Will Student Loan Forgiveness Impact VantageScore® Credit Scores?
VantageScore®

Published August 31, 2022
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The short answer is yes. Usually when loan balances are reduced, regardless of the type of loan, a person’s VantageScore credit score will likely go up.

VantageScore previously reported on the impact the U.S. Department of Education’s (ED) “Fresh Start” program had on scores, which focused on borrowers who had previously defaulted on their student loans.

More recently, it has been announced that many student loan borrowers are eligible for a $10,000 reduction of their student loan balance if their individual income is less than $125,000 (or less than $250,000 for married couples).

Nearly 8 million borrowers may be eligible to receive relief automatically because relevant income data is already available to ED. Additionally, for borrowers on which the ED doesn’t have income data, a simple application process will be announced in the coming weeks. Here’s what these borrowers can expect:

MOST SCORES IMPROVE*: Depending on the model, a large majority of eligible borrowers (80% to 92%) are expected to experience no change or only positive change to their VantageScore credit scores with an average score increase of up to 27 points.

SOME VOLATILITY: Some borrowers who have been historically making payments on their student loans and have low outstanding balances are expected to see small score decreases averaging 12 points. That is because a portion of the positive history on active student loan accounts will not play a part in the score calculations.

NET POSITIVE: From a credit score perspective, these announced changes to the student loan marketplace will help creditworthy borrowers obtain the credit they need to be financially successful.

*Editors’ Note: This analysis was based on a broad sample of student loans and not solely on consumers that would meet the eligibility requirements. The actual impact to credit scores could be different than described above.

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