Loan Student

By: EconomyWatch Content   Date: 1 December 2009

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A majority of the student loans are granted only after conducting a thorough credit check. Therefore, it is imperative for students to understand the role of credit in their endeavors to secure financial aid. A good credit rating is vital to qualify for a student loan, and obtain a low interest rate on it.

Basics of Credit for a Loan Student

Lenders review three basic credit parameters for determining student loan eligibility. These are known as the ‘three C's of credit’, which include:

 

  • Character: This implies a person’s diligence in paying various debt obligations in the past.

  • Capacity: This implies a borrower’s ability to repay a student loan, which is based upon the total income and debt situation.

  • Collateral: This entails the collateral offered by a borrower against the loan. The better the value of the collateral, the greater are the chances of obtaining student loans with lucrative terms.

 

To present good character and capacity, and to avoid the need of collateral altogether, a borrower must keep their debt and repayments in check. Obtaining a copy of a credit report is the first step towards tracking the credit status. Reviewing a credit report enables to not only keep track of payments, but identify errors that may be very detrimental to the credit rating, and get them rectified. 

Debt Management Options for a Loan Student

Acquiring a student loan is just the beginning of credit planning for a student, managing repayments is equally important towards maintaining a good creditworthiness. A student loan default may lead to damaging outcomes, such as wage garnishment and bankruptcy. Such events are reported on credit reports for a substantial period, hindering the student’s ability to borrow any further.

Students must be able to manage repayments on their education loan effectively. However, in the event of facing a default, a federal student loan borrower can consider these alternatives:

·        Loan deferment: This involves postponing repayments for a specific period, during which the interest ceases to accrue.

·        Forbearance: A borrower may request forbearance. It enables a borrower to temporarily postpone payment for a predetermined period, which is generally less than 12 months. Forbearance eliminates all current delinquencies, though the interest continues to accrue.

It is also important to consider consolidation of multiple loans but it requires foregoing benefits of individual loans. It also helps in obtaining a lower interest and maintaining a single open line of credit. 

 


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