You’ve probably heard the “sage advice” that student loan debt is good debt before. But if you’re here, asking this question you’ve got thoughts of your own and want to get to the bottom of the financial impact of student loan debt. How do student loans affect a repayer’s credit? In today’s post we’ll talk about how student loan debt can affect your credit.
Estimated read time ~5 minutes, estimated watch time at 1.5x ~2 min.
The Positive Impacts of Student Loans on Credit Score
Student loans can have a positive impact on credit score. Student loans can boost your credit score by providing positive repayment history and increasing the average age of your credit. To a lesser degree, having different types of credit can also boost your credit.
Making student loan payments consistently and on time can boost your credit score. Repayment history makes up a major chunk of your credit score, about 35%. So repaying your student loans on time each month improves your credit score over time.
Student loans can increase the duration of your credit history because they take a long time to repay. Long repayment is a burden but carries a surprising benefit. Many young adults don’t have much history with credit. Student loans can serve as a sign that you have experience with credit and boost your score. The age of your credit history makes up about 15% of your FICO credit score. You can lose the boost in age of credit history if you decide to consolidate or refinance your loans after a long period of repayment. Consolidated loans are brand new loans so the “age of credit” starts over.
Having student loan debt can signal a good mix of credit. Creditors also like to see a diverse mix of credit. Credit mix impacts your FICO score by 10%. So while diversity such as credit cards and auto loans are one piece of the credit picture they’re not the most important piece.
Student loan repayment mistakes will hurt your credit score
In the same way on time student loan repayment history will boost your credit score, late payments and default can tank your credit score.
Missed or late payments will be reported as adverse credit history. Your payment history is responsible for 35% of your credit score. The later the payment the more negative the impact on your score. Frequently missed payments also decrease your credit score more. A single missed payment can reduce your credit score by 90 or more points, even if you’ve never missed a payment before.
Defaulted student loans are 270 days or more overdue. The history of default can remain on your credit score for 7 years. Rehabilitation can remove the history of default from your credit history. However, rehabilitation doesn’t remove the late payment history that led up to the default.
High debt relative to income can impact your ability to secure a loan. Debt-to-income is used as a measure of financial health. A high monthly student loan payment relative to your income won’t affect your credit score. However your debt-to-income ratio will be used to determine the affordability of a new loan, such as a mortgage. If it’s too high, you may have difficulty getting approved.
Savvy Repayer Checklist
Make your payments on time every time.
Make your payments in full.
Contact your student loan servicer immediately if you’re going to have trouble making a payment.
Have you noticed that your student loans affected your credit score either positively or negatively? Let me know in the comments below or on the Repayable Facebook Page.
You may have heard that student loans can give you a tax break, but what exactly does that tax break look like and is it worth it? In today’s post I’ll talk about how student loans impact income taxes for different groups of borrowers.
Estimated read time ~3 min estimated watch time ~2.5 min.
Your income determines if you can deduct student loan interest
Borrowers who file taxes as single can deduct up to $2,500 of student loan interest annually if their income is <$80,000. The deduction is progressively phased out between $65,000 – $80,000 of income.
Income limits for deduction if you’re married filing jointly
Borrowers who are married filing jointly can deduct up to $2,500 of interest annually if their combined income is <$165,000. The deduction is progressively phased out between modified adjusted gross income of $135,000 – $165,000.
How much is the student loan interest deduction actually worth?
The student loan deduction isn’t something so lucrative that you should hang on to your student loan debt for. Remember it doesn’t save you $2,500, it just reduces your taxable income by that amount. Best case scenario is just over $600, but that number will vary based on your financial situation.
You can deduct interest paid on both federal and private student loans
Both federal and private student loans are eligible for the interest deduction as long as they were used for a student enrolled, at least half time, in a program leading to a degree, certificate, or other recognized educational credential. You will get a 1098-E statement of your student loan interest paid from your lender(s).
Ultimately the student loan interest tax deduction isn’t a good reason to keep your student loan debt around. But if you’re repaying your debt anyway it’s helpful to know if you can deduct that interest from your taxes.
In 2018 I finally crushed my student loan repayment goal. Everyone is going to have their own set of financial circumstances and their own student loan goals. Below I talk about what it took for me to meet my goal and pay almost $44,000 toward my student loan debt last year.
Estimated read time ~7 minutes, estimated watch time at 1.5x ~5 minutes.
Last week I shared my 2018 student loan repayment progress, you can check that post out here.
A Very Specific Repayment Goal
At the beginning of 2018 I was coming off a disappointing year of repayment. In 2017 I paid <$24,000 on my student loans and was really disappointed in myself. I set a very specific goal, that I would pay at least $3,000 a month, each month, toward my student loans for a total of $36,000 in 2018.
The End Was in Sight
2018 was the first year that I really felt like I could see the end of my student loan repayment path. With just about half of my original $132,000 balance remaining to start off the year I could visualize being debt free.
Imagining myself being free of the weight of my student loans gave me the motivation to make small sacrifices and stick to my repayment goal each month. For me, knowing that I wouldn’t have to sacrifice for much longer made it easier to pay extra now.
All Extra Money Toward Loans
I knew one of the things that would help me meet my goal and then some would be to put all my extra money toward my student loans. That meant every time I picked up an extra shift at work, or got an influx of extra money, I put it all toward my student loans.
Last year was the first time I put an entire tax return toward my student loans, and that sucked to be honest because I wanted to spend it on something fun. But I knew it was getting to my #debtfreedream just a little bit faster.
Sometimes I would have pretty small amounts of extra money to put toward my student loans, maybe only $100. In the past I used to think that money was too small to matter much, after all it’s less than 1/10th of my minimum monthly payment. This year, I decided all amounts of extra money helped.
Gave Up Some Things
Typically I take one big vacation with my fiance every year. Unfortunately 2018 was a year of PTO denial and we couldn’t get any time off together to take our planned trip. That meant we didn’t have a big vacation and I ended up putting the money I would’ve spent on that toward my student loans.
In 2017 I spent thousands of dollars removing a couple of trees and fencing in the yard for my dog. But in 2018 I didn’t have any big expenses like that. Our couch is getting worn out, I can’t get the dishwasher open, and I cracked the plastic housing of my car’s side mirror, but I’m pushing those expenses off until they’re really necessary so I can keep plugging away toward my goal.
Tracked my Progress
What gets measured gets done. It’s very simple, so this year I tracked my progress and celebrated milestones. I paid off $100,000 in principal this year and took the time to take notice of that fact and celebrate it. I also tracked my monthly & quarterly progress to make sure I was where I wanted to be.
Started a New Job
Another huge reason I overachieved my student loan repayment goal was the fact that I started a new job. In September I was offered a position at Tuition.io, a student loan repayment benefit company, in Silicon Valley.
I’m still a licensed pharmacist, working on-call at the hospital a few shifts here and there. But now my full-time job is to help employers solve their staffing concerns by solving student loan debt problem for their employees. It’s a pretty awesome thing to do. I work remotely from Wisconsin so my cost of living expenses didn’t skyrocket.
Starting a new job wouldn’t necessarily help me pay off my student loans faster. In my case it did because I hadn’t been able to use a significant amount of my PTO for about a year at the hospital. That meant I had banked 290 hours of PTO. When I dropped down to on-call status from full-time those hours were cashed out.
Even though that money was taxed way more than I could have guessed, it still left me over $9,000 to split between saving up for my wedding and paying extra on my student loans. The PTO cash also really helped me prevent the situation where funding my wedding ate into my ability to pay down my student loans. Because with that lump sum and a little extra savings I’ve funded my half of the wedding, assuming I can stick to my budget!
My new employer is a student loan repayment benefit company. That means they contribute $100 a month directly toward my student loans. So while I’ve only gotten three months of that benefit, every little bit helps!
Those are all the things that really worked in my favor in 2018 to help me really tackle my student loan debt. I feel very grateful about all of it, and most of all very grateful that I’m almost done paying back my student loan debt.
I love hearing from my fellow repayers. So I want to know, what helped you reach your student loan repayment goals in 2018? Leave me a comment below or on the Repayable Facebook Page. See you next week!
Happy New Year everyone! Thank you all so much for stopping by to read the blog, commenting on my YouTube videos, and messaging me with your student loan questions. Repaying student loan debt is a long journey and it’s better with awesome folks like you along for the trip.
In today’s post I give a review of my student loan debt progress compared to the goal I set for myself. This is the first year, in all my years of repaying my student loans, that I crushed my repayment goal completely. Estimated read time ~5 minutes, estimated watch time at 1.5x ~4 minutes.
My 2018 Student Loan Debt Goal
Let’s refresh by talking about what I set out to accomplish with student loan repayment in 2018.
My goal was to pay $3,000 per month toward my student loans for a total of $36,000 for the year.
It was an ambitious goal but within reach.
I want to be clear, the specific number of this goal is right for me but might not be right for you. Don’t judge yourself or your student loan repayment goals against mine. Each person has different competing financial needs and income. The number only matters in context to my personal goal. My repayment goal doesn’t determine the value of your repayment goal.
The Start of 2018
At the beginning of 2018 I reflected on my 2017 progress and I was pretty disappointed. I hadn’t been nearly as aggressive as I had hoped. Looking back at my 2017 progress was a good reality check for me. In 2017 I put $23,600 toward my student loans. Not the worst, but really not very good either.
I started 2018 with a total student loan balance of $64,672.61 or about half of my original $132,000 balance.
2018 Student Loan Repayment Progress
2018 was a very successful year for my student loan repayment.
I paid $43,925 toward my student loans and my student loan balance as of Jan 1 2019 is $22,341.69
Ahhh!!! I’m almost out of student loan debt you guys!
2019 Student Loan Repayment Goal
2019 is going to be the year I pay off my student loans completely. One of the biggest things that’s helped me pay so much extra this year is that I can see how close I am to being out of debt. I’ve decided I want to be out of student loan debt before I turn 30.
To make that happen I’m going to pay at least $3,500 each month toward my student loans. That should mean I’ve repayed my student loans completely in July of 2019! Just 7 more months of student loan debt.
2019 is going to be a bit more challenging for me financially because I have a major competing financial interest, I’m getting married in October. My fiance and I are splitting the cost of the wedding and I already have my half saved, assuming I can stick to my budget. I don’t have anything saved for the honeymoon but I’m hoping I can use what I had been paying on my student loans every month to come up with the funds for my half of a really nice trip!
How was your 2018?
I love hearing from other borrowers working to repay their student loans. I’d love it if you could share how repayment went for you in 2018 and what your goal is for 2019. Leave me a comment below or on the Repayable Facebook Page or drop me a message, I’m jeni@repayable.org. Here’s to a 2019 that brings you closer to your #debtfreedream
It’s December, and amid the hustle and bustle of the holidays you might be wondering about your personal financial situation. If you’ve got student loans you can’t think about your money without thinking about your debt. So what’s a borrower to do? The answer, a 2018 student loan debt assessment. Read on for the top three things to look at when you assess your progress on student loan debt.
Estimated Read time ~4 min Estimated watch time ~3 min.
1. Total Balance Change
The first place to start is with the objective progress. Look at your statements back to Dec 2017, and write down your student loan balance. Now take a look at this month’s statement and write down your current balance. How’s your student loan balance looking compared to the end of 2017?
Hopefully your debt has gone down since December of 2017. The degree to which it has gone down will depend on your personal repayment strategy and your interest rates.
2. Current Repayment Strategy
The next thing to review in your annual student loan assessment is your repayment strategy. If you have a mix of Federal and private student loans you might have different strategies for different loans.
Federal student loans will be on one of the federal repayment plans i.e. Standard 10 year, extended repayment, income-based repayment, etc. Private student loans will have a fixed monthly payment for a certain number of years. Your student loans could also be in the grace period, deferment, or forbearance.
3. How Student Loan Repayment Fits
The last thing to look at is how your year of repayment felt. This step is entirely subjective, but here are two questions to ask yourself. How did your student loan repayment approach fit in with all your other competing financial needs in 2018? How does repaying your student loans impact your future financial goals?
Answering these questions will help you decide if your current repayment strategy is working out for you. If you feel like you’ve had enough extra money to spend on wants and didn’t make the progress you wanted on the principal, it may be time to look for a repayment plan with a higher monthly payment or pay extra each month.
Taking time to assess your student loans at the end of the year can set you up for financial success in 2019. I love hearing from my fellow borrowers, so if you want to share the assessment of your student loan progress leave me a comment below or on the Repayable Facebook page.
Sometimes it feels like you’re supposed to “do it all”. When you’re in college you should be, studying, working, volunteering, interning, dating, partying, and laying the foundation for future you. Then you graduate and the next list of shoulds starts in. You should find a good job, work your way up, put in your dues, become an adult, travel, live your life, make friends, get married, buy a house… the list never ends.
But the thing that everyone seems to miss is that some of those goals contradict each other, some of those goals aren’t even your goals, just a list of someone else’s “shoulds”. I say it’s time to forget the “shoulds” and pursue your own goals. Because there’s something that’s going to limit you, and it’s money. Plain and simple, when you finish college with student loan debt, your cashflow is going to be a rate limiting step. And you don’t have enough money to waste it on someone else’s “shoulds” you’ve got enough money to chase down and achieve your goals.
So how do you accomplish your goals with the weight of student loan debt on your back? You set crystal clear priorities and you stick to them. Estimated read time ~ 5 min, estimated watch time at 1.5x ~3.5 min.
Set goals and prioritize them.
Paying back student loan debt is hard, it’s harder for some than it is for others. The more debt you have, the lower your income, and the higher the cost of living, the harder it is to pay back your student loans. That’s why you have to decide what goals you want to accomplish, not what someone else wants for you, or what you think you should do, but what you actually want for yourself.
Start by asking yourself what the most important things are that you want to achieve right now. Write down a list of your ambitions and think about them. Get rid of anything that’s not your personal goal but comes from an external source.
Tip: If you’re not sure if a goal is yours or external look at the language you use when thinking or talking about the goal. If you’re saying the word “should” a lot, you probably don’t want to do this right now.
Maybe someday a “should” goal will change to something you truly want, but that day isn’t today so that goal doesn’t make the cut. Ruthlessly pare down your list until you get a few core goals.
An example list may look like this:
See new places by traveling
Expand my career, build and use new skills
Build financial independence and positive net worth
Establish the necessary first steps.
What are the very basic first steps you need to take? This is where you’re going to learn how much it really costs you to work on each goal. Remember, some goals are going to cost you money, but career goals can generate income, so it’s not necessarily all negative cash flow.
Look at your financial situation honestly.
Many goals require money; travel, financial independence, buying a home, etc. It’s impossible to make the right decisions to fund these goals unless you understand your financial situation clearly. That means you need to look at your student loan debt, figure out how much that costs you each month, and decide if that repayment strategy is right for you.
Once you’re on track with the student loan side of things it’s time to assign funds to your most important goals. You only have so much money to leverage at the end of the day. Think about that carefully when setting savings and investing goals.
For folks with an employer-sponsored retirement fund that has a matching contribution I always encourage you to find a way to get the maximum employer match. By doing that, you’re effectively increasing your pay, although you can’t use that money today. After that, additional contributions are up to you and can be flexible based on your other goals.
What can you get rid of in your life?
Getting rid of stuff isn’t everyone’s cup of tea, but hear me out. You can’t have it all financially, at least not right away. By cutting out things that matter less to you, you can free up money to meet your important goals. Maybe you moved to a city and still have a car that you don’t really need. So you get rid of the car, the car payment, the insurance payment, and opt for public transportation. It’s a sacrifice, but maybe it means you can take one extra trip each year, or pay off your student loans 2 years faster.
Setting priorities and sticking to them is hard. It can be disappointing to realize after a long time spent sacrificing in college, that you can’t have it all and still have a season of sacrifice in front of you. Your financial sacrifice is most intense as you start out, but with careful planning and goal setting you can lessen that intensity over time and achieve your goals.
I want to know what sacrifices you’ve had to make in pursuit of the goals that are most important to you. Leave me a comment below or on the Repayable Facebook Page.
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