For Unsubsidized Student Borrower Loans, I know that payments can be made against them immediately. Many folks pay interest against them, for example, right away. In this manner, you “know” what your loan balance will be upon graduation. I also know you CAN start paying against principle as well.
The questions are: is there a change in status if you pay only interest? Is there a change in status if you pay against principle? Said another way, do the loans go in to official repayment status and require monthlty payments once you have started paying against them (P or I), or does repayment status not start regardless until X months after you stop being enrolled as a full time student?
The first corollary question here is, when do the loan servicers start reporting to Equifax, TransUnion and Experian? Is it upon voluntary initiation of repayment, even if the loan is not in repayment status?
The second Corollary question is, Does having a loan being paid actively preclude one from securing the “second half” next semester?
The third corollary question is, do the loan servicers report loans as “paid - closed” with on time payments if the loan has been repaid very quickly, for example 3 or 4 months after disbursement?
There is no change in status unless your student status changes.
The loans are reported to the credit bureaus as they stand. For example, my daughter is still in school so her entire amount due is reported as an outstanding debt. She’s not obligated to pay yet, so is not in default but also hasn’t made any payments so she doesn’t really get any positive credit score points either. It’s just there.
She just applied for credit and the entire amount of student loans were there, plus $11 balance on her credit card. That was it!
Credit companies get reports electronically, so any amounts borrowed are available for the credit bureaus almost immediately. It just depends on when the bureau pulls the information.
If you are going to pay interest, make sure you are very specific in directing the loan servicer to apply the payment to interest first. They don’t have to do that and if you just send in a check they could apply it to principal of the subsidized loan, split the payments among all loans, apply it to accrued interest first - really they can do whatever they want if you don’t tell them what to do.
You can borrow for the next semester even if you are making payments. Your loan won’t be in repayment status even if you are making payments as long as your student is in school. The only thing likely to change on the credit report is the total amount of loans. If you are paying interest payments, you really aren’t ‘paying as agreed’ because you don’t have to make those interest payments.
Thanks @twoinanddone , that confirms all that I recalled.
One potential “difference” in your statement and my previous recollection. While payments are being made, I DO believe status changes are sent to the credit reporting bureaus. So the loan becomes an active tradeline on the credit report even though it is not in repayment status according to the servicer. Thanks again.
The information on the amount owed is available to the credit bureaus, but they do not change the status of the loan from ‘deferred while in school’ to a repayment status. If you pay the interest in Jan and Feb, that would change the outstanding balance but would not change the status, and not paying the interest in Mar or Apr would not make you delinquent or past due. Also, paying the interest every month still wouldn’t change you to a repayment (‘paying as agreed’) status, as you really aren’t paying as agreed.
Some people do that (pay ahead) thinking it is going to be building credit (more points on the credit score) but that is unlikely to happen because there are no payments due. Better to have a credit card to pay it off monthly or the electric bill. It also doesn’t work like revolving credit or a line of credit. One way to get ‘good’ points is by not using your entire credit balance. If you have $10k available on a credit card but only use $500 and pay it off, that’s ‘good.’ However, there is no upper limit on student loans, so only taking out $5000 when you could have taken $10k doesn’t help your credit score. You have less debt, but it isn’t the same as with the credit card. You could take out $0 in student loans (or credit cards for that matter) and it gets you nothing on the credit score.
Generally true statements and good advice @twoinanddone . Of particular importance is the utilization caveat that you highlighted. It is one of the pillars of positive credit scores.
I am … well versed on the algorithms Fair Isaac uses, in so much as anyone is, given their proprietary nature. I can tell you with certainty, establishing a non revolving loan tradeline early will have a positive effect on score down the line. Even if the tradeline is not in repayment, it’s origination date will (eventually) contribute to average credit age, and potentially oldest account. Certainly, high utilization while it is new is a net negative if you care about that snapshot in time. But the benefits of the age, the mix of credit types, and the potential to pay the utilization way down well before graduation are all net positives. It is important to have a good mix of credit types for maximum scoring potential, that includes revolving credit and installment credit.
All of that is of course moot if you extend beyond what you can pay … and then don’t pay. That’s the most important criteria of all.
Change in status? No
Do the loans change to official repayment status? No
Require monthly payments once you start? No
@coolguy40 The financial aid office knows nothing about credit reporting or credit scores. The FA office doesn’t service loans and doesn’t take payments.
Something for you to consider: If you repay a loan within 120 days of the date of disbursement, it is considered a cancellation. The origination fee (1.066%) and any interest that has accrued will be cancelled. You have to make sure the correct loan is being paid, so that the payment is processed as a “cancellation.”