Your student loans are on hold. But check your credit score
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Under normal circumstances, not paying your student loans can to crush your credit score.
During the pandemic, however, federal student loan borrowers were supposed to get a break from their bills, and their lenders were supposed to report their payments as on time anyway.
This is not how it is.
A class action lawsuit, filed on behalf of millions of federal student loan borrowers, alleges that Great Lakes Student Loan Services inaccurately reported the payment status of millions of federal student loan borrowers, slashing their scores and jeopardizing their access to credit during a recession.
Some borrowers have seen their scores drop as much as 100 points.
The plaintiffs allege that Great Lakes has declared borrowers’ student loans to be “deferred,” a statute which suggests they cannot meet the terms of their loan agreement. Congress has asked the Department of Education to report payments to the credit bureaus as on time.
VantageScore, one of the leading companies providing credit scores, noted he was making changes to his algorithm “to minimize the potential for any negative impact associated only with the use of forbearance and deferral codes.” Of course, borrowers of all types have turned to these breaks for relief during the pandemic.
Great Lakes issued a statement saying it was working with credit reporting companies to “ensure the accuracy of the information we have reported regarding Covid-19 abstentions.” He also said he didn’t think his reports had an impact on consumers’ credit scores.
Yet the stories of borrowers with injured scores continue to mount.