A new report issued last week provides new evidence that the U.S. Department of Education and its loan servicers may have damaged the credit of thousands of student loan borrowers as it implemented a freeze on federal student loan payments last year.
The report, issued by the Student Borrower Protection Center (SBPC), details the messy rollout of the CARES Act in March 2020, which was enacted in response to the COVID-19 pandemic. The legislation codified President Trump’s earlier suspension of payments, interest, and collections on all government-held federal student loans. Federal student loans that had been in normal repayment were automatically placed in a special moratorium, freezing all payments and interest.
The suspension should not have resulted in any credit damage to student loan borrowers. According to federal law, during the payment suspension period, the Department of Education and its loan servicers were required to report each month of suspended payments to credit bureaus “as if it were a regularly scheduled payment made by a borrower.”
However, it became apparent early on that some student loan borrowers experienced erroneous reporting and credit damage as the payment moratorium was put into effect. In May 2020, borrowers filed a class action lawsuit against Great Lakes Higher Education — one of the Education Department’s largest contracted student loan servicing companies — alleging violations of the Fair Credit Reporting Act and other statutes for reporting to credit bureaus that student loan borrowers were not making their payments. Some credit bureaus treated the change in reporting as a negative event, leading to drops in credit scores.
But the new report by the SBPC suggests that the credit reporting issues were not just limited to Great Lakes. The report indicates that another servicer, ECSI, also may have misreported the payment status of over 40,000 student loan borrowers to one or more credit bureaus. Other student loan servicers, including the Pennsylvania Higher Education Assistance Authority (PHEAA) — which operates FedLoan Servicing — and Navient, may have misreported some borrowers’ student loan statuses to credit bureaus during the rollout of the CARES Act, as well.
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Even more concerning, the SBPC report suggests that the Department of Education under former Secretary Betsy DeVos was made aware of these issues, but may not have taken adequate steps to address the problems. The report indicates that “it is not clear from the records the SBPC obtained whether [the Department] investigated the root causes or full extent of these errors, attempted to determine whether or how badly affected borrowers suffered direct financial harm, or ordered remediation for injured borrowers.”
The report concludes that these types of errors and mistakes will persist unless the new administration under President Biden and Education Secretary Miguel Cardona takes affirmative steps to oversee and better regulate federal student loan servicing companies. In particular, the report notes that “the Biden Administration has not yet rescinded the Trump-era guidance blocking state agencies and the [Consumer Financial Protection Bureau] from supervising and enforcing consumer protection laws against federal student loan servicers.”
In the meantime, if your student loan servicer has misreported your student loan status to credit bureaus, you have legal rights and potential recourse. Here are some actions you can take:
- Pull your credit. First, if you’re unsure whether or not your student loan status has been reported accurately to credit bureaus, you may want to consider pulling your credit report. Under the Fair Credit Reporting Act (FCRA), you are entitled to one free credit report annually from each of the three major credit bureaus (Equifax
EFX, Experian, and TransUnion TRU). However, due to COVID-19, Annual Credit Report is offering free weekly online reports.
- Contact your lender or servicer to resolve reporting errors. If you see inaccurate negative information on your credit report, contact the entity reporting the information (usually the lender or servicer) and request that they correct the reporting. Do so in writing so that you have a record of the request.
- File a formal dispute with the credit bureaus. If the lender or servicer does not act on your request, you can file a dispute directly with the applicable credit bureau (Equifax, Experian, or TransUnion) and request a removal or correction of the incorrect reporting. However, only erroneous or inaccurate credit reporting can be removed following a formal dispute. Negative information that was reported correctly — even if there were mitigating factors — may not be removed.
- Get legal help. If your dispute is unsuccessful and you have been harmed by the inaccurate credit reporting (for example, if you were denied new credit or experienced an increase in your interest rate for a line of credit), you may want to contact an attorney. The FCRA does provide consumers with the right to sue a lender, servicer, or credit bureau in certain situations involving erroneous or inaccurate credit reporting, but it very much depends on your specific situation. You would need to find an attorney licensed in your state of residence. You can start with the National Association of Consumer Advocates, a national bar association of consumer rights attorneys.