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Debt-to-Credit Ratio on Student Loans

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Regular Contributor

Debt-to-Credit Ratio on Student Loans

Does Debt-to-Credit Ratio hurt when dealing with student loans? My student loans currently show I'm over 100% on my Debt-to-Credit Ratio. Does that affect me negatively? I'm currently in deferment for another month. Also, this isn't debt to income, but debt to credit ratio.

Message 1 of 21
20 REPLIES 20
Established Contributor

Re: Debt-to-Credit Ratio on Student Loans

Overall or just within your student loans? If my understanding of debt-to-credit ratio is correct, within your student loans is has an effect but it's not as much as you might think it is. There are members on here with over 100% utilization and over 800 scores. Now if you were also maxed out on credit cards that would be a different story. Loans like student loans are meant to start off high and gradually decrease over time. Or if you're like me your loans will be forgiven so the utilization stays high. If the other parts of your credit score are doing good, the high utilization of your student loans will not hold you back.
If I might make a suggestion though, save deferment and forbearance unless it's the last resort. Income-driven plans adapt for emergencies or just the need to have lower payments. That is key because deferment will not contribute to positive payment history, a large chunk of your credit score, while IDR payments do even if they are $0. Just something to think about.



Message 2 of 21
Regular Contributor

Re: Debt-to-Credit Ratio on Student Loans

It's regarding my student loans and not a credit card. My scores are higher, but I wonder how much of an effect it has. Actually, it's income based and not under deferment anymore. I was in school and so it was automatically deferred. 

Message 3 of 21
Established Contributor

Re: Debt-to-Credit Ratio on Student Loans

I asked a similar question not too long ago and got some very helpful answers. Basically, you could get at least an 825 if everything else was optimal. 

1/2019 - "highest fico 8 score with student loans"

 

Are you on IBR and seeking loan forgiveness as a goal?




Message 4 of 21
Regular Contributor

Re: Debt-to-Credit Ratio on Student Loans

Not intending to seek loan forgiveness, but that sounds nice! Just curious how, if at all, it affects my score negatively. Thanks for any info!

Message 5 of 21
Established Contributor

Re: Debt-to-Credit Ratio on Student Loans

It all depends on what your balance is and whether it will increase it decrease during the period before forgiveness.
For example, in my case my payments are less than the interest accruing, even with REPAYE having the government paying for half of it. So when my loans are >100% and will be until forgiveness. I'll lose out on those kinds but I strongly suspect I'll have a score over 800 once my delinquencies come off next year.
Note let's say that you were making payments and before the loan was forgiven it was less than>100%, enough to hit a threshold where you get some points back. You'll benefit from having that old tradelines and won't lose as many points due to utilization. Not to mention the gain of all those years of positive payments.
If you're thinking about forgiveness and you'll either be able to take the tax hit at forgiveness (or be insolvent, which isn't as bad as it sounds), then I would go for it. The repayment estimator can be sort of helpful for this but mostly you have to keep in mind it's only a projection based on your current income and an annual increase in salary. You could very easily get a lot more or less forgiven. You would have a better idea according to your own income projections until forgiveness.
Does it look like you might have a significant amount forgiven? :
https://studentloans.gov/myDirectLoan/repaymentEstimator.action



Message 6 of 21
Established Contributor

Re: Debt-to-Credit Ratio on Student Loans

Out of curiosity, what made you decide to choose IBR over REPAYE?



Message 7 of 21
Regular Contributor

Re: Debt-to-Credit Ratio on Student Loans

I chose income based payments to pay higher interest cards faster. There's no reason to pay 2-3% student loans over higher interest credit cards. Few people are eligible for student loan forgiveness. I'm not one of them, so it's not something I've heavily researched. 

Message 8 of 21
Valued Contributor

Re: Debt-to-Credit Ratio on Student Loans

SLs are do not impact CRs like credit cards or even regular loans.

 

They are almost invisible is you have no lates.

 

They payment is part of your DTI but the balance is not important.

 

YMMV but both me and my wife have large SLs and it has not affected us negatively in regards to optioning mortgage, car loans, or credit cards.

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Message 9 of 21
Established Contributor

Re: Debt-to-Credit Ratio on Student Loans

REPAYE and IBR are both Income-driven repayment plans. While IBR is calculated as 10-15% of your discretionary income (AGI minus Federal Poverty Level for your family size), REPAYE is 10% of your discretionary income. Some people, such as those filing taxes as unmarried or married filing jointly, can benefit from the often 50% reduction in payments from the plan. I was wondering if you'd compared the two.
Actually, if you reduced the loans down to those who have received loans in about the last 20 years, I would be very surprised if most people didn't benefit from loan forgiveness. Increase in college costs, interest capitalization, loan stagnation and the low, adaptable payments of IDR plans have created a situation where many people will get loan forgiveness. Unfortunately many students are never guided to IDR plans and end up defaulting it struggling to make payments.
The student loan repayment estimator can be flawed for many people as well. It has annual raises built into the calculations, which is reflected in the range of payments you will make over the life of the loan as well as if you will have anything forgiven. My estimate every year is nowhere near the actual amount that will be forgiven.
In addition, the IDR plans allow the flexibility of early recertification for income changes. So while you may certify for one amount through your taxes, you can use a reduced paystub to get even lower payments for a year. REPAYE (and IBR to a lesser extent) also has added interest subsidy benefits. The government will pay for all of the unpaid interest for the first three years on subsidized loans, and half thereafter. On unsubsidized loans, half until it's repaid or forgiven.
Whether you're interest is in loan forgiveness or would just like to temporary redirect payments to other things, there are often little tweaks you can make that might change the minimum payments significantly.
If you'd like the links for further reading just let me know.



Message 10 of 21
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