A new report shows that your credit score may have been damaged by your student loans.
Here’s what you need to knowâand what it means for your student loans.
Multiple student loan managers – the companies that handle your student loan payments – have reportedly been made major errors during the Covid-19 pandemic, which may have directly affected your credit score. These are the allegations inside a shocking report, which describes large-scale errors involving your student loans that were larger than previously known. The report makes several alleged allegations, including:
1. Student loan payments were not reported correctly
The Cares Act, the $ 2.2 trillion stimulus package, allowed student loan borrowers to suspend their student loan payments during the Covid-19 pandemic. However, the report details tens of thousands of new cases in which student loan managers failed to report good student loan repayment status to credit reporting agencies. Simply put, even though you weren’t required to make a student loan payment, your student loan officer may have told credit reporting agencies that you were behind on your student loan payments. The report notes that if true, this misrepresentation would violate the rights of student loan borrowers under the Cares Act as well as the Federal Consumer Protection Act, including the Fair Credit Reporting Act. For example, according to a lawsuit last May, Great Lakes, a leading student loan manager, falsely reported to credit reporting agencies that nearly 5 million borrowers had stopped paying their student loans. As a result, these student loan borrowers may have seen their credit scores damaged, which could have hurt them financially during the Covid-19 pandemic.
2. This Student Loan Manager Wrongly Said 43,000 Borrowers Stop Paying Their Student Loans
Another student loan manager, ESCI, reportedly told credit bureaus that 43,000 student loan borrowers had stopped paying their student loan payments. Rather than characterizing these student loan borrowers as simply being temporarily forborne from student loans under the Cares Act, ESCI reportedly characterized these student loans as deferred. According to the Student Borrower Protection Center, this may not only have resulted in damage to the credit scores of these student loan borrowers, but may also have continued until June 2020 after the US Department of Education apparently said these errors had ceased.
3. Student loan default was not reported correctly
The Cares Act suspended all federal student loan debt collection for student loan borrowers whose student loans were in default during the Covid-19 pandemic. However, according to the report, student loan services reportedly reported the loan status for student loan borrowers differently. While some have correctly reported the status of student loans, the author of the report uncovered 5,290 instances in which student loan borrowers were wrongly reported as in default. An incorrect reporting may have harmed student loan borrowers who were particularly vulnerable financially 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 whether the cancellation of student loans has been reversed. You should contact your student loan manager to verify that your student loans and student loan payments have been reported correctly. Student loan borrowers will get around $ 90 billion in student loan cancellations during the Covid-19 pandemic, but you need to make sure that your credit score has not been affected due to an error. Separately, in the absence of an extension, from 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 seized to pay off any delinquent student loans.
Given the reports of embezzlement and other technical issues, the report’s authors question whether student loan managers are equipped to handle student loan payments starting in October. That said, there is no indication that student loan managers have failed to correct the errors that occurred during the Covid-19 pandemic. Expect student loan managers to be front and center during the Biden administration. President Joe Biden, the US Department of Education, and the Consumer Financial Protection Bureau, among others, will continue to work to ensure consumers are protected, especially when it comes to their student loans. This is all the more important as student loan payments resume on October 1, 2021.
If you have student loans, make sure you have a student loan game plan ahead of time. Here are some smart options to consider to save money and pay off student loans faster:
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