Can Student Loans Keep You From Getting A Job?
If you took out a student loan to pursue a degree, missed or late payments may have taken a toll on your credit score. Usually, after 90 consecutive days of missed payments, the lender starts reporting this behavior to the credit bureaus. Each instance impacts your credit history and lowers your credit score by a few points. This gets worse if your account is marked in default and the total debt becomes due immediately.
So, how can student loans keep you from getting a job?
Well, your credit history determines your creditworthiness. In most cases, employers like to run a soft credit check before hiring applicants after presenting an offer. Since missed payments wreak havoc on your creditworthiness, there’s a high chance of being denied a job. According to the National Association of Professional Background Screeners, 44% of HR professionals who responded to the 2019 survey agreed to run some financial checks alongside the general background check for candidates.
How Credit History Can Affect Employment?
Can bad credit affect employment? The answer largely depends on the type of job. For instance, you might be asked to undergo a credit check if you’re applying for a government job or for a role where you’ll be managing finances. That said, most states add this soft check to their hiring process.
When applying for a job, you need to be sure there are no negative points in your credit history. If there are any, it reduces your chances of getting the offer letter. However, employers don’t get to see the same details as lenders.
As mentioned, lenders start reporting missed payments to major credit bureaus after 90 days (270 days in case of federal loans). This is when your credit score starts declining. However, your credit history is a record of your finances. It includes details of your income, liabilities, credit limits, account balances, payment history, and more. If you don’t have a clean record, employers may hesitate to hire you.
Can An Employer Check Your Credit Score?
No, employers can’t check your credit score. They can only see your credit record or credit history. Most employers conduct these checks during the hiring process intending to safeguard their customers and employees. Employers are provided access to your credit record to verify your identity, education, and background. Using the report, they can validate your past employment, legal activity, bankruptcies, missed payments, foreclosures, and criminal record.
Simply put, employers see most of what a lender sees, except your credit score (the 3-digit number). With your credit report’s help, employers can quickly learn how effectively you handle your obligations and responsibilities. The report reveals the financial stress you are going through, if any, and all of these are essential for employers, especially if they’re looking for someone for accounting/finance departments.
How Can Having A Student Loan Affect Employment?
Are you thinking about how your credit history can affect getting a job? Your credit history reflects your sincerity. Missed payments, delinquent accounts, and foreclosures shed a bad light on your track record. Employers may accordingly consider this behavior as a red flag. If you’ve defaulted on a student loan, it’ll be a huge negative mark.
To clarify how each aspect is connected, let’s begin with understanding what a student loan default is. If any student fails to make any payments towards the loan borrowed for an extended period, the loan is said to be in default. The default period generally depends on the student loan type you’ve borrowed. For many federal student loans, the default period begins commences following 90 days of non-payment. The loan will be marked in default after 270 consecutive days of non-payment.
By defaulting on a student loan, the students are listed on the delinquent list until the next payment is made. If you fail to make monthly payments at any time, your credit score will be affected by additional late fees. When the entire unpaid amount becomes due, the acceleration process begins, after which the borrower receives calls, messages, and visits from debt collectors.
Why do employers consider the delinquent list? Simply put, they want to avoid particular behavior or habits at their workplace.
Having your name on the delinquent list may indicate that you’re an unorganized individual. If you’re holding excessive student debt or exhibit a lousy credit history, it may reflect a higher risk for a potential employer. For instance, for any job that requires managing large cash amounts, these financial circumstances might represent a dealbreaker.
Hence, the company judges you based on your credit history and surely would avoid hiring you to reduce possible risks. After all, no company would like to have collectors visiting their office to disturb the working environment.
As of now, eleven states have banned or restricted the use of such credit checks for employment. Meanwhile, the House of Representatives has passed a bill to make job denials illegal due to bad credit. While accomplished in January 2020, the legislation has stalled and hasn’t yet moved forward.
How And Where Can Bad Credit Prevent You From Getting A Job?
Instances where you’ll often be required to undergo a credit check include the following:
- A government job
- Roles where you need to handle cash
- A role where you have a high-level security clearance
You can still get a good job with bad credit through the Public Service Loan Forgiveness (PSLF) program. The program was first introduced in 2007 following the passage of the College Cost Reduction and Access Act.
Here are some essential details you need to know about the PSLF program.
- The student should be holding a Federal Direct Loan to be eligible for the PSLF program
- The student shouldn’t be having any other private loan or any other unsecured loan
- Make sure you have the right repayment plan as per your monthly income
- Make sure to make on-time payments while working in the public interest for full time
- Avoid changing your job before the Education Department permits you
Once you’ve made 120 consecutive payments, you’ll be eligible to submit a forgiveness request. Here’s a list of the best paying jobs to pay back a student loan that can help you deal with your credit score’s negative implications.
How To Stop The Student Debt Situation Preventing You From Getting A Job?
There are specific ways to avoid debt and other problems to get your dream job. For this, you either need to work on increasing other monetary sources or reduce your cost or expenses. You need to start planning your repayment while you’re in college.
Here’s how you can work on reducing your student debt to get a good job:
- Start saving money: If you have a long timeline to work on, it’s advisable to start saving from day one. Nearly every parent wants to give their child the best possible education; however, they often fail to put aside funds for these purposes. Accordingly, start saving from the very first day to meet these obligations. Even small monthly contributions can add up quickly
- Seek an affordable degree: When selecting the right institution and focusing on other necessary details, check if the college cost is reasonable. Do proper research to assess college expenses before applying. If the education cost is affordable or low, the burden of the debt would be lower too
- Plan your expenses strategically: Start planning your costs with a well-prepared and robust strategy. You can seek the aid of professional financial planners to evaluate your budget and find other areas for saving. Moreover, try to cut out any unnecessary costs and carefully control outflows
- Borrow cleverly: One of the best ways to reduce student debt is to look for federal student loans before applying for private student loans. Private loans come with high-interest rates and compound interest that add to your payments when you're still in school. Again, private student loans aren’t entitled to any kind of deferment, forbearance, or forgiveness plans
In addition to this, look out for using the deferment and forbearance options strategically. If you’re struggling with your finances, talk to your lender to determine the best course of action. It’s always a good idea to try repaying balances instead of damaging your credit record.
What to do to Fix a Bad Credit Score?
When looking to fix your bad credit score, the first thing you need to do is check your credit score online to learn about the negative factors affecting it. These risk factors will help you understand the changes you need to make to improve your creditworthiness.
Here are some of the common ways to fix a bad credit score:
- Be regular with your bill payments, rent, phone bills, utilities, credit card bills, and other recurring expenses. Keep monthly reminders or automatic payments for on-time payments
- Pay off any debts and make sure you maintain low balances on credit cards
- Apply for new credit accounts only if you need them, given that too many applications can harm your credit score
- If any unused credit card isn’t costing you much, avoid closing these accounts because the extra limit will help maintain a lower credit utilization ratio
- Try and avoid too many hard credit checks at once because hard inquiries will negatively impact credit scores temporarily
Apart from all these fixes, applying for an income-driven repayment plan, deferment, forbearance, or refinancing can also improve your credit score.
There’s no denying the fact that your credit history affects your chances of getting a job. Be it late payments or other delinquent behavior, poor financial habits can impact job offers. Accordingly, ensure you carefully understand all the aspects regarding student loan default and work hard to avoid these negative situations.
Above all, plan your finances and strategize affordable ways to repay student debts on time and in full.