A new report shows your credit score may have been damaged from your student loans.
Here’s what you need to know—and what it means for your student loans.
Multiple student loan servicers — the companies that manage your student loan payments — allegedly made major errors during the Covid-19 pandemic, which may have directly hurt your credit score. Those are the allegations inside a shocking report, which describes wide-scale errors involving your student loans that were larger than previously known. The report makes several alleged claims, including:
1. Student loan payments weren’t reported correctly
The Cares Act, the $2.2 trillion stimulus package, allowed student loan borrowers to pause their student loan payments during the Covid-19 pandemic. However, the report details tens of thousands of new instances in which student loan servicers didn’t report the correct student loan repayment status to credit reporting agencies. Simply put, even though you weren’t required to make a student loan payment, your student loan servicer may have told credit reporting agencies that you were delinquent on your student loan payments. The report notes that if true, this misreporting would violate student loan borrowers’ rights under the Cares Act as well as federal state and federal consumer protection law, including the Fair Credit Reporting Act. For example, according to a lawsuit last May, Great Lakes, one of the leading student loan servicers, incorrectly reported to credit reporting agencies that nearly 5 million borrowers had stopped paying their student loans. As a result, these student loan borrowers may have had their credit scores damaged, which could have made hurt them financially during the Covid-19 pandemic.
2. This student loan servicer incorrectly said 43,000 borrowers stopped paying their student loans
Another student loan servicer, ESCI, allegedly told credit reporting agencies that 43,000 student loan borrowers stopped paying their student loan payments. Rather than charactertize these student loan borrowers as simply being in temporary student loan forbearance per the Cares Act, ESCI allegedly characterized these student loans as deferred. According to the Student Borrower Protection Center, this not only may have resulted in damage to the credit scores of these student loan borrowers, but also may have continued to June 2020 after the U.S. Department of Education apparently said such errors had ceased.
3. Student loan default was not reported properly
The Cares Act paused for all collection of federal student loan debt for student loan borrowers whose student loans were in default during the Covid-19 pandemic. However, according to the report, student loan servicers allegedly reported the loan status for student loan borrowers differently. While some reported the student loan status correctly, the author of the report uncovered 5,290 cases in which student loan borrowers were incorrectly reported as being in student loan default. Improper reporting may have hurt student loan borrowers who were especially vulnerable financially during the Covid-19 pandemic.
Student loans: next steps
The findings in the report come at an inopportune time for student loan borrowers, particularly since many are questioning whether student loan cancellation has been cancelled. You should contact your student loan servicer to check that your student loans and your student loan payments were reported correctly. Student loan borrowers will get approximately $90 billion of student loan forgiveness during the Covid-19 pandemic, but you should make sure your credit score didn’t get impacted due to an error. Separately, absent an extension, starting on October 1, 2021:
- Your federal student loan payments will resume;
- student loan interest will continue to accrue on your federal student loans;
- your wages, Social Security payments or tax refunds, for example, could be garnished to pay for any student loans in default.
Given reporting malfeasance and other technical glitches, the authors of the report question whether student loan servicers are equipped to manage student loan payments starting in October. That said, there is no indication that the student loan servicers haven’t corrected the errors that have occurred during the Covid-19 pandemic. Expect student loan servicers to be front and center during the Biden administration. President Joe Biden, the U.S. Department of Education and the Consumer Financial Protection Bureau, among others, will continue to work to ensure that consumers are protected particularly when it comes to their student loans. This is especially important as payments for student loans resume starting October 1, 2021.
If you have student loans, make sure you have a student loan game plan in advance. Here are some smart options for you to evaluate to save money and pay off student loans faster: