agencies.

3. Don’t assume your loans will be written off, if you’re not worthy enough to pay them back.
Student debt is not statutorily dischargeable. If your loan is guaranteed by the government, then you cannot eliminate it via a bankruptcy. Student loan debt will follow you until you pay it off — or die.

4. Don’t default on your student loans, and don’t think student loan defaults function like other credit default instruments. The Fair Credit Reporting Act (FCRA) determines the amount of time defaulted debts can remain on your credit report. The FCRA, however, doesn’t include defaulted student loan debt. Instead, student loan credit reporting is governed by the Higher Education Act. Student loans can bleed badly. Unlike other loans, defaulting on student loans can lead to garnishment of wages, seizure of tax returns and Social Security, and the loss of eligibility for federal VA or FHA loan programs.

Credit Expert Witness, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

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This post was written by John Ulzheimer