Student loans provide smart, convenient funds for college
by Stephanie Frizwell, Reporter

(Part 2 in a series on students and credit.)
     Credits cards are the easiest way for a student to gain credit history, but loans and leases also can show financial responsibility.
     Student loans have much lower interest rates and easier repayment terms than the average credit card.
     "Typically, the benefit of a student loan is that students do not have to repay the loan until after they have completed their four years of college education. If the student pays with a credit card, he must begin making payments immediately if he revolves (carries) a balance," Brad Corn, CitiFinancial Interna-tional financial analyst, said.
     Stella, a graduate of South Campus and the University of North Texas, financed her education through loans, which she has repaid.
     "I could not have paid for college without loans. I was married with children; we could not afford for me to go to school. My husband made too much money for me to qualify for financial aid, so I decided to borrow the money," she said.
     Stella's husband did not accept the idea of borrowing money at first.
     "I told him I would be responsible for repaying the loans, and I have been. Also, after I graduated, I reminded him that I had loans to repay and not to count on spending any of my salary for anything else until my loans were paid," she said.
     Having graduated from UNT in 1986, Stella works for a suburban newspaper and has repaid everything. Her children are now getting college educations through loans.
     "If you are responsible, it is not difficult to pay off loans," she said.
     "I saw the loan payment as an obligation and wanted to keep a good credit history," she said.
     An auto loan is an option for a student with a steady income or a cosigner. The interest rates are still lower than a credit card; however, monthly payments may be too high for many student incomes.
     Whatever type of loan is secured, students should be aware that payment history is critical to building good credit and should make every effort to make all their payments on time.
     Loans are an excellent way students can build credit if they are repaid in a timely manner and the payment-to-income ratio is permissible.
     Loans can harm a student's credit if he does not follow the terms of the loan. If a student does not comply with the terms of the loan, the creditor will report the student to the credit bureau.
     Creditors report delinquency of the account, number of missed payments, account credit line and the amount of the credit line being used.
     "Payment history is the single most important factor in determining a person's credit score," Don Mackenzie, Bank of America audit consultant, said.
     "Students should make every effort to make at least the minimum payment if possible," he said. A missed payment will stay on a credit report for up to three years and can cause a lower credit score.
     "If the person misses only one payment but makes a payment to cover the first and second payment (including late fees) by the second minimum payment date, the account becomes current and is not reported to the credit bureau," Corn said. "If the person does not make a payment by the second payment date, then the account is reported to the credit bureau-a negative mark on one's credit report," he said.
     This harm to a credit report can haunt a borrower for years in the form of higher interest rates on future credit. Borrowers with a lower credit score are considered to be a higher risk to lenders; therefore, they will pay more in interest if given a loan.
     Many lenders use other information in determining a candidate's eligibility for loans, such as rental history and employment history.
     Rent payments on apartment leases help develop a rental history required when one buys a house.
     Apartment owners turn unpaid rent over to a collection agency. The debt will appear on one's credit report as a collection until paid in full or settled with the collector for an amount less than the full balance.
     Unpaid damage fees charged by an apartment may show up on a person's credit report as well.
     A poor rental history can prevent borrowers from obtaining future loans or substantially impact interest rates. Many students do not think about a first home mortgage; however, the choices they make now can affect their future credit.
     Employment history shows potential lenders the borrower's reliability and responsibility. Steady incomes exhibit repayment ability.
     If a students are unemployed or work only part time, it is more difficult for them to get loans without a cosigner. Students are viewed as risky to lenders because they often cannot repay their loans.
     To ensure risky credit is secure, banks rely on additional means. A guarantor or cosigner can help students get credit by reducing the risk to the lender.
     Cosigners must have a steady income and good credit history because they are responsible for repaying the debt if the borrower cannot or does not pay. Cosigners enable students to receive loans and rent apartments, otherwise unobtainable.
     "A credit history is to establish and maintain that one knows how to manage debt," Corn said.
     Though banks view students as high risk, some students do very well managing their credit and are able to obtain lower interest rates. Students who want to take out a loan should make sure payment amounts are not too high and should make every payment on time. Doing so will help build good credit.