Some student loan borrowers have seen their credit score drop following passage of the CARES Act.
Robert P., a student loan borrower from Queens, New York, was surprised to find out that this credit score had dropped by 100 points after his federal student loans serviced by Great Lakes Higher Education were automatically placed into a forbearance. This happened following passage of the CARES Act. Another borrower named Ashley Higgins experienced a credit score drop during the same time period and told a local news affiliate about what happened. Other borrowers (who wished to remain anonymous) have reported similar credit score hits, as well.
These borrowers’ student loans are in good standing, and no payments are due. So what is going on here? Why are their credit scores dropping?
CARES Act Background
The CARES Act — a federal stimulus bill passed in response to the COVID-19 pandemic — provides for significant student loan relief. Specifically, the legislation suspends payments, interest, and collections on government-held federal student loans from March 13, 2020 to September 30, 2020. The suspension is automatic, meaning borrowers did not have to take any affirmative steps to obtain the relief. Their student loan accounts were simply placed into forbearance, and billing was suspended.
The CARES Act payment suspension is not supposed to have any adverse credit consequences. The months of suspended payments are supposed to be counted towards federal loan forgiveness and rehabilitation programs, as if the borrower was still making normal monthly payments. The U.S. Department of Education has confirmed to the media that a borrower’s credit should not be impacted by the CARES Act forbearance.
Despite this, some student loan servicers appear to be reporting the student loans as delinquent or in a non-payment status to national credit bureaus.
Student Loan Servicers Promise To Update Credit Reports
On May 14, 2020, Great Lakes released a statement stating that it is working with the major credit reporting agencies to accurately report the status of student loan accounts. The servicer did not admit to any wrongdoing, stating, “We do not believe our reporting has impacted actual consumer credit scores.” This, of course, directly contradicts the experience of many student loan borrowers.
Great Lake’s statement on May 14, 2020.
Screenshot by Adam S. Minsky
Robert P., one of the borrowers impacted by the credit reporting snafu, has already seen his score bounce back. But other borrowers are still waiting, and it is unclear how many student loan borrowers have been impacted by the negative credit reporting.
What To Do About Inaccurate Negative Credit Reporting
Borrowers and other consumers have important legal rights under the Fair Credit Reporting Act (FCRA).
- 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 FCRA, you are entitled to one free credit report annually from each of the three major credit bureaus (Equifax, Experian, and TransUnion). However, due to COVID-19, Annual Credit Report is offering free weekly online reports through April 2021.
- 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. Note that only erroneous or inaccurate credit reporting can be removed following a formal dispute. Negative information that was accurately reported — 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, 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.