Could Student Loan Forgiveness HURT Your Credit Score?

August 24, 2022
5 mins

President Biden’s recent student loan forgiveness plan will bring relief to millions of borrowers dealing with heavy debt loads and costly interest expenses. But could a payoff HURT your credit? 

The truth is a little murky. Here’s what you need to know:

Yes, student loan forgiveness could lower your credit score.

However, this will only be the case if student loan forgiveness pays off the entire student loan balance. This is because a loan payoff can affect two factors that make up your credit score: credit age, and credit mix.

How student loan forgiveness impacts your credit age

The temporary dip on your score could be caused by the effect of paying off a loan that counts toward your credit age. Your credit age tells lenders how long you’ve been using credit. It’s usually determined, or heavily influenced, by the age of your oldest OPEN credit account. 

For many, student loans are a consumer’s first and oldest credit account. When an account is paid, it is also closed. Because credit bureaus do not factor closed accounts into a consumer’s credit age, the borrower’s score may take a slight hit sometime after the student loan balance is paid off.

How student loan forgiveness impacts your credit mix

Your credit mix accounts for around 10% of your credit score. A consumer’s credit mix consists of the different types of credit accounts they have open. Having more than one type of credit looks good to lenders, but having only one type of credit may affect your score negatively.

A diverse mix of accounts would include both installment loans and revolving lines of credit. 

Installment loans, such as student loans or a car payment, feature consistent monthly payments in the same amount made toward a predetermined balance. Revolving credit, such as credit cards, feature monthly payments that can fluctuate and a line of credit that can be borrowed against at any time.

Student loan forgiveness could negatively impact your credit mix IF your student loan is your only installment loan, and your loan is paid in full. This is because paying the balance in full will close the account, and the installment account would no longer benefit your credit mix.

Should you worry about student loan forgiveness hurting your score?

For a few individuals, the dip could be problematic. For example, if you’re in the process of closing on a mortgage loan, even the slightest change to your credit score can upend your plans.

However, in the vast majority of cases, the benefits of student loan forgiveness will outweigh the temporary slip in your score. In the short-term, you’ll have more room in your budget for saving and investing. In the long-term, you’ll pay far less interest over time. Both of these effects are healthy for your personal finances and for your credit score overall.

Learn moreDo You Qualify for Student Loan Forgiveness?

Can you still build credit if you have student loan debt?

Improving your credit score is simple, even when you have significant student loan debt. You just need the right tools. 

StellarFi helps you build credit just by paying your bills. There’s no credit check, and no interest fees. You can use StellarFi no matter how much student loan debt you have.

The StellarFi blog is intended to serve as an informational resource. While StellarFi can help you build your credit, we do not provide financial, legal, or accounting advice. Please consult a trusted advisor for financial, legal, or accounting guidance as needed.

Related Articles

Your “Zombie Debt” Could Come Back to Haunt You

Zombie Debt is rising from the dead, but it's not after your brains...it wants your money.

Your “Zombie Debt” Could Come Back to Haunt You

Zombie Debt is rising from the dead, but it's not after your brains...it wants your money.

Your “Zombie Debt” Could Come Back to Haunt You

Zombie Debt is rising from the dead, but it's not after your brains...it wants your money.

Your “Zombie Debt” Could Come Back to Haunt You

Zombie Debt is rising from the dead, but it's not after your brains...it wants your money.

5 Strategies to Build Credit Fast

What can you do to build credit quickly? There are several strategies and tools you can use to establish new credit, or improve your credit score. Take a look at the top 5 ways to build credit fast.
Building Credit
3 minute read

How Young People Can Build Credit

When it comes to building credit, the best time to start is now! Here's how young people can build credit, what to do if you have NO credit, why it's important to build your credit, and more.

6 Mistakes People Make When Paying Down Debt

Paying down debt is a great way to boost your credit score and reduce costly interest payments. Try to avoid these common errors to make the process easier and faster.

How to Build Credit Fast (Even if You Have None)

Learning how to build credit fast can be confusing and overwhelming. Check out our helpful guide complete with explanations, tips, and tools to help you build credit, even if you have no credit score.

How Do Student Loans Affect Your Credit Score?

How do student loans affect your credit score? This resource takes a closer look at how student loans can help - or hurt - your credit history.

7 Consequences of Having a Low Credit Score

Meta: The consequences of having a low credit score are bigger than you may think. Here are seven ways a spotty history can cause friction in your daily life.

Why Am I Not Being Approved For A Credit Card?

Why am I not being approved for a credit card? If you’ve found yourself asking this question, one of these nine common credit denial reasons may be to blame.

How Long Does it Take to Build Credit from Nothing?

Are you one of the 16% of Americans without a credit score? Here's how long it usually takes to establish your credit, plus some tips to speed up the process.

What is the Lowest Credit Score You Can Have?

Many know that the highest credit you can earn is 850. But what is the LOWEST credit score you can have? This one might surprise you! Check it out.
Join our newsletter
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
By subscribing, you agree to our Privacy Policy and provide consent to receive updates.

On-time payment history can have a positive impact on your credit score. Nonpayment may negatively impact your credit score. StellarFinance, Inc. will report your on-time payments to Experian®, Equifax® and TransUnion®. Impact on your credit may vary, as credit scores are independently determined by credit bureaus based on a number of factors including the financial decisions you make with other financial services organizations.