The end of government-mandated pauses for student loan payments has raised concerns about an increase in defaults and their potential impact on homeownership.
As the final extension of government-mandated pauses for student loan payments ends, borrowers who don't make timely payments will likely face negative marks on their credit reports. These delinquencies could make accessing other lines of credit, like a mortgage for a home, more difficult. An estimated 7.5 million borrowers are in default for their student loans , and defaults may rise with the pause on collections ending.
Over 43 million Americans have student loans, and about one-third of borrowers say their loans have delayed them from buying a home. First-time homebuyers are at a record low, and student loans can make it harder for people to save enough to afford a home in the current market. A default on a federal student loan, or any line of credit, can result in a lower credit score and adverse action on a person's credit report. Negative marks can also stay on a credit report for a long time. Equifax, one of the three major credit bureaus in the U.S., notes that accounts that have been sent to collection agencies stay on a person's report for about seven years. A mortgage loan is often a requirement for securing the funds needed to purchase a home. Negative marks on a borrower's credit report can make securing a new line of credit more difficult and more expensive. Alex Beene, financial literacy instructor for the University of Tennessee at Martin, told Newsweek: 'If you're in the market for purchasing a house and have defaulted on your student loans, that process of such a major purchase just got substantially more difficult. Defaulting on student debt is a signal to future lenders you may not pay back your loan, especially a potentially sizable one.' The government paused involuntary collections for delinquent student loan accounts in March of 2020 at the start of the COVID-19 pandemic
Student Loans Credit Score Defaults Mortgage Homebuying
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