Graduating college can be a tough time financially. Graduates often start off with low-paying jobs and deal with the expenses of living on their own for the first time. This can make paying off student loans very difficult.

Today, students and alumni in the US owe over $1 trillion. A staggering 8+ million of those borrowers have defaulted on their student loans and given up on paying back the government. These defaults are cause significant damage to credit reports and making it even more difficult for Generation Y to purchase a home.

The impact student loans have on credit

One of the biggest problems we have seen on credit reports is multiple account late payments.

Each time a student applies for more financing a totally new account is updated on both the borrower and co-borrower’s credit reports. Most parents and students don’t realize they might have 10-20 accounts listed on their credit, each updating a different amount of debt and reflecting the various times they applied for more funding.

What often happens is that when a late payment occurs (which could be for many reasons such as deferment, confusion with service providers, or legitimate delinquency) the same late payment is posted on all the student loan accounts (the full 10-20 accounts). Although it was only one late payment on a date, it’s recorded as if all 10-20 accounts were delinquent. It is extremely difficult to correct these errors since the student loan industry has been poorly regulated.

Because of the multiple account occurrences, federally guaranteed student loans that have defaulted can update negatively on your credit profile for seven years from the date that the loans are paid off. Most negative credit information is reported for seven years from the date of the delinquency.

The laws regarding student loans and bankruptcy are much more restrictive than those surrounding regular debts. Because the government wants receivables paid, they have rigid guidelines in place that make student loan debt nearly impossible to be discharged in a bankruptcy.

Do not default

No matter the circumstances, do not default on the loan. This can seriously damage your credit score and is especially harmful for young graduates who need their credit to start an adult life.

If you default on your loans you can cause almost irreparable damage to your credit and financial stability. After defaulting, borrowers are no longer eligible for protections like loan deferments and may not be able to receive federal aid should they decide to return to school. They can also have their wages garnished involuntarily and will see major credit damage.

The best thing to do when you are struggling with payment is to speak the lender to get approval for a possible deferment plan on the payments instead of making late payments or defaulting. If you have had delinquent student loans from the past or they are currently in default you should reach out to a credit specialist for more detailed advice.

Millennial’s who are leaving college and embarking into the world have a lot of pressure on them to secure a career and pay off their loans. At the same time many millennial’s are not being taught about credit and the effects of poor credit choices – they need to be educated on the industry to avoid credit issues in the future.