Student Loan Relief: Is it Actually Going to Happen?

The latest on student debt forgiveness, legal challenges to President Biden's plans, and how these changes impact your credit score.

Key Takeaways

Those who have borrowed federal student loans eagerly await the removal of up to $20,000 from their balances, as announced in August. However, a recent decision by a federal appeals court has paused loan forgiveness, leaving many wondering whether they’ll be seeing any relief after all.

Read on for the latest news, including how these changes could affect your credit score.

Student loan relief is temporarily on hold

The federal appeals court that paused debt relief plans did so in order to consider a challenge brought on by six Republican-led states. Opponents to the relief package claim that it is not within the Biden administration’s authority to make the far-reaching decision.

Other lawsuits against Biden’s plan are also being pursued, but the federal appeals case is the one responsible for the current delay.

The administration plans to continue loan relief preparations

While the temporary hold may seem like a setback, the Biden administration has explained that all activities related to preparing for loan forgiveness will continue as normal. 

Additionally, eligible borrowers are still being encouraged to apply for student debt relief. The applications will continue to be reviewed and prepared for delivery to loan servicers.

Those eligible for a $10,000 debt forgiveness include individuals who earned less than $125,000 in either 2020 or 2021 and married couples or heads of households who made less than $250,000 in those years.

If a borrower also received a federal Pell grant while enrolled in college, they may be eligible for up to $20,000 of debt forgiveness.

Biden’s plan includes more than just debt relief

The Department of Education has released additional provisions that will be included in the student debt forgiveness package. 

Some of these additions are intended to enhance more specific loan forgiveness programs, like the programs for borrowers who attended for-profit schools that were later determined fraudulent. These individuals will be able to file a borrower defense claim in hopes of having their full federal student loan balance forgiven.

Other components are intended to prevent interest from spiraling beyond control on borrowers’ balances, enhance debt relief for borrowers who are permanently disabled, and make improvements to the Public Service Loan Forgiveness program.

When will student loan debt be removed? 

President Biden has assured student loan borrowers that relief is coming soon, with checks going out by mid-November. Recipients should not expect direct payment – the loan forgiveness funds will be delivered to the loan service providers, and borrowers will see reductions in their loan balances.

How will student loan relief affect your credit? 

For most consumers, a decrease in the amount owed to lenders will result in a credit score increase. This is due to a credit factor called credit utilization. Credit utilization is determined by how much debt you have compared to available credit. When your debt level goes down, your credit utilization improves. 

For a few borrowers, however, student loan relief could have a negative impact. If the debt relief is enough to pay off your student loan balance in full, it could adversely affect two credit factors: credit mix and credit age. Read this blog post to understand how less debt could actually result in a lower score.

How to protect and improve your credit score 

There’s no need to wait around for debt relief to give your credit score a lift – there are a few things you can do now to improve your finances and build a brighter future:

Keep making your student loan payments on time

It only takes one late payment to seriously damage your credit score. Although it may seem tedious or frustrating to continue making payments on student loan balances that are yet to be forgiven, it’s important to stay on top of your due dates.

Use your bills to build your credit

As you look forward to reducing the amount you owe to creditors, the last thing you want to do is take on even more debt. Fortunately, there’s a way to build credit without opening a credit card, taking out a loan, or paying a security deposit. 

StellarFi uses your regular monthly bills, like rent, utilities and streaming services, to build your credit. Just sign up and link your bills and bank account. We’ll report linked bill payments to all three major credit bureaus. 

 Best of all, there’s no minimum score to join, no interest charges, and no surprise fees. 

Check it out.


StellarFi (StellarFinance, Inc.) and its affiliates do not provide financial, tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own financial, tax, legal, and accounting advisors before engaging in any transaction. StellarFi receives a referral fee from the partners mentioned in this article.