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Student Loan Borrowers File Class-Action Lawsuit Against Federal Loan Servicers

Unprecedented levels of unemployment attributed to non-essential businesses closing due to COVID-19 have officially scorched the job outlook. Student loan borrowers are feeling the burn too, with many of them left money-strapped and scrambling for means during the crisis.  Many of these borrowers received government assistance in the form of the CARES Act. After getting it, some of them are reporting that they got a rude surprise in the form of alleged erroneous credit reporting that led to reduced credit scores. In response, student loan borrowers who say they are affected are filing a lawsuit against Great Lakes and the top three credit agencies Equifax, Experian, and TransUnion.

CARES Act Credit Protection

The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a federal law signed into law by Congress in March. The stimulus bill passed as a response to the COVID-19 crisis, gives short-term student loan relief and other vital recovery and resiliency provisions. In short, the CARES Act provides student borrowers automatic suspension of principal and interest payments on their federally-held student loans until September 30th of this year. The CARES Act also gives consumers certain credit protections. According to MarketWatch, “It [the CARES Act] dictates how companies that send data to the credit bureaus will report accounts for which consumers have payment accommodations in place.”

Student loan borrowers can request that their lenders add a code to their credit report that indicates they were affected by a declared or natural disaster. FICO does not take into account the codes when calculating your credit scores, but VantageScore disregards late payments for accounts labeled with that code.

Credit Scores Dinged After CARES Act Passes

Student loan borrower, Robert P, has student loans serviced by Great Lakes Higher Education. He discussed with the media how his credit score plummeted after the CARES Act was passed. The Queens, New York, resident was surprised to see that his credit score had dipped 100 points after his federal student loans automatically entered into forbearance. Another borrower, Ashley Higgins, spoke to the local press about a similar ding to her credit score at roughly the same time. Higgins noticed the significant drop when she checked her credit. Additionally, other student loan borrowers that wish to remain anonymous reported the same type of credit score dings.

These incidents, according to borrowers, took place once the CARES Act passed. According to them, their student loans are not delinquent, and the accounts are “in good standing.” The CARES Act payment suspension is not supposed to have negative credit consequences for student loan borrowers. The U.S. Department of Education spoke to the media and corroborated that fact. So why are these borrowers saying their credit is affected adversely?

One of the student loan borrowers, Robert P., said he already saw his credit score rebound. However, uncertainty surrounds others who wait to hear back. The number of student loan borrowers affected by adverse credit reports is unknown for the time being.   

Great Lakes Responds, Releases Statement

Student loan servicer, Great Lakes Higher Education Corp says that it is working alongside major credit agencies to ensure that student loan account status is accurately conveyed.  Additionally, and although it flies in the face of what many student loan borrowers are experiencing,  the student loan servicer did not admit they did anything wrong.  They released a statement on May 14, 2020, to that effect saying, “We do not believe our reporting has impacted actual consumer credit scores.” Six days later, student loan borrowers filed a class-action lawsuit in federal district court against Great Lakes and major credit bureaus Experian, TransUnion and Equifax. The lawsuit alleges that the organizations violated state and federal laws related to erroneous reporting of credit.  

What to Do If You Have a Student Loan

It’s hard to think about your credit when you are eating ramen noodles as a student in between student loan checks, but your credit scores play an essential role in your future financial endeavors. In a financial crisis (such as now), access to good credit is the next best thing to a hulking emergency fund. Financial experts say that it is always best to stay on top of student loans and monitor the process so you don’t get any rude surprises. 

Also, if you have a student loan through Great Lakes Higher Education Corp, you will want to view your credit report. That’s recommended because of the allegations saying that debts of some account-holders were inaccurately reported during CARES Act automatic forbearance to major credit reporting bureaus. There are almost five million student loan borrowers whose federal loans are serviced by them who potentially have dinged credit scores.

Before Your State Reopens, Do This

You should do an extensive financial check before your state reopens that includes your credit score and a credit report. If you have student loans in CARES Act forbearance, check right away. While paused payments during the six months shouldn’t adversely affect your credit history, it is still good to see if that is indeed the case. 

Your credit report is a breakdown of your credit history that you can request for free. Some credit bureaus only offer a minimum amount that you can request without charging you, though. After that, there are free credit reporting tools that can be used to check your credit score. More importantly, Great Lakes Borrowers should check their credit reports now from each of the three credit reporting bureaus at government-managed AnnualCreditReport.com. Doing so is free. Another trick is to sign up for free trials. You can do that and keep your account later if you like it and want to keep on top of your credit score on an ongoing basis.

If you see a negative mark on your report, be sure to dispute that error with the appropriate credit bureau. Filing a dispute is often as easy as crafting a formal letter and sending it to the creditor and sending another one to the credit bureaus where the error shows up.

Credit Repair Scams

Today, Americans carry a whopping $1.5 trillion in student loan debt, and odds are if you are reading this article, you have a student loan. Chances are also good that you took advantage of the CARES Act forbearance for student loan relief. If you are someone that has negative information in your credit history, know that rebuilding your credit is a process. And it is a process that takes time and requires you to focus on the basics.

What you don’t want to do is get discouraged and shell out money to get someone to repair your credit. Anyone who claims they have the ability to miraculously clean up or fix your credit for money is most likely scamming you. So, save your hard-earned cash. After all, Grit Daily readers, you need that money to keep your credit score nice and shiny!

If you like reading articles about student loans, here’s one that’s a break from the heavy ones. The light-hearted article discusses the drastic things Millennials say they would do to clear up their student debt.