If I Am Delinquent on a School Loan, Can I Still Get Another Loan?

If you are delinquent on a school loan, there are no legal barriers to obtaining another loan, but your chances of approval are slim unless you send the delinquent payments immediately. Falling behind in your payments on any loan damage your credit score, which lenders use to help determine loan approval. The fact that you are behind on one loan suggests you cannot afford another.

Identification

Nothing prevents you from applying for a loan at any time with any kind of credit history. However, each application requires the lender to check your credit report, which is called an inquiry. Each inquiry takes a few points off your credit score, which needs be high for you to qualify for a loan. Ultimately, the lender decides whether you are a worthy credit risk to the company.

Approval

Whether you are approved for the loan is another story. Late payments on loans can damage your credit score. For example, a mortgage payment that is 90 days late can take up to 135 points off of a FICO score, according to Les Christie of CNN. Being delinquent on student loan payments will hurt your score as well and make it difficult to receive loan approval. Banks are reluctant to lend more money to someone who cannot handle his current debt load.

Debt-to-Income Ratio

Even when the bank tolerates a low credit score and/or delinquent student loans, you must have a sufficient debt-to-income ratio. If you cannot meet your current monthly student loan payment with your income, you probably have a high debt-to-income ratio (DTI). DTI includes any monthly debts and current mortgage payments and insurance expenses. According to Bankrate, lenders typically consider a DTI above 35 percent -- including debt of the potential loan -- too high to approve a loan. Creditors tend to weigh DTI as heavily as a credit score, according to Erin Peterson of Bankrate.

Tip

Student loans are difficult to discharge in bankruptcy, so you may have to pay them eventually. Ask your lender about its hardship policy. Most offer some modified payment arrangement until you get back on your feet. If you have a subsidized government student loan, the government pays the interest while in deferment or forbearance. If you are only one or two months late, and this is the first negative item in your credit history, your credit score will likely recover as soon as you become current on the account.

References

• Bills: Information on getting Delinquent Accounts Off Credit Reports
• Experian: Credit Score Basics
• CNN: How Foreclosure Impacts Your Credit Score; Les Christie; April 2010
• BankRate: Debt-to-Income Ratio Important as Credit Score; Erin Peterson; January 2007
• Nolo: Student Loans: Cancellation, Deferment, and Forbearance
• The Motley Fool: The Real Impact of Late Payments; Dayana Yochim; October 2005