Take a Bite Out of the American Dream Even with Student Loan Debt

Posted on by Ink Well Mag

A portrait of a college student on campusDebt repayment plans for student loans that extend as far as 10-30 years are now the norm these days. In fact, some college graduates have as much as $35,000 in debt, making the class of 2015 the most indebted class in US history.

While student loans may seem like an overwhelming burden (and it can be, once an individual exceeds the recommended “safe” amount of student loan debt), it does not mean that aspiring home buyers should give up on their dreams of homeownership. Lending companies like the National Homeowners Foundation believe that there are ways to establish a good credit history and to use student loans as a reason for that good credit history.

The Challenge: Making Payments on Time with Student Loans

One of the toughest challenges about having a student loan debt is making payments consistently and on time. There are ways to ease the burden, such as opting for a loan forbearance and loan deferment. Loan forbearances allow people to postpone payments for student loan debt for up to 12 months. Meanwhile, loan deferments allow borrowers to temporarily delay the payment of the principal and interest of their loan.

Using Student Loan Debt as a Way to Build Good Credit

Having student loans does not necessarily equate to a disadvantageous credit score. In fact, paying off a loan too quickly could lead to lower credit scores. It could, for instance, send the wrong signal to lenders, making a borrower more susceptible to short-term loans with high interest rates. On that note, student loans can be a “good” type of credit. As long as borrowers make responsible and on-time loan debt repayments, then they can establish their reputation as responsible borrowers and take out a mortgage more easily.

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The issue of getting a mortgage is not simply about credit — it’s also about making timely and consistent loan payments. Responsible borrowers who show diligence in paying back loans have little reason to fear that their debt automatically affects their ability to purchase a home. By making wise financial decisions, borrowers can use student loans to their home-buying advantage.