diff --git a/src/compiler/checker.ts b/src/compiler/checker.ts
index f17f079008b..8ba023ce05a 100644
--- a/src/compiler/checker.ts
+++ b/src/compiler/checker.ts
@@ -10929,7 +10929,7 @@ namespace ts {
                 declaration.initializer &&
                 getFalsyFlags(declaredType) & TypeFlags.Undefined &&
                 !(getFalsyFlags(checkExpression(declaration.initializer)) & TypeFlags.Undefined);
-            return annotationIncludesUndefined ? getNonNullableType(declaredType) : declaredType;
+            return annotationIncludesUndefined ? getTypeWithFacts(declaredType, TypeFacts.NEUndefined) : declaredType;
         }
 
         function checkIdentifier(node: Identifier): Type {
diff --git a/tests/cases/compiler/defaultParameterAddsUndefinedWithStrictNullChecks.ts b/tests/cases/compiler/defaultParameterAddsUndefinedWithStrictNullChecks.ts
index 04a9e668b32..d2e167c83a3 100644
--- a/tests/cases/compiler/defaultParameterAddsUndefinedWithStrictNullChecks.ts
+++ b/tests/cases/compiler/defaultParameterAddsUndefinedWithStrictNullChecks.ts
@@ -27,6 +27,13 @@ function foo4(x: string | undefined = undefined, b: number) {
     x = undefined;
 }
 
+type OptionalNullableString = string | null | undefined;
+function allowsNull(val: OptionalNullableString = "") {
+    val = null;
+    val = 'string and null are both ok';
+}
+allowsNull(null); // still allows passing null
+
 
 
 // .d.ts should have `string | undefined` for foo1, foo2, foo3 and foo4