How Defaulting on Student Loans Can Impact Your First Job

 November 18, 2020
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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:

  1. How can student loans keep you from getting a job?
  2. Can you be denied a job because of bad credit?
  3. How can bad credit affect your career in other ways?

How can student loans keep you from getting a job?

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.

Can you be denied a job because of bad credit?

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.

  • California
  • Colorado
  • Connecticut
  • Delaware
  • Hawaii
  • Illinois
  • Maryland
  • Nevada
  • Oregon
  • Vermont
  • Washington

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.

What are your rights when an employer requests to review your credit report?

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
● Bankruptcies
● 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:

transunion.com

How can bad credit affect your career in other ways?

Here are four other ways debt can weigh on your livelihood:

1. Professional licenses
2. Future financial aid
3. Wage and tax garnishment
4. Lifestyle impact

1. Professional licenses

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.

2. Future financial aid

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.

3. Wage and tax garnishment

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.

4. Lifestyle impact

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.

How to fix student loan default, bad credit and focus on your career

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:

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?

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LenderVariable APREligible Degrees 
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1.74% – 7.99%3Undergrad
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1.89% – 5.90%4Undergrad
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1.74% – 7.99%5Undergrad
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2.05% – 5.25%6Undergrad
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1.86% – 6.01%Undergrad
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N/A7Undergrad
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Visit PenFed

1.99% – 8.38%8Undergrad
& Graduate

Visit Citizens

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 May 4, 2022.


2 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.

Earnest Disclosures

Student Loan Refinance Interest Rate Disclosure Actual rate and available repayment terms will vary based on your income. Fixed rates range from 2.99% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 1.99% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Let us know if you have any questions and feel free to reach out directly to our team.


3 Important Disclosures for SoFi.

SoFi Disclosures

Fixed rates range from 3.49% APR to 7.99% APR with a 0.25% autopay discount. Variable rates from 1.74% APR to 7.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.


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.

  1. Checking your rate with Laurel Road only requires a soft credit pull, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
  2. Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan.
  3. After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship. During any period of forbearance interest will continue to accrue. At the end of the forbearance period, any unpaid accrued interest will be capitalized and be added to the remaining principle amount of the loan.
  4. Automatic Payment (“AutoPay”) Discount: if the borrower chooses to make monthly payments automatically from a bank account, the interest rate will decrease by 0.25% and will increase back if the borrower stops making (or we stop accepting) monthly payments automatically from the borrower’s bank account. The 0.25% AutoPay discount will not reduce the monthly payment; instead, the discount is applied to the principal to help pay the loan down faster.

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 Navient.

Navient Disclosures

You can choose between fixed and variable rates. Fixed interest rates are 2.99% – 8.24% APR (2.74% – 7.99% APR with Auto Pay discount). Starting variable interest rates are 1.99% APR to 8.24% APR (1.74% – 7.99% APR with Auto Pay discount). Variable rates are based on an index, the 30-day Average Secured Overnight Financing Rate (SOFR) plus a margin. Variable rates are reset monthly based on the fluctuation of the index. We do not currently offer variable rate loans in AK, CO, CT, HI, IL, KY, MA, MN, MS, NH, OH, OK, SC, TN, TX, and VA.


6 Important Disclosures for LendKey.

LendKey Disclosures

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 5/17/2022 student loan refinancing rates range from 2.05% APR – 5.25% Variable APR with AutoPay and 2.49% APR – 7.93% Fixed APR with AutoPay.


7 Important Disclosures for PenFed.

PenFed Disclosures

Fixed Rate Loan Terms: 5 years/60 monthly payments, 8 years/96 monthly payments, 12 years/144 monthly payments or 15 years/180 monthly payments. Annual Percentage Rate is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed rates range from 3.29% to 5.43% APR. Rates are subject to change without notice. Fixed APR: Fixed rates will not change during the term. This rate is expressed as an APR. Since there are no fees associated with this loan offer, the APR is the same percentage as the actual interest rate of the loan. 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.


8 Important Disclosures for CitizensBank.

CitizensBank Disclosures

Education Refinance Loan Rate Disclosure:  Variable interest rates range from 1.99%-8.38% (1.99%-8.38% APR). Fixed  interest rates range from 2.99%-8.63% (2.99%-8.63% APR).

IS Variable Rate Disclosure:  Variable Rates advertised are based on the one-month London Interbank  Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business  day, of the preceding calendar month. As of December 1, 2021, the one-month LIBOR rate is 0.09%.  Variable interest rates will fluctuate over the term of the loan with changes in the LIBOR rate, and will  vary based on applicable terms, level of degree and presence of a co-signer. Your final variable rate may  be based upon the 30-day average SOFR index, as published by the Federal Reserve Bank of New York.  The maximum variable rate is the greater of 21.00% or Prime Rate plus 9.00%.

ERL Variable Rate Disclosure: Variable interest rates are based on the 30-day average Secured Overnight Financing Rate (“SOFR”) index, as published by the Federal Reserve Bank of New York. As of May 1, 2022, the 30-day average SOFR index is 0.29%. Variable interest rates will fluctuate over the term of the loan with changes in the SOFR index, and will vary based on applicable terms, level of degree and presence of a co-signer. The maximum variable interest rate is the greater of 21.00% or the prime rate plus 9.00%.

Fixed Rate Disclosure: Fixed rate ranges are based on applicable terms, level of degree, and presence of a co-signer.

Lowest Rate Disclosure: Lowest rates are only available for the most creditworthy applicants, require a 5-year repayment term, immediate repayment, a graduate or medical degree (where applicable), and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Rates are subject to additional terms and conditions, and are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.

Federal Loan vs. Private Loan Benefits:  Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer. Borrowers should carefully review federal benefits, especially if they work in public service, are in the military, are considering possible loan forgiveness options, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision on our website including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
 
Citizens Student Loan Eligibility: : Applicants must be enrolled at least half-time in a degree-granting program at an eligible institution.
 
Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DC, DE, FL, MA, MD, MI, NH, NJ, NY, OH, PA, RI, VA, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
 
Automatic Payment Discount Disclosure:Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount. Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on  their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan  servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to  successfully withdraw the automatic deductions from the designated account three or more times within any 12-month  period, the borrower will no longer be eligible for this discount.