Student loan borrowers discover significant drop in credit score following CARES Act protections

The federal CARES Act paused those student loan payments to give relief to borrowers during the coronavirus crisis.

ATLANTA — The federal government paused student loan payments for millions of Americans to help them through this crisis.

But Channel 2 Action News has learned that some loan service providers reported student loan borrowers to credit agencies because of this.

That is causing some people's credit scores to drop dramatically even though they didn't do anything wrong.

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Channel 2 investigative reporter Justin Gray uncovered that this is not the way the law was intended to work.

The Trump administration told Gray that loan servicers were told when they paused loan payments to treat it, as far as credit reporting, like the payments were still being made.

But Gray learned that some companies did not do what they were told, and student loan borrowers are the ones suffering because of it.

One woman, who only identified herself as Vickie, said she got an alert email from her credit monitoring service.

“I checked my credit scores and they had fallen from more than 50 points,” Vickie said. “I panicked.”

A dramatic drop that came out of nowhere.

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Ashley Higgins said she noticed it over the weekend. She's been working hard the past couple years to improve her credit score.

She told Gray that she was ready to refinance her home.

“My heart sank. I didn’t know what to do because I hadn’t done anything wrong and I have taken this blow to my credit,” Higgins said.

If you look at Vickie and Higgins’ credit reports, you see the problem is with their student loans.

Both women have the loans paid automatically each month. They've never missed a payment.

The federal CARES Act paused those student loan payments to give relief to borrowers during the coronavirus crisis.

“We got the notice that the loans were being deferred until I think September, and was like, ‘That’s great,’” Vickie said.

But then her loan servicer reported the pause to the credit agencies and her scores dropped because of it.

“This is a ridiculous problem,” said Channel 2 consumer advisor Clark Howard.

Howard said this is not what the law intended.

“Now the servicers of those loans are reporting people as delinquent who haven’t done anything other than what the law allows,” Howard said.

The servicer on Vickie and Higgins’ loans is the same — Great Lakes, one of the country's largest student loan servicers.

Betsy Mayotte with the Institute of Student Loan Advisors told Gray that loan servicers had to update their computer programming in a matter of days because of the CARES Act, and that Great Lakes may not be the only company with this problem.

“They all have credit reporting deadlines and some of them weren’t able to get all that programming done by the deadline,” Mayotte said.

Gray contacted the U.S. Department of Education. They told him that borrowers’ credit scores were never supposed to be impacted by the suspended payments.

In fact, they directed loan servicers to report to credit agencies, just like regular payments were being made.

Whitney Barkley-Denney from the Center for Responsible Lending said the federal government can and should force the loan servicers to follow the rules.

“They have multimillion dollar contracts with these servicers and, by the way, it’s taxpayer money that’s paying these servicers to properly service student loans and so the Department of Education absolutely has a role in enforcing their contracts,” Barkley-Denney said.

When Vickie called Great Lakes to complain, they told her they would fix the credit score mistake, but that's sometimes easier said than done.

“Getting an error changed on your credit can be a lengthy process and I just don’t have the brain-width right now to do that,” Vickie said.

Howard said you may have to take action on your own.

“Dispute those delinquencies with Equifax, TransUnion and Experian. It’s a fairly simple process and it starts an investigation of the information being there incorrectly,” Howard said.

It pushed Higgins' credit score from excellent to fair, and she now worries how that will affect her work to refinance her home mortgage.

“Overnight, all of that work is gone through no fault of my own. It’s just out of my control and extreme anxiety,” Higgins said.

Gray repeatedly attempted to contact Great Lakes over the past two days. They told him late Tuesday afternoon that as a Department of Education contractor they cannot comment at all about the problem.

Late Tuesday night, a Department of Education representative told Gray that preliminary research showed the problems were caused by a coding issue and the department is working to fix it and repair borrowers credit score by the end of the month.

Channel 2 Action News has learned that this is not the only issue that has come up with the CARES Act.

The bill also suspended garnishing wages for people behind on student loans, but in court filings on Monday, the Department of Education admitted it is still garnishing the wages of more than 50,000 borrowers, nearly two months after it was supposed to stop.​

The bill provides money for increased testing and gives money to hospitals -- but it sends the majority of cash to small businesses, including many here in Georgia.