How Do Student Loans Affect Your Credit Scores?

Federal and private student loans are reported to the three major U.S. credit bureaus. Like any other debt, delinquencies and defaults will affect the credit history and credit scores of the borrower and the borrower's cosigner, if any. But, there are also several ways in which student loans affect credit scores differently than other types of debt.

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How Does Your Credit Score Affect Student Loan Interest Rates?

With federal student loans, everyone pays the same interest rate, regardless of their credit scores. With private student loans, on the other hand, your credit score (and the credit score of your cosigner) has a major impact on what interest rate you ultimately pay. If you have excellent credit, you may even qualify for a lower interest rate that is competitive with the fixed interest rates on federal loans.

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Using a 529 plan to pay for K-12? These states offer tax benefits.

The Tax Cuts and Jobs Act expanded the definition of 529 plan qualified expenses to include up to $10,000 per year in K-12 tuition. Twenty-one states have conformed to the new tax law, and offer a state tax deduction or credit for 529 plan contributions when the funds are used to pay for K-12 tuition.

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Beware of the New College Student Tax Penalty

The loss of the personal exemption in the tax cut legislation implicitly creates a new tax on college students. Although the Child Tax Credit was doubled to compensate for the loss of the personal exemption, the tax credit is available only for children under age 17. The new tax credit for other dependents does not fully compensate for the lost personal exemption for college students, since it is worth less than half as much.

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Should You Use Extra Money to Pay Off Student Loan Debt or Invest?

If you end up with a little extra money in your bank account — from a tax refund, a bonus, or from living below your means — you may wonder what you should do with this cash. Should you put it toward your student loan or invest it?

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