By Robert L. Cain, written for Zip Reports, visit their website.
Reduced Student Loan Payment Concern
Here’s something to watch out for on credit reports: student loan payments. About 43 million people have student loan debt, with industry estimates at around $1.4 trillion nationwide. Of that 43 million, over five million participate in one reduced payment plan or another on their loans.
That has allowed the borrowers to have their monthly payments lowered because of their incomes and family sizes. The reduced amount they pay appears on their credit reports. That amount, of course, varies depending on their income and family size. Mortgage lenders, until April 2017, ignored the payment that showed on a credit report and instead calculated one percent of the total loan amount as the payment. Fannie Mae changed that, but the calculation is about what the monthly payment would be were it not for a reduced payment plan, the monthly payment that shows on the credit report. That makes for more people able to qualify for a mortgage. However, that’s not what we are concerned with here.
So, for example, if a student loan was $40,000, one percent of that is $400, the expected, non-reduced payment that Fannie Mae mortgage lenders used before April 2017. Now if the borrower had gotten the reduced payment and it was now $100, good for him or her. But there’s a concern for employers and rental owners and managers. You see, the reduced loan payment must be “recertified” every year and any income and family size changes reported.
Different programs calculate the payment reductions differently, and the ways they do it is enough to make you scratch your head. Regardless, the payment amount is recalculated every year when the borrower “recertifies” the payment reduction. Go to studentaid.gov for their explanation of the process.
Our concern is that the payment we see when we check an applicant’s credit could change markedly when he or she “recertifies” at the end of the year. Thus, if you rent to someone and rely on say $100 as the monthly payment, if your new tenant has a new job that pays three or four times what his or her old job paid, that monthly payment could skyrocket in just a few months, making it difficult to pay the rent, especially after your new tenant goes out and buys a new Cadillac Escalade with a $850 a month payment to celebrate the new job.
The other issue is if the borrower neglects to “recertify.” The payment then reverts to its original amount, probably the one percent of the loan amount.
Likewise for an employer, the new employee could end up unable to keep up rent payments and the car payment when he or she loses the reduced federal student loan payment thus getting evicted or having the car repossessed making getting to work problematic.
Sometimes a credit report will show a $0 monthly payment on a student loan. Why, I don’t know, but the loan is not paid off. A payoff would show in a different place. The borrower has a reduced payment that isn’t recorded accurately on the credit report and requires the same precaution that any other amount would.
Just be aware that reduced student loan payments aren’t permanent and could change annually. You are safer recalculating the same way mortgage lenders have done.
How to ensure a judgment gets on a credit report
As we discussed last month, beginning July 1 judgments will appear on credit reports only if they contain a minimum of a name, address, and Social Security number and/or date of birth so the debtor can be properly identified. It is up to county court clerks to record the judgments, but if we get a judgment against a debtor, we have to be diligent in ensuring that all that information appears on the judgment. If it doesn’t, that individual who stiffed you could get off scot free and never worry about satisfying the judgment because the judgment never appears on the credit report. He or she could go merrily along running up new bills and not paying them, either.
One huge advantage of a judgment is that the person against whom the judgment is filed can’t buy anything on credit until at least the judgment is satisfied, assuming the judgment shows on his or her credit report. That means you might get paid. Likewise, your judgment could keep the deadbeat from getting another job or renting an apartment.
I spoke with Attorney Dean Shyshlak of Portland, Oregon, who told me the reason Social Security Numbers and dates of birth stopped appearing on court records is identity theft. Judgments, and all court actions, are public record and anyone can look at them either by going to the courthouse or maybe even going online. That means if a Social Security Number or date of birth shows up, a criminal can create an instant new identity to use or sell to someone. Even so, most state laws require that both the Social Security Number and date of birth appear on all money judgments. It has become optional for other court records for judgments than money judgments to contain identifying numbers that could result in identity theft. In fact, some court clerks may automatically leave off such numbers on all judgments they record, despite the fact they are required for money judgments. Why is anyone’s guess.
Here’s how to ensure your judgment gets picked up by the credit reporting agencies. Make sure that the judgment information contains a Social Security and/or a date of birth, or at least the last four numbers of the Social Security Number. If the person against whom you obtained the judgment wants those identifying numbers removed, he or she can request it, but removal would probably violate state law.
What happens if the identifying numbers are left off and you want to ensure that your judgment appears on that person’s credit report? Call the court clerk or county clerk and complain. Ask what you need to do to get the required numbers on the judgment. If you don’t get satisfaction there, talk to supervisors, then keep working your way up the ladder, if need be.