If your student loans have been forgiven under President Biden, you can look forward to a big difference in your credit report in some situations. But, removing a big debt from your credit report can also have adverse effects. Here's what to expect if your student debt has been forgiven.

How Were Your Loans Forgiven?

You may have qualified to have student debt forgiven under President Biden's Student Loan Forgiveness Program in several ways. Even though the Supreme Court struck down the majority of the plan many borrowers still qualify to have debts forgiven. These include the PSLF, Teacher Loan Forgiveness, and IDR forgiveness.

  • Public Service Loan Forgiveness (PSLF) – This type of forgiveness applies to federal loan borrowers who have worked full-time for a nonprofit organization or government agency for at least ten years and have made 120 qualifying monthly payments.
  • Teacher Loan Forgiveness – Teachers who teach in low-income schools or for education service agencies for a minimum of five consecutive academic years may qualify to have up to $17,500 of federal loan debts forgiven.
  • Income-Driven Repayment (IDR) Forgiveness – IDR plans allow borrowers to qualify for a payment based on their income, if a borrower still has federal student debt at the end of their IDR repayment plan, the remainder has been forgiven.

Some of these plans only forge a certain amount of debt, so if your outstanding student loan balance exceeds the maximum amount of forgiveness, you will still owe the remaining balance on your loan. In other cases, you may have a low enough amount of student debt that a forgiveness plan will remove your student debt completely.

Depending on whether you still have a balance, your credit will be impacted differently. If you still have a balance and are behind on your payments, you may still see some negative marks on your credit.

Student Loan Forgiveness: What Happens To Your Credit?

Credit Score Impact Can Vary

What happens to your credit report after your student debt is erased can vary depending on how your debt was forgiven, and if you were current on your payments. In some cases, having the installment credit from a student loan fall off your credit report can initially hurt your credit score.

This is because there are two types of credit, installment and revolving. Student loans fall under installment credit and add to your credit mix. Your credit mix is worth 10% of your credit score according to the FICO credit scoring model, the most widely used among lenders. When you remove something from the mix your score can decrease.

In the long run, though, it's better to show a paid-off loan than to have a solid credit mix. This is because payment history is worth 35% of your credit score, the most by far of the five factors that make up your credit score. So showing a large loan, like a student loan, paid off is going to affect your score more positively.

If your loans were in good standing, the forgiveness shouldn't impact your credit much. You can expect your score to fluctuate slightly, either up or down, but it should normalize after that.

And, if you had negative marks on your credit report from student debt, these could be wiped clean if your debt qualified. This is especially true if you qualify for the Fresh Start program. With this program, borrowers with loans that were in default could see a drastic improvement in credit score when defaulted loans are removed from their credit report and shown as in repayment, instead of in default.

However, the Fresh Start program isn't a given, borrowers must apply. In order to do this you can visit myeddebt.ed.gov, or call 1-800-621-3115.

Now That Your Student Debt Is Gone

The good news, once your loans are forgiven, you may have more financial freedom, and in some cases, you may even get a refund of some of your payments, depending on the type of forgiveness you received.

Any negative marks removed from your credit report could improve your credit score. This is a big help on the way to financial freedom.

Finally, if your federal student loans are forgiven, you could regain your eligibility for Federal Student Aid. This could open up new opportunities for school, and career advancement.

With debts off your credit report and your score on the rise, you could also have the opportunity to get more loan chances that you couldn't get before, such as auto loans, or mortgages.