Skip to main content

$10,000 Student Debt Cancellation Study: Consumers’ Credit Risk Tiers Mostly Stay Unchanged, but Some May Have Immediate Positive or Negative Shift

The Biden Administration announced in August 2022 a series of changes for federal student loan borrowers, including the end of student loan forbearance after 2022, and financial relief efforts, such as $10,000 in debt cancellation for a wide swath of borrowers. TransUnion conducted a study to look at the immediate effect that $10,000 in debt cancellation might have on consumers’ credit risk tiers.*

Among the findings (as covered by MarketWatch), when using the VantageScore 3.0 credit model:

  • The vast majority of consumers (approximately 88 percent**) would see no change in the immediate term in their credit risk tier.
  • However, a small subset of borrowers could see their risk tier shift in a positive direction to a tier considered less risky (i.e., more likely to pay back their debt), and an even smaller set of borrowers (approximately 3 percent) could shift downward.
  • The cohort most likely to experience a negative shift has less than $10,000 in total outstanding student loan debt. It is presumed this is likely due to the closing out of student loan accounts, which can impact their credit mix (i.e., the variety of debt managed) – a factor in credit scores and thereby risk tiers.

The study also found that using a trended credit score model, such as VantageScore 4.0, mitigated the negative shifts observed with the static/point-in-time credit model (VantageScore 3.0). The trended credit models account for the immediate impact of debt cancellation plus consumers’ credit behavior across all of their debt obligations for several preceding months. 

As a pioneer in the use of trended data, TransUnion is able to incorporate a consumer’s past credit history to identify patterns in borrowing behavior, such as  paying off balances or consistently paying more than the minimum payment on a recurring credit bill. These insights provide lenders with a more comprehensive understanding of consumers’ creditworthiness, as well as an opportunity to expand financial inclusion and potentially assist a larger group of borrowers by broadening credit access.

Of course, any consumer who wants to know more about how student debt cancellation might affect them are encouraged to start by reviewing their credit report on a regular basis. The nation’s three credit bureaus – Equifax, Experian and TransUnion – recently announced the extension of free weekly credit reports through the end of 2023. 

Student Debt Relief Infographic

*The proposed student loan debt cancellation program limits eligibility based on income level and provides more debt cancellation to Pell Grant recipients. However, distinguishing between borrowers based on these factors is not possible with the TransUnion US consumer credit database. The study assumed debt cancellation would be reported as a one-time payment and that it would be applied to the oldest student loan first.

**Percentages are the weighted averages. Simulation was run on a subset of consumers categorized by whether they have one or multiple open student loans and whether the total balance of student loans was less than or greater than $10,000.

If you’re a consumer with questions or issues related to your personal credit report, drivers history report, disputes, fraud, identity theft, credit report freeze or credit monitoring services, please visit our Customer Support Center for assistance.

Business Contact Us

We're sorry, your request failed. Please try again in a little while.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.