Note that the situation for student loans has changed due to the impact of the coronavirus outbreak and relief efforts from the government, student loan lenders and others. Check out our Student Loan Hero Coronavirus Information Center for additional news and details.
* * *
If you borrowed student loans for your degree and career path, late or missed payments could be damaging your credit profile. Unfortunately, there’s a possible double whammy: Being denied employment due to bad credit — for the very career you went to school for.
Many employers across most of the U.S. still weed out job applicants using credit checks. A study by think tank Demos found that about 25% of unemployed respondents were subject to some sort of credit review as part of a job application, and about 10% weren’t chosen for a position because of credit issues.
Before you start your job hunt, take a look at your student loan situation. By understanding the impact of student loan delinquency and default, you can avoid being denied employment due to bad credit. To get a clear picture, let’s answer the following questions:
- How can student loans keep you from getting a job?
- Can you be denied a job because of bad credit?
- How can bad credit affect your career in other ways?
Here’s a sobering thought: 11.1% of student loans are at least 90 days delinquent or are already in default, according to our student loan debt statistics. This means that borrowers did not make any payment toward their loans for an extended period.
The process of defaulting, however, begins when you first miss a payment. Your student loans are immediately declared delinquent until you make an effort to pay the amount due. Depending on your loan servicer, you may also be charged late student loan fees, which can add up over time.
After 90 days, your lender will start reporting your missed payments to the major national credit bureaus. With every monthly payment you miss, your credit score will take a beating.
For most federal loans, your debt’s officially in default if you fail to make a payment for 270 days. However, if you have a Federal Perkins Loan or a private student loan, your servicer may deem you in default after missing just one payment.
The entire unpaid loan balance then becomes due immediately — a process called acceleration — regardless of past payment plans or forgiveness plans you may have signed up for. At this point, you may begin receiving calls from debt collectors and would become responsible for any collection costs that your loan servicer incurs.
Since student loan default wreaks havoc on your credit report, yes, you could be denied employment due to bad credit.
According to the National Association of Professional Background Screeners, 44% of human resource professionals who responded to its 2019 survey said they ran credit or financial checks on some or all job candidates.
Beyond a basic background check, employers sometimes check a version of your credit report made available by the national credit bureaus. This is a soft credit check, as opposed to a hard check (which commonly occurs when you formally apply for debt) that dings your credit score.
|Steps to take before agreeing to an employer credit check|
|1. Speak with the hiring manager or human resources department to learn about its process
2. Review your rights under the Fair Credit Reporting Act (see below )
3. Download your credit report via AnnualCreditReport.com
4. Look for, dispute and correct any errors on your TransUnion, Equifax and Experian reports
5. Practice other credit-building habits, such as paying your monthly bills on time and in full
Where can you be denied employment due to bad credit?
In most states, you could be subjected to a credit check to make it through an employer’s hiring process.
Cases where you might be subject to a credit check request include:
- Working for a government agency
- Dispensing financial advice as part of your duties
- Having some level of security clearance
- Being promoted and handed a budget to manage department expenses
Eleven states have banned or restricted the use of employment credit checks, according to Demos’ research.
New York City and Chicago are among cities with similar bans on being denied a job due to bad credit.
If you’re not sure about your locality’s law, consult your state’s labor office.
On a national level, the House passed a bill to make being denied employment due to bad credit illegal in January 2020, but the legislation has not progressed further.
Fortunately, a prospective employer can’t just pull your entire credit file at a moment’s notice.
The Fair Credit Reporting Act states that they must request to view your credit report before pulling it. Likewise, you have the right to sign away this access or decline it (and, likely as a result, the position).
Here’s a complete listing of the steps hiring companies and businesses must take if they want to review your credit report as part of your job application:
- Formally request in writing to review your credit report
- Receive your say-so to review your report
- Alert you that you’re being denied employment due to bad credit
- Provide a copy of the credit report used to reach their decision
- Allow you time to dispute errors found in your report
- Send you the final decision (known as a adverse action notice)
- Protect your security, privacy by disposing of the credit report
What can employers see on your credit report?
Employers checking your credit history can’t see as much information as a student loan or mortgage lender can view. They won’t be privy to your credit score, for example.
But what will they see? Well, according to TransUnion and Experian, two of the three major credit bureaus, accessible information includes:
|What employers can see…||What employers can’t see…|
|● Credit history basics, including your record of payments toward student loans, credit cards and other debt
● Public record information
● Details of as many as four past jobs, including dates of employment
● Personal information, including your Social Security number, current address (plus up to two previous addresses) and telephone number
|● Credit score
● Date of birth
● Account numbers
If you feel you’re at risk of being denied a job because of bad credit, familiarize yourself with your credit report and its potential red flags.
Here’s an example of a report that TransUnion made available on its website:
Here are four other ways debt can weigh on your livelihood:
Those employed in a field with a professional license may also feel the negative impact of defaulting on a student loan.
In four states — Florida, Massachusetts, Minnesota and Tennessee — nurses, teachers, emergency technicians, lawyers, realtors and more are at risk of having their state-issued licenses suspended or revoked. (In a fifth state, South Dakota, you could lose nonprofessional licenses, such as licenses to drive, fish or hunt.)
These licenses are usually overseen and issued by state agencies, making it impossible to get around or hide that you are in default on your federal loans. As recently as 2018, with the bipartisan JOBs Act, Congress considered legislation that would override the states on this issue.
When you default on your student loans, you may have to put aside any plans to go back to school to further your career — that’s because you’re no longer eligible for federal student aid (and unlikely to qualify for private student loans without an especially creditworthy cosigner).
You’ll also be ineligible for deferment or forbearance for your current federal student loan debt.
Even if your employer doesn’t run credit checks or require a professional license, you may still feel the impact of student loan default by way of tax refund withholding (also known as Treasury offset) or wage garnishment. Your tax refund and wages could be withheld and used toward repayment of your federal loan debt.
It’s an embarrassing situation, but defaulting on your student loans can also lead to the Department of Education asking your employer to garnish your paychecks by up to 15% of your disposable income. Any Social Security benefits you may receive are not safe from garnishment, either.
Your defaulted private loans are also susceptible to these serious consequences, although your lender would have to win a court judgement to begin garnishing your wages or, worse, seizing assets.
Defaulting can affect your lifestyle, as well. For example, in South Dakota, student loan default can result in losing your driver’s license (if your education debt is owed to the state).
In addition, defaulting on your student loan can do massive damage to your credit that will take years of painstaking work to repair. It may also prevent you from signing up for a cellphone plan, applying for housing, receiving a small business loan or getting insurance.
Your best weapon against student loan default is to never get to that situation. But, if you are currently delinquent on your student loans and at risk of defaulting, the time to act is now.
Contact your loan servicer about a payment plan that works with your budget. Your options include:
- An income-driven repayment plan that takes your current earnings and family size into account when determining your monthly payments
- Applying for deferment or forbearance until you get back on your feet
- Refinancing your student loans to lower the monthly payment and, hopefully, interest rate (though your loans need to be in good standing to qualify)
If your federal loans are already in default, another option is a student loan rehabilitation program. This involves making nine consecutive payments — that would be a portion of your discretionary income — over a 10-month period, which would result in your loan being labeled as current. Weigh rehabilitation and consolidation as ways to escape loan default.
Whether you’re behind on payments or seeing the impact of your default on your career, your best bet is to have an open line of communication with your servicer. By understanding how student loan default can keep you from getting a job and hinder your life, you can stay motivated to tackle your debt once and for all.
Andrew Pentis and Laura Gariepy contributed to this report.
Interested in refinancing student loans?Here are the top 9 lenders of 2021!
|Lender||Variable APR||Eligible Degrees|
|1.88% – 6.15%1||Undergrad & Graduate|
|1.88% – 5.64%2||Undergrad & Graduate|
|2.50% – 6.85%3||Undergrad & Graduate|
|1.89% – 5.90%4||Undergrad & Graduate|
|1.99% – 6.59%5||Undergrad & Graduate|
|1.88% – 5.64%6||Undergrad & Graduate|
|1.90% – 5.25%7||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|2.13% – 5.25%8||Undergrad & Graduate|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of June 1, 2021.
2 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.
Interest Rate Disclosure
Actual rate and available repayment terms will vary based on your income. Fixed rates range from 2.48% APR to 5.79% APR (excludes 0.25% Auto Pay discount). Variable rates range from 1.88% APR to 5.64% APR (excludes 0.25% Auto Pay discount). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 36% (the maximum allowable for these loans). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 2.04% and 5.8% to the one month LIBOR. Earnest rate ranges are current as of 6/8/2021, and are subject to change based on market conditions.
Auto Pay Discount Disclosure
You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. For multi-party loans, only one party may enroll in Auto Pay.
Student Loan Refinancing Loan Cost Examples
These examples provide estimates based on payments beginning immediately upon loan disbursement. Variable APR: A $10,000 loan with a 20-year term (240 monthly payments of $72) and a 5.89% APR would result in a total estimated payment amount of $17,042.39. For a variable loan, after your starting rate is set, your rate will then vary with the market. Fixed APR: A $10,000 loan with a 20-year term (240 monthly payments of $72) and a 6.04% APR would result in a total estimated payment amount of $17,249.77. Your actual repayment terms may vary.Terms and Conditions apply. Visit https://www.earnest. com/terms-of-service, e-mail us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
Earnest Loans are made by Earnest Operations LLC or One American Bank, Member FDIC. Earnest Operations LLC, NMLS #1204917. 535 Mission St., Suite 1663, San Francisco, CA 94105. California Financing Law License 6054788. Visit earnest.com/licenses for a full list of licensed states. For California residents (Student Loan Refinance Only): Loans will be arranged or made pursuant to a California Financing Law License.
One American Bank, 515 S. Minnesota Ave, Sioux Falls, SD 57104. Earnest loans are serviced by Earnest Operations LLC with support from Navient Solutions LLC (NMLS #212430). One American Bank and Earnest LLC and its subsidiaries are not sponsored by or agencies of the United States of America.
© 2021 Earnest LLC. All rights reserved.
3 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Jan 1, 2021 and may increase after consummation.
4 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of April 29, 2021. Information and rates are subject to change without notice.
5 Important Disclosures for SoFi.
Fixed rates from 2.49% APR to 6.94% APR (with autopay). Variable rates from 1.99% APR to 6.59% APR (with autopay). All variable rates are based on the 1-month LIBOR and may increase after consummation if LIBOR increases; see more at SoFi.com/legal/#1. If approved for a loan your rate will depend on a variety of factors such as your credit profile, your application and your selected loan terms. Your rate will be within the ranges of rates listed above. Lowest rates reserved for the most creditworthy borrowers. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license #6054612; NMLS #1121636 (www.nmlsconsumeraccess.org). Additional terms and conditions apply; see SoFi.com/eligibility for details. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
6 Important Disclosures for Navient.
7 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 04/07/2021 student loan refinancing rates range from 1.90% APR – 5.25% Variable APR with AutoPay and 2.49% APR – 7.75% Fixed APR with AutoPay.
8 Important Disclosures for PenFed.
Annual Percentage Rate (APR) is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rates range from 2.89%-4.78% APR and Variable Rates range from 2.13%-5.25% APR. Both Fixed and Variable Rates will vary based on application terms, level of degree and presence of a co-signer. These rates are subject to additional terms and conditions and rates are subject to change at any time without notice. For Variable Rate student loans, the rate will never exceed 9.00% for 5 year and 8 year loans and 10.00% for 12 and 15 years loans (the maximum allowable for this loan). Minimum variable rate will be 2.00%. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.