During the COVID-19 pandemic, student loan borrowers including those whose loans were in default were widely granted accommodations and as a result payment obligations for federal student loans were widely suspended. As these accommodations are set to end, a program dubbed “Fresh Start” has been mentioned by the Biden-Harris administration. The program includes, “allowing all borrowers with paused loans to receive a ‘fresh start’ on repayment by eliminating the impact of delinquency and default and allowing them to reenter repayment in good standing.”
While details have not been disclosed, based on an initial VantageScore analysis, if student loan borrowers take full advantage of such programs, they will likely experience positive changes to their score and financial health over time.
INITIAL IMPACT: By eliminating the impact of delinquency and default, many borrowers are likely to see scores improve. However, depending upon how the credit reporting is changed, as well as how the new information is interpreted by scoring models, some borrowers may see scores modestly decline.
IMPACT WILL DIFFER: There are many different credit scoring models and each model may interpret these changes differently. Additionally, credit scores take a variety of different factors associated with student loans into consideration including the number of accounts, balances, payment history, amounts paid down among others and these factors may impact borrowers differently based on their individual credit profile.
LONG TERM IMPROVEMENT: Despite some student loan borrowers potentially seeing initial score declines, they should broadly expect to see their credit score increase over time if they take full opportunity of the program benefits and maintaining their loans in good standing.
For the millions of borrowers struggling with their federal student loans in default, this is welcomed news.
And as details become available VantageScore will provide deeper analysis and offer additional information.