Having a delinquent account referred to an outside collection agency by one of your creditors will likely have a negative impact on your credit rating, though how this damage to your credit score will affect your ability to obtain student loans will depend on the types of loans you are attempting to obtain and how much the collection account lowers your credit score. For more information about student loans and options available to students trying to finance their education, I invite you to visit the Bills.com student loan resources page.
There are basically two types of student loans, the federally sponsored loan programs, such as Stafford and Perkins loans, and private student loans provided by lending institutions without government backing. How your credit rating will affect your ability to obtain student loans will greatly depend on the type of student loans you are attempting to borrow. The borrower’s credit history is not a factor considered by most federally insured loan programs; however, if you are trying to obtain private student loans either alone or, like most students, to supplement your federally insured loans, your credit history will be considered, and this collection account could cause you problems if it has substantially lowered your credit score. A less-than-positive credit history could cause banks to charge you a higher interest rate on your private student loans, or may prevent them from granting the loans altogether. If you run into this problem, you may wish to have a co-signor, such as a parent, sign the loan agreement with you; many students with credit problems are able to obtain student loans with the help of a co-signor. However, you must remember that any co-signor is liable for the debt if you default on your loan payments, so be prudent about your use of co-signors.
To get quotes on student loans please visit our student loan savings center at: Student Loan Consolidation Quote.
Before applying for any private student loans, I strongly encourage you to review your credit reports to verify that no inaccurate derogatory items are appearing on your credit profile. You can obtain free copies of your credit reports from each of the three major U.S. credit reporting agencies by visiting AnnualCreditReport.com. You may also want to obtain your credit score, the numerical representation of the data in your credit report used by many creditors when making lending decisions, though you will likely be required to pay a fee to obtain your credit score.
See the Federal Trade Commission document FTC Facts for Consumers: How to Dispute Credit Report Errors for more information.
If possible, you may wish to pay off the collection account you mention in your question before applying for any new private student loans. As I mention, this collection account may increase the interest rates offered to you by potential lenders, and may prevent you from obtaining loan altogether, if it has sufficiently damaged your credit score. Clearly, I understand that it is not always possible to resolve delinquent items before applying for credit, but I encourage you to contact the creditor to discuss options available to resolve this debt. First, the creditor may be willing to bring the account current, or "re-age" it, if you are able to start making regular payments. Also, if you can raise a significant lump sum of money, the creditor may be willing to settle the debt for a portion of the balance, which can often be as little as 30% to 40% of the amount you actually owe. Bills.com offers a wealth of information for consumers struggling with debt, which is available in the debt help section of the website.
Given the high cost of education and the relatively low income of most students, it is no surprise that many college students find themselves struggling with debt. However, many options are available to students to help them finance their education, so this blemish on your credit rating will hopefully not cause you any significant problems.
I wish you the best of luck in resolving this debt, and hope that the information I have provided helps you Find. Learn. Save.