How Financial Aid History Works

Good and Bad Financial Aid History

What does it mean to have a good financial aid history?

If "good" to you means not having financial responsibilities, then a good financial aid history is getting through school on scholarships, grants, work-study and gifts, and never taking a student loan that you have to repay. But most students do take loans.

So we'll say a good financial aid history is one that doesn't majorly disrupt your life. "Good" loans are those you can and do repay on time. Even better, they're loans you don't layer. In other words, in a good financial aid history, you pay off one loan before you must repay your next loan. If you repay high school loans, you're eligible for the maximum number of college loans and don't tie up money you'll need to pay back those loans later. The same goes for college loans before law school, and so on.

With respect to your life after college, on-time loan payments show up on your credit report and boost your credit score [source: Sallie Mae]. They say to banks and future lenders that you'll also pay them on time. They'll be more likely to give you high limits and low interest rates on your credit card, car and personal loans, and on your mortgage. And that will give you maximum freedom with your money in your life. We could even argue that student loans paid back on time are better than no loans, since they help you build your credit. But there are certainly smaller financial commitments through which you can build your credit.

A bad financial aid history is easier to picture. Late loan payments are bad. Late payments incur late fees, show up on your credit report and tell all future lenders that you're a risk. Defaulting on a student loan is worse. Defaulting means not paying back your loan money. As one lending site explains, the consequences are dire and really do disrupt your life. The government can take your tax refunds or pocket 15 percent of your salary to pay your debt, or you can get sued for what you owe [source: Sallie Mae, FSA]. As for future loans, the government can deny you student loans, and private lenders can deny you any type of loan. If you do get another loan, it may be no-frills, with no grace periods or payment plans that scale to your income. Your plans for a house or graduate school may have to be put on hold. And that will be your fate until you pay back your loan or re-establish good credit.

A great way to erase the stress from your financial life is to learn as much as you can before you take on a big commitment like a loan. You can start with the articles below.

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