topic Re: Student loan forgiveness and score in Understanding FICO® Scoring

Student loan forgiveness and score

krmurrayjr10 — Sun, 16 Jul 2023 10:20:56 GMT

I am one of the 800,000 student loan borrowers who received the e-mail that their outstanding loans will be forgiven in the coming months, based on the number of months their loans were in repayment.

My question pertains to the effect on my credit score once the loan balance shows $0. I understand that a borrower might see a small drop in score if the forgiven loan was the only installment loan.

It seems to me, though, that I am looking at a different scenario for a couple of reasons. One reason is that I will still have one other open installment loan.

The other reason pertains to the student loan balance. I am surely not the only borrower whose outstanding balance is higher than the original balance, thanks to income-based repayment and capitalized interest. In my case, the original balance was about $35k and the current balance is now about $59k.

In this case, could I anticipate a score pickup given the substantial and abrupt change in the amount owed over amount borrowed ratio?

For what it‘s worth: I have 0 negative information anywhere on my report, maximum of 1-2 inquiries, and most accounts are at least 2 years old. The other installment loan is about 25% paid.

Re: Student loan forgiveness and score

Rogue46 — Sun, 16 Jul 2023 16:05:31 GMT

You should see a score increase due to your overall utilization dropping significantly and since you have another installment loan present you wouldn't get dinged for the student loan being closed.

Re: Student loan forgiveness and score

krmurrayjr10 — Sun, 16 Jul 2023 16:16:29 GMT

That’s what I thought. Most of the commentary on this subject on the web mentions only the loss of an active installment loan. Anecdotal evidence, on the other hand, suggests that there are m a n y borrowers, perhaps even into the millions, who owe much more than they borrowed.

Re: Student loan forgiveness and score

FireMedic1 — Mon, 17 Jul 2023 20:04:36 GMT

FICO likes one open loan. Long as 1 stays on your report your good. But the new util % as a lonely loan will kick in.

Re: Student loan forgiveness and score

SouthJamaica — Tue, 18 Jul 2023 14:10:56 GMT

@krmurrayjr10 wrote:
I am one of the 800,000 student loan borrowers who received the e-mail that their outstanding loans will be forgiven in the coming months, based on the number of months their loans were in repayment.

My question pertains to the effect on my credit score once the loan balance shows $0. I understand that a borrower might see a small drop in score if the forgiven loan was the only installment loan.

It seems to me, though, that I am looking at a different scenario for a couple of reasons. One reason is that I will still have one other open installment loan.

The other reason pertains to the student loan balance. I am surely not the only borrower whose outstanding balance is higher than the original balance, thanks to income-based repayment and capitalized interest. In my case, the original balance was about $35k and the current balance is now about $59k.

In this case, could I anticipate a score pickup given the substantial and abrupt change in the amount owed over amount borrowed ratio?

For what it‘s worth: I have 0 negative information anywhere on my report, maximum of 1-2 inquiries, and most accounts are at least 2 years old. The other installment loan is about 25% paid.

I don't think there will be any effect from the change in installment utilization. I imagine you'll be going from something like 90% to 75%, not a big thing in FICO scoring.

But you might pick up a few points from having one less account with balance.

And apart from scores you'll be a more attractive credit candidate because your DTI will improve.

I must say, though, that even if you do experience a slight dent in your FICO scores, who cares? You are so fortunate to get rid of that loan.

Re: Student loan forgiveness and score

working4more1967 — Wed, 23 Aug 2023 17:36:38 GMT

Hey, everyone. I was also one of the few that received loan forgiveness. My former balance of $196K is now $0. I have a mortgage and a car lease. The my fico score simulator says the payoff will have zero effect on my score. Can anyone confirm this? If it's true, it's a depressing outcome.

Re: Student loan forgiveness and score

AzCreditGuy — Thu, 24 Aug 2023 17:07:18 GMT

@working4more1967 wrote:
Hey, everyone. I was also one of the few that received loan forgiveness. My former balance of $196K is now $0. I have a mortgage and a car lease. The my fico score simulator says the payoff will have zero effect on my score. Can anyone confirm this? If it's true, it's a depressing outcome.

That is great that you went from $196k to $0, while the SBA refused to give my business any relief lol

Re: Student loan forgiveness and score

working4more1967 — Thu, 24 Aug 2023 17:51:12 GMT

I get it. I paid for over 25 years. The reason my balance was forgiven was because I paid the required #Payments bit didn't get credit for it. The forgiveness is merely the result of receiving an accurate # of payment credits.

Re: Student loan forgiveness and score

SeeingTheLight — Mon, 11 Sep 2023 17:55:17 GMT

@working4more1967 wrote:
Hey, everyone. I was also one of the few that received loan forgiveness. My former balance of $196K is now $0. I have a mortgage and a car lease. The my fico score simulator says the payoff will have zero effect on my score. Can anyone confirm this? If it's true, it's a depressing outcome.

I am one of the "golden e-mail" recipients and despite paying the loan, I was in an uphill battle as the interest made my payments mostly moot. $189k which included my ex-wife's loans consolidated before we divorced but in my name. The Experian app simulator stated I'd get a 35 point boost after the loans are zeroed/closed. I just got an update on my Transunion file first and I went from 798 to 835 after the update. Still waiting on Experian and Equifax to update but the points boost on the simulator seems it will be accurate. I have a relatively thick file with 8 revolving accounts totaling $141k, a mortgage, and a car loan and average age of 5 years. Hope this helps..

Re: Student loan forgiveness and score

DSTforlife — Fri, 22 Sep 2023 01:04:24 GMT

i have a family member who received the same email. in august, their account was changed to paid in full with 0 balance on the servicers website. however, they are still waiting for the account to update to the bureaus. they were on the IDR plan since 2002 and paid the bill every month, but the balance kept increasing. in addition to the 0 balance, they are receiving a refund.

their loan servicer changed during the pandemic. the old account was closed with 0 balance, and it took almost a year for the new account to show up. once the new account showed up, they lost points. i told them hopefully they will at least get those points back, if not more.

Re: Student loan forgiveness and score

md_rebuild — Fri, 22 Sep 2023 15:15:45 GMT

I had $45K forgiven in March under the PSLF program. My scores were in the 690 range (in year 3 of rebuild after CH7). I have 10 open CC (utilization is at about 38% - will come down to less than 10 in the next 3 months), auto loan, and 1 personal loan.

I expected to get some bump, but it never came. My overall amount owed was reflected, but no corresponding increase in score. I fully expect it to go up once my CC utilization goes under 10%, but also realize that the BK7 is the thing holding me back.

Re: Student loan forgiveness and score

SouthJamaica — Sat, 23 Sep 2023 16:45:28 GMT

Well @krmurrayjr10 it's time for you to give us an update

Re: Student loan forgiveness and score

working4more1967 — Sat, 23 Sep 2023 17:01:53 GMT

No update yet. They still haven't updated my credit file.

Re: Student loan forgiveness and score

SeeingTheLight — Mon, 25 Sep 2023 18:15:11 GMT

@SouthJamaica wrote:
Well @krmurrayjr10 it's time for you to give us an update

I'll give an update and a suggestion. If you're waiting for your credit report to update, it may take a bit of time. I put in disputes with the 3B and had my line items updated in a week to 9 days time. My Transunion acutally updated to zero before my dispute was done and then they somewhow claimed the origianl balance was correct and added it back! Re-disputed with the docs again and it was zeroed out again in a day. If it has still not updated, I'd go ahead and dispute. Got 30+ point bumps to 845/838/833 base FICO with those gone!