In the government’s initiative to reduce the financial burden on student loans, it has allowed borrowers to delay any loan payments on certain types of loans, mostly federal, until October under the CARES Act. If the HEROES act were to pass in the Senate, after it already passed Congress, then student loan repayments could be pushed farther back to December. The issue is that with reduced staffing and many people working from home, there is a general lack of oversight that occurs. Therefore, mistakes like late fees for nonpayments, payment notices, or in the case of Great Lakes Education Loan Services, make incorrect reporting to credit bureaus. Many borrowers under Great Lakes recently discovered that their credit score dropped because their payments which were legally postponed were instead reported as deferred.
According to Politico “the company, because of a “coding error,” erroneously reported to the credit bureaus that borrowers’ accounts were “deferred” — a notation that appeared on credit reports and triggered a lower credit score for some individuals.” The Department of Education estimates that at least 2/3rd of the 7.3 million borrowers accounts were affected by this error in Great Lakes’s system. Great Lakes is a loan servicer for both federal and private student loans. Although the company urges that it is not a big deal for these credit scores to drop, consumer advocate agencies argue otherwise. Low credit scores can affect a person’s ability to be approved for a house, apartment, car, or loans they may need, especially during this time of economic recession.
DOE spokeswoman Angela Moribita said in the Politico article: “Providing incorrect information to credit reporting bureaus is totally unacceptable, but it’s important to understand Great Lakes quickly corrected the coding issue last Friday and sent updated credit reporting files to ensure as little impact as possible from the coding error.” Nelnet, the owner of Great Lakes and one of the top federal loan servicers, declined to comment and referred to the DOE to answer further questions.
Mike Pierce, policy director at the Student Borrower Protection Center, commented: “ “There are no guarantees when millions are newly looking for work that their job prospects or their housing prospects aren’t going to be held back by the fact that, for millions, their credit reports say they’re less responsible.” Pierce previously worked in the Consumer Financial Bureau during the Obama administration
As of now, no other student loan servicers have been reported on repeating the same error as Great Lakes. Likely further errors will occur in these agencies as the government is continuously changing legislation and guidelines for borrowers during this pandemic. Many borrowers who have continued to make payments during this grace period have faced difficulties with finding a rest period due to all the uncertainty. Great Lakes have reported that they fixed the error in the system and do not expect it to repeat. Yet, it is unclear how quickly the millions of borrowers’ credit scores will be corrected in time and what long lasting consequences will arise.