Student loans take no prisoners, too

Much like credit card debt, it seems, student loan debt can really take a bite out of your financial life.

I’m not talking about interest rates – which can be lower for federal loans, and downright predatory for private ones. And I’m not even talking about the high principal balance that a typical American student needs to borrow in order to afford even just 1 year of school. As bad as those things are, they’re not what I’m focused on today.

I’m focused on what student loans can do to your credit score – specifically, when you fail to make payments on time.

Now first, let’s talk credit scores. Most of us know how this works in its most basic form:

• The higher your credit score, the better
• Your credit score typically takes a hit anytime you run a credit check (ie. when you’re applying for a credit card or car loan)
• Your credit score definitely takes a hit when you are late or miss any credit-related payments – like credit cards or loans
• Your credit score can also take a hit for non-credit specific payment lapses – like rent or medical bills
• Those hits can have a lasting impact on your ability to borrow credit in the future, and can take significant time to recover

Student loans are absolutely a form of credit/debt. But because they’re in the name of something “good” – namely advanced education – we may have different feelings about them than we do about traditionally “bad” debt, like credit cards and personal loans.

But we’d all do well to remember that debt is debt, regardless of the aim. Yesterday’s Your Money Briefing podcast (from the Wall Street Journal) outlined how millions of student loan borrowers may see dips to their score, caused by delinquent student loan payments.

Uncle Sam and the credit bureaus don’t care if you grow up to cure cancer or unlock the secrets of the universe. You’d better have the money to pay for that knowledge.

But mostly I was struck by this claim in the podcast: that delinquent loan payments – which are student loan payments 90+ days past due – can stain your credit score for 7 years. SEVEN YEARS, GANG. *pulls hair*

And we’re not talking about a meaningless hit. Your score can drop anywhere from 80-100+ points. So if you have a rough 3 months, you risk doing nearly a decades-worth of damage to your financial reputation. Which really isn’t fair.

All this to say – student loan debt isn’t the break that it should be compared to other forms of debt. So if you’re someone who has it, and you can move mountains to make those payments on time, then consider doing so.

Or at least know what’s at risk if you don’t.