A new report shows that your credit score may have been damaged by your student loans.
This is what you need to know:and what it means for your student loans.
Several student loan servicers, the companies that manage your student loan payments, allegedly made major mistakes during the Covid-19 pandemic, which may have directly affected your credit score. Those are the accusations within a shocking report, which describes large-scale errors related to your student loans that were larger than previously known. The report makes several alleged claims, including:
1. Student loan payments were not 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 cases in which student loan servicers failed to report the correct payment status of student loans 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 the credit reporting agencies that you were behind on your student loan payments. The report notes that, if true, this misinformation would violate the rights of student loan borrowers 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, a leading student loan servicer, incorrectly reported to credit reporting agencies that nearly 5 million borrowers he had defaulted on his student loans. As a result, these student loan borrowers may have suffered damage to their credit scores, which could have hurt them financially during the Covid-19 pandemic.
2. This student loan servicer incorrectly stated that 43,000 borrowers defaulted on their student loans.
Another student loan servicer, ESCI, allegedly told credit reporting agencies that 43,000 student loan borrowers defaulted on their student loan payments. Rather than characterizing these student loan borrowers as simply subject to temporary student loan forbearance under the Cares Act, the ESCI allegedly characterized these student loans as deferred. According to the Student Borrower Protection Center, not only may this have resulted in damage to the credit ratings of these student loan borrowers, it may have continued until June 2020 after the US Department of Education apparently said that such errors had ceased.
3. Student Loan Default Was Not Correctly Reported
The Cares Act stopped all collections 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 loan status for student loan borrowers differently. While some reported student loan status correctly, the report’s author discovered 5,290 instances where student loan borrowers were misreported. Inadequate reporting may have hurt student loan borrowers who were especially financially vulnerable during the Covid-19 pandemic.
Student Loans: Next Steps
The report’s findings come at an inopportune time for student loan borrowers, especially as many wonder if the student loan cancellation has been canceled. You should contact your student loan servicer to verify that your student loans and student loan payments were reported correctly. Student loan borrowers will get roughly $ 90 billion of student loan forgiveness during the Covid-19 pandemic, but you need to make sure your credit score is not affected due to a mistake. Separately, in the absence of an extension, as of 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 off any delinquent student loans.
Given the reporting of irregularities and other technical problems, the report’s authors question whether student loan servicers are equipped to manage student loan payments as of October. That said, there is no indication that student loan servicers have not corrected the mistakes that 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, especially when it comes to their student loans. This is especially important as student loan payments resume as of October 1, 2021.
If you have student loans, make sure you have a student loan game plan in advance. Here are some smart options you can consider to save money and pay off student loans faster: