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Grads High Risk for Bad Credit, Deferment an Option

By Sally Maison
Published: Wednesday, October 21st, 2009

This year’s graduates will have to pay their bills soon or suffer huge drops in credit score. This is because the six-month grace period for student loans is about to expire, meaning graduates will be receiving loan bills soon whether they already have a job or not. Some students owe as much as $120,000, which makes their early financial lives all the more difficult. But experts say select students can still ask lenders to postpone payments until they are fully capable at paying their debts back.

Grads High Risk for Bad Credit, Deferment an OptionSpecialists say students have limited payment history which is why they must avoid overdue fees at all cost. They add that one late loan bill could severely hurt their credit scores. As a solution, finance advisers suggest deferment or forbearance, a loan negotiation process where qualified students could ask lenders to postpone payment.   According to Project on Student Debt, a non-profit organization helping teens with debt management problems, filing for deferment or forbearance are very important options for students who are engaged in financial struggles.

Finance advisers say there are likely to be adverse effects on credit score but it is better than paying late or defaulting on loans. The two options have similar meanings but deferment is usually used for federal loans. These loans can be deferred if students enroll in graduate studies or enlist in the military. However, graduates who are suffering from unemployment and those who are having economic hardship may also qualify.

This option is especially crucial with the number of students the National Association of Colleges and Employers is expecting to be unemployed.  Last year, the organization reported that more than half of students immediately got employed after graduation. This year, less than twenty percent of the graduate population received employment right away.

Students who already have a job but do not earn enough yet to pay their loans back may qualify for forbearance. This option is available for new graduates who do not earn more than $16,245 each year. Those who get public assistance become automatically eligible as well as those who volunteer in the Peace Corps.

Sallie Mae, the largest provider of private student loans, says its agents interview students to know whether they qualify for forbearance. But it is worth noting that the company has tightened its fist this year.

Analysts say Sallie Mae is working on other payment arrangements rather than granting forbearance right away.

Experts advise students to carefully weigh their options now and start looking further ahead. They warned that delinquencies and bankruptcies can severely hurt a credit score. They add that those who default on loans or go bankrupt will no longer qualify.

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