Biden’s Student Loan Forgiveness Plan: Could It Affect Credit Scores?

[FrugalFiscalFinancer]

As a former student with a remaining loan, I am wondering what could happen to my credit score and worthiness, if I'm eligible for the plan forgiveness, and I accept it. If the remaining balance is completely paid off by the plan, will it significantly impact my score or my credit age?

[SweetCreditObsession]

You may experience a score drop if that's your only installment line and it gets paid off. The loan itself should remain on your reports.

[pizzadude]

Agree with the above, also your AAoA won't be impacted as the closed account will still be factored in and will remain on your reports for ~10 years.

[teekay629]

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@SweetCreditObsession wrote:

You may experience a score drop if that's your only installment line and it gets paid off. The loan itself should remain on your reports.

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I am curious if there will be a score drop if you are currently over the amount taken out for the loan.  In my case, all of my loans are way over the original/starting balance due to interest.  In this case, it may help even if loans are closed out.

In all, it seems like scores lately are all over the place.  I will lose a ridiculous amount of points for something silly and then a large number for literally nothing at all.

[SweetCreditObsession]

In the case of if your loan balance exceeds the original loan amount and the payment puts you under 100%, but you continue to have a balance, you shouldn't lose any points. There's no penalty for no longer being "maxed" out so to speak. You still wouldn't likely gain any points unless your installment loan balance fell under 10% but over 1%,

[FrugalFiscalFinancer]

This makes total sense! Thank you for the quick reply.

I was able to pay off my Secured student loan during the pandemic loan freeze, and it dropped the score a bit. It did mostly return to normal after a couple cycles though. I still have about $1000 left on the unsecured loan.

I keep bouncing between a Very Good and an Excellent rating. 👍🏻