Can Student Loan Forgiveness Remove That Debt From Credit Reports?

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Many students take up loans to finance their education; sometimes, these student loans are forgiven. Nevertheless, what is their implication on your credit report? Many forms of student loan forgiveness programs, such as PSLF, Teacher loan forgiveness, and President Biden’s loan forgiveness program, have touched the media too much recently. President Biden’s plan of student loan forgiveness is set to benefit many borrowers, but at the same time, it has raised many questions, with many wondering what will be its implications to their credit scores and future credit report.

Under President’s Biden plan, federal students who have defaulted in payment of their student loans will have their credit report appearing as paid in full once repayment begins. However, this will not remove the account from your credit report. This move will help improve many students’ credit scores since their debt-to-income ratio will improve. You can also remove the inaccuracies of your student loan to improve your credit score, but either way, this move will not completely remove your debt history from the credit report.

Forms of student loan forgiveness:

Public Service Loan Forgiveness (PSLF) –

In this loan forgiveness program, federal students who took up student loans qualify for loan forgiveness if they have been working for at least ten years full-time in a non-profit organization and have made 120 payments. Here’s more info about this program: https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service

Teacher Loan forgiveness –

Low-income schoolteachers who have been working for at least five consecutive years are eligible for federal loan forgiveness of up to $17,500.

President Biden’s loan forgiveness program –

President Biden, in August 2022, announced a new one-time loan forgiveness program in which federal student borrowers can qualify for loan forgiveness for up to $10,000. This plan will benefit many, but currently, the program is on hold, awaiting a Supreme Court ruling.

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How does student loan forgiveness affect your credit score?

As much as student loan forgiveness is beneficial, sometimes these student loan forgiveness, whether PSLF or Biden’s plan, can still affect your credit score. Loan forgiveness can affect your credit score in the following ways.

Defaulted loans – when your student loan is forgiven, the loan will be removed from your credit report and replaced with “in repayment.” This move is under the fresh start program.

Credit mix – student loan forgiveness can cause your credit score to drop by a few points because your credit mix initially showed that you could handle several credits.

Age of credit – if you have your student loan as the oldest loan and it’s forgiven, your credit score will decrease because your credit history makes up 15% of your credit score.

How do you know if your student loan has been forgiven?

Your student loan does not automatically disappear on its own. You will have to apply for loan forgiveness through several programs such as PSLF, Teacher Loan Forgiveness, or Income-Driven Repayment Forgiveness. Most of the time, these programs have very strict requirements for you to qualify for student loan forgiveness, and sometimes applications can take many years to be accepted. Once your application is successful, you will be notified by the program, but most of the time, the chances are quite low.

In other debt circumstances, your loan can be forgiven after seven years since that is when the statute gives credit to sue you for defaulting. However, this can affect your credit score terribly.

How do you remove that debt from your credit report?

With accurate information about you, the student loan cannot be removed from your credit report, but if errors exist on your credit report, you can file to dispute the errors and have the loan removed. You can do this by filling out a report with online credit bureaus such as Equifax and TransUnion. These bureaus will help you in handling credit report disputes.

You can also send the dispute to the loan servicer that serviced your loan. You must write a letter stating your account information and the loan with errors and why it should be removed. Most of the time, they require you to produce a supporting document.

Conclusion –

Student loan forgiveness can help in improving your credit score over time, but it won’t happen overnight. When you are granted student loan forgiveness, your loan will be stated as paid in full, but your loan account will not be removed from your credit report. It says on there as part of your credit history. Students who wish to have their loans forgiven can apply to PSLF or Teacher Loan Forgiveness programs.


Disclaimer: The information provided is for informational purposes only. The materials are general in nature, are not offered as advice or guarantee, and should not be relied upon without advice from an attorney or a financial advisor. Reading the information does not constitute a legal contract, consulting, or any other relationship with Advantage Credit Counseling Service.
Author: Lauralynn Mangis
Lauralynn is the Online Marketing Specialist for Advantage CCS. She is married and has two young daughters. She enjoys writing, reading, hiking, cooking, video games, sewing, and gardening. Lauralynn has a degree in Multimedia Technologies from Pittsburgh Technical College.