U.S. News

Is Student Debt Explosion About to Blow Up Your Credit Report?

The percentage of U.S. consumers with two or more outstanding loans has nearly doubled since 2005, and the amount of debt is up more than 50 percent, according to new figures from FICO — the company that calculates credit scores for the major credit bureaus.

The new figures come as credit experts, economists and politicians debate whether the nation’s exploding student debt — which topped $1 trillion earlier this year — could impact an already fragile economy. FICO says it bases its new findings on “a large sample” of consumer data from one of the three largest credit bureaus. (Read More: Student Debt: America's $1 Trillion Time Bomb.)

The figures show student debt putting an increasing strain on household balance sheets.

FICO says 11.8 percent of U.S. consumers have two or more open student loans on their credit report, up from 6.2 percent in 2005. The average debt of $26,549 is up 54 percent from 2005, when it stood at $17,236. That far outpaces the growth of other types of debt including mortgages, credit cards and auto loans, the company said.

And for a relatively small but growing number of borrowers, the size of their student debt rivals the size of many mortgages. FICO found the percentage of borrowers with student debt above $100,000 has more than tripled since 2005 to around 1.4 million borrowers.

“With education costs rapidly outpacing inflation, more consumers are taking out student loans to pay for their education,” said Anthony Sprauve, a spokesman for FICO’s consumer education arm, myFICO.com.

But there is good news in the study.

While newly released data from the U.S. Department of Education show the student loan default rate for 2008-2010 spiking to 8.8 percent, FICO says the rise in student debt does not seem to be impacting credit scores. Seven percent of borrowers with more than $50,000 in student debt have credit scores above 800 (the top score is 850). Nearly 40 percent have scores above 700. (Read More: Paying for College, The Gift of Giving (Tax-Free).)

Still, credit agencies have been looking closely at whether large student debts can impact consumers’ ability to pay off other loans, and the new figures will not end that scrutiny.

“What FICO is concerned about, and what we pay attention to, is how are students — new graduates — handling that debt,” Sprauve said, “and we’ll always be watching that to see if it becomes a prediction of future behavior.”

Because student loans are often some of the only debt a college graduate carries, they can have a profound impact on their credit ratings at the very time graduates are first establishing credit. As a result, experts say it is crucial to make payments on time. (Read More: Debt-Free College? Yes, It Exists.)

“If they’re paying on time, boy, they can get a credit score very fast, and of course the negative side is if they’re not paying, they’ll get a score that won’t be so good,” said Barrett Burns, CEO of VantageScore, which helps credit bureaus and lenders model credit risk.

Burns and Sprauve say the size of a borrower’s student loans generally does not affect their credit report, but their payment history is considered along with other installment credit. As a result, experts say graduates should be sure to utilize the many programs now in place to help manage the size of loan payments, such as income-based repayment, deferment and forbearance.

—By CNBC's Scott Cohn

This blog post is part of NBC News’ Education Nationinitiative, engaging the country in a solutions-focused conversation about the state of education in America.

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