Biden’s $10,000 student-debt cancelation is a game-changer for borrowers’ wallets — but what happens to their credit scores?
At a time of record-high borrowing costs and rising prices, people need all the help they can get from their credit scores.
TransUnion — one of the country’s three major credit reporting agencies alongside Experian EXPGF and Equifax EFX — recently ran a simulation digging into the potential credit-score implications of Biden’s student-debt cancelling executive order. Forgiving $10,000 of hypothetical student debt pushed 9% of those consumers in the “static” model to a higher score range, and did the same for 20% in the “trended” approach, the research showed.
“That being said, there were some consumers where we did see shifts in risk tiers. That went in both directions,” Harmon said. A New York Fed study, released months before Biden’s announcement, estimated that more than half the share of forgiven debt would go to borrowers with scores under 660, suggesting that there is ample room for upside. That held true with both a $75,000 income cap and no income cap, New York Fed researchers noted.
When it comes to underwriting, most lenders still review credit scores based on “static” scores, he noted. Supporters say student-loan forgiveness could help borrowers pay down other debts and build wealth. despite skyrocketing higher-education costs. But opponents say it’s an unfair windfall that will further fuel inflation.
Though student-loan debt cancellation is exempt from federal income taxes, the tax laws vary from state to state.
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