What Effects Does Student Loan Forgiveness Will Have On Your Credit Score

September 17, 2022 By Prelo Con

(Image Credit Google)

Last month, the White House announced a broad plan to forgive millions of Americans' student loan debt, canceling up to $10,000 in debt for some borrowers and $20,000 for those who received Pell Grants. Whatever happened to your credit score if you took out student loans? (they are loans, after all). And, for the millions of people who are eligible for student loan forgiveness, this upcoming change in loan status will result in changes to your credit score, potentially for the worse—if only slightly. Here's what you need to know about how student loan forgiveness affects your credit score.

Your credit score may drop—at least temporarily.

Student loans contribute to your credit mix, which is the number of loans you have (like a car, mortgage, etc.). The way you manage your credit mix affects your overall score, and lenders like to see that you can manage multiple types of loans at the same time. Student loan forgiveness reduces your credit mix, which may result in a slight drop in your credit score. Another cause student loan forgiveness may have a minor impact on your credit score is that it may reduce the average age of your credit accounts, as student loans are frequently among the first loans people take out.

Finally, none of this is cause for concern—your credit score would only drop by 5 to 10 points, according to CNBC. According to Money.com, as long as you continue to make your other loan payments on time, your credit score can recover relatively quickly. Perhaps a temporary dip is something to keep in mind for the near future, but it is unlikely to affect your ability to secure loans in the long run.

Loan forgiveness is worthwhile.

A drop in your credit rating shouldn't stop you from applying for loan forgiveness. Some credit losses are trivial compared to the importance of deleveraging. Remember, even if the loan disappears from your credit report, you are still responsible for paying it. Ignore student loans.

The only other thing that matters now is how your credit score will affect your plans to borrow money or finance a large purchase. If you're in the market for a new car or house, get pre-approved as soon as possible so that your credit score is as high as possible when you apply. The application for student loan cancellation does not even open until early October, so changes to your credit score will occur much later.

By Prelo Con

Following my passion by reviewing latest tech. Just love it.

What Effects Does Student Loan Forgiveness Will Have On Your Credit Score

Your credit score may drop—at least temporarily.

Loan forgiveness is worthwhile.

Walmart's GenAI Search Engine: Challenging Google's Dominance in Retail Search

Introducing the MSI Claw Handheld: Your Ultimate Gaming Companion

Uber Increases In-App Ads, Prompting Mixed Reactions from Customers

Apple's iOS 18: A Leap into the AI Era

Google's Regular Pixel 8 Won't Get Gemini Nano AI

MacBook Air M3 Makes Amends for M2's Storage Blunder

Samsung Unveils the Galaxy M15 5G

Elon Musk's xAI to Open-Source Chatbot Grok

Contra: Operation Galuga - A Modern Run-and-Gun Classic

Musk Confirms X's TV App Arrives This Week

YouTuber Trevor Jacob admits he crashed plane for "money & views"

The "strongest water gun in the world" is back and wetter than ever.

Spring Sale at Target Takes Up to 50% Off Outdoor and Garden Items

Take Advantage of Today's Top Amazon Discounts to Stock Your Cart

Norway's New Bicycle Tunnel: The Longest of Its Kind

9 Valentine's Day Food Deals To Get You By To Curb Your Loneliness