Student loans are on hold, so why has your credit score dropped?
A new trial claims that student loan service agents and credit bureaus allegedly ruined your credit score.
Here’s what you need to know.
Today, individuals representing a class of millions of student borrowers filed a federal application trial in Northern California against five of the nation’s largest financial firms for allegedly illegally ruining borrowers’ credit and mismanaging student loan debt relief under the CARES Act following the COVID-19 pandemic. The lawsuit named student loan manager Great Lakes (a subsidiary of Nelnet) as well as consumer news agencies Equifax, TransUnion, Experian and Vantage Score. Great Lakes is one of the largest federal service providers student loans and student loan services for approximately 8 million clients.
“During a national pandemic, these companies illegally damaged the credit of millions of people,” said Seth Frotman, executive director of the Student Borrower Protection Center, which supports the plaintiffs in the lawsuit. “For too long, the student loan system has crushed borrowers when they got out of hand, while the industry has been given a free pass when it hurts millions of people. Borrowers deserve justice.”
The allegations: damaged credit score
The plaintiffs make several allegations, including that their credit scores were inappropriately damaged when their federal student loans were suspended due to the CARES Act – the $ 2.2 trillion financial stimulus package. Under the CARES Act, all federal student loan payments are suspended from March 13, 2020 to September 30, 2020. Accordingly, borrowers are not required to make federal student loan payments. In addition, borrowers who do not make payments should have no impact on their credit rating. Despite this law, the plaintiffs allege that their credit score was damaged anyway. This error, which may be due to a “coding error”, may have affected up to 5 million student loan borrowers.
For example, plaintiff Cody Hounanian, program director at the nonprofit Student Debt Crisis, learned that his credit rating declined after his federal student loans were suspended. According to its lawsuit, Great Lakes erroneously reported that its federal student loans were “deferred” (rather than legally suspended under the CARES Act). As a result, his credit rating plummeted and he says he was unable to purchase a home, resulting in “immediate and measurable financial loss.” Following complaints from borrowers, Great Lakes publicly admitted the error in a tweet on Twitter and said it would correct the error retroactively.
Likewise, Experian noted on its website that “the Ministry of Education will report suspended payments to national credit bureaus as if they were on-time payments.”
What Should You Do If Your Credit Score Was Damaged After Suspending Student Loans?
If your credit score has been affected, or if you want to know if your credit score has been affected, you should check your credit report. Go to AnnualCreditReport.com for a free copy of your credit report from the three major credit bureaus. You can also contact the Student Loan Protection Office if your credit rating changed on or after March 13, 2020 and you believe it was reported by the Great Lakes. Finally, you can also contact your lender to inform them of the error so that they can correct it for you. Remember, your federal student loans are on hold and your credit should not be negatively affected until September 30.
Student loan repayment options
What’s the best way to pay off student loans faster? Start with these four options, all free: