When the coronavirus stimulus package, known as the CARES Act, passed, federal student loan borrowers were relieved to learn they’d get a break on payments for the next six months.
Little did millions of them know their credit scores would take a hit as a result.
Amid the personal and financial turmoil caused by the coronavirus pandemic, people whose student loans are serviced by Great Lakes Educational Loan Services had one more headache to deal with when the company made an error and effectively reported their postponed payments due as unpaid.
While some borrowers only experienced a loss of a few credit score points or none at all, others saw significant drops in their credit scores that, if not fixed, could lead to difficulty securing housing or accessing credit in the future.
If you also have federal student loans, here’s how to check if your credit took a hit and what to do if it did.
Coding Error Leads To Millions Of Inaccurate Credit Reports
Under the CARES Act, federal student loan payments have been automatically paused through Sept. 30, 2020, to provide borrowers with some financial relief during the pandemic. Even so, student loan servicers are required to continue reporting payments as “on time,” essentially pretending that the monthly payment is $0, in order to avoid any negative impact on borrowers’ credit score.
Instead, Great Lakes reported the payments as “deferred,” an indication that suggests borrowers couldn’t meet the terms of their loan agreements. That bad information was reported by all three credit bureaus, and damaged credit scores produced by the firm VantageScore. This affected an estimated 4.8 million borrowers.
Once the mistake was discovered, Great Lakes issued a statement that it was “working with credit reporting agencies ... to ensure the accuracy of the information we reported regarding COVID-19 forbearances, and we do not believe our reporting has impacted actual consumer credit scores provided by those agencies.”
“We provided an updated credit file to the credit reporting agencies on May 15, and all four agencies have processed the file,” a Great Lakes representative told HuffPost.
VantageScore also said in a written statement that it was making changes to its algorithm “to minimize the potential of any negative impact associated uniquely with the usage of forbearance and deferment codes.”
Though Great Lakes originally stated it did not believe that the reporting error resulted in changes to consumer credit scores, it’s clear that many borrowers experienced immediate negative changes to their credit.
As a result, the Student Borrower Protection Center filed a class-action lawsuit against Great Lakes, national consumer reporting agencies Equifax, Experian and TransUnion, and VantageScore for mishandling this relief under the CARES Act.
This certainly wouldn’t be the first time a student loan servicer came under fire for negligence. In 2017, for example, student loan servicer Navient was the subject of three different lawsuits by government agencies. Last year, the state of New York sued FedLoan for failing miserably at processing student debt forgiveness applications.
“It is not uncommon for student loan servicers to be sued for inaccurate or misleading reporting in general,” said Clark Ovruchesky, an attorney who specializes in consumer law. “Millions of data points are updated every month between student loan servicers and credit bureaus about consumers, so inaccurate reporting is inevitable.”
Ovruchesky said that he’s not aware of any similar cases filed against other servicers, but noted that it’s still early since this issue has just come to light.
How To Check Your Credit Reports
Whether or not you’re a Great Lakes customer, it’s a good idea to check up on your credit if you have federal student loans that were recently paused under the CARES Act.
Everyone is entitled to get a free copy of their credit reports from each of the three major credit bureaus ― Experian, Equifax and TransUnion ― once per year. In light of the coronavirus pandemic, consumers are able to pull their reports weekly for free through April 2021.
There is only one website that’s federally authorized to provide free credit reports. Visit annualcreditreport.com to find yours. Alternatively, you can call (877) 322-8228 and request them.
Once you have your credit reports, examine each one to make sure all the information is correct. Because each credit bureau collects and reports your information independently, it’s possible to have an error on one report but not on another, which is why you should review all three.
Start by double-checking your personal information, such as your name, address and Social Security number. Errors in this information could cause another person’s credit information to be reported as your own. Also review all the tradelines (accounts) listed to make sure they’re accurate, including the date opened and/or closed, the balance, credit limit, payment history and current status.
What To Do If Your Student Loan Servicer Messed Up Your Credit
If you reviewed your credit reports and found a problem, there are a few steps you should take to have it fixed and get your credit back in shape.
Dispute the error with the credit bureaus: “The federal law that protects consumers for patently inaccurate or materially misleading reporting is the Fair Credit Reporting Act,” Ovruchesky said. He explained that under the FCRA, you have the right to dispute inaccurate information with the entities reporting it, and those parties have 30 days to investigate and resolve the dispute. You can dispute credit report errors through each of the credit bureaus’ websites. “If they continue reporting inaccurate information, then the consumer would have a legal claim under the FCRA.”
File a dispute with your creditor: In addition to disputing the error with the credit bureaus, you also have a right to dispute the accuracy of any information on your credit report with the company that reported the information, said Tony Wahl, director of operations at Credit Sesame. He suggested sending a letter disputing the specified information. Whether the creditor is Great Lakes or another organization, it again has 30 days to investigate.
Regularly check your credit reports and scores: Once you’ve filed a dispute, it’s important to follow up and ensure your credit reports have been corrected. Plus, it’s a good idea to continually check up on your credit and make sure there aren’t any other issues. In addition to pulling your detailed reports from annualcreditreport.com, there are also a number of ways to check your FICO and VantageScore credit scores for free.
Consider hiring an attorney: If you’re struggling to resolve a credit report dispute over information you definitely know is wrong, it might be time to hire legal help. The good news about the FCRA, Ovruchesky said, is that it allows for the recovery of attorneys’ fees. That means many consumer law attorneys don’t charge anything out of pocket for pursuing these types of cases because they know the creditors, servicers and/or credit bureaus will be responsible for paying their fees if the lawsuit is successful.
“That’s an important component for these types of cases because most consumers are not in a position to pay hundreds of dollars an hour to hire attorneys on their own to help them resolve inaccurate reporting issues,” he said.