President Joe Biden recently announced his plan to cancel $10,000 in student loans for all individuals that make less than $125,000. Individuals that received a Pell Grant are eligible to receive another $10,000 in loan forgiveness. President Biden’s landmark legislation will help thousands of low to middle-class Americans get out of debt. It is important to understand that debt reduction may have other beneficial consequences.
Credit Report
Normally, a debt that is discharged in bankruptcy takes 1 to 2 months to accurately report on your personal credit report. In this case, there will likely be millions of individuals applying for student loan forgiveness. It is expected that the individual’s credit report will not accurately update for as long as 4 months. This is yet another reason that it is critical to monitor your credit report for accuracy.
Credit Score
Another big question that qualified individuals are asking is whether this will boost their credit score. Revolving debt such as student loans can help some individuals maintain a higher score. Paying off the debt or having it forgiven may have no impact on an individual’s credit score or may even result in a slight drop if there is no other revolving debt in good standing.
How to Qualify
Department of Education is anticipating making the application for loan forgiveness public sometime in October. An individual would have to fill out the form and timely submit it for review. The Dept of Education estimates it will take another 6-8 weeks for the relief to take effect.