How Does Student Loan Forgiveness Affect Someone’s Finances?

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If you’re buried under a mountain of student loan debt, having it forgiven can be a huge relief. Forgiveness is generally possible if you’re disabled, part of one of the income-based repayment options or pursuing a career in public service. While getting your loans wiped out can seem like a lifesaver, it may come with some negative financial implications. I cover what you need to know below. You may also want to work with a financial advisor who can help you plan ahead for your student loans.

Student loan forgiveness and your credit

Generally, when a student loan is forgiven, it shouldn’t impact your credit in a negative way. As long as your loans were in good standing at the time they were discharged and your accounts are being reported properly to the credit reporting bureaus, you won’t see a huge difference in your score.

On the other hand, you could see your score drop if your account wasn’t in good standing prior to the discharge. For instance, if you fall behind on your loans because you become disabled, your loan servicer will report the missed payments on your credit. Once the loan is discharged the balance will show up as zero, but your lender isn’t required to remove the previous negative credit history.