The CARES Act passed by Congress in March effectively postponed federal student loan payments through September in light of the economic crisis caused by the coronavirus pandemic — but some borrowers say their credit scores have taken a hit as a result.
29-year-old Andrew Dellinger says he has been particularly on-top of his weekly Credit Karma reports lately. He and his wife plan to buy their first home in Wisconsin in a few months — so he was shocked when he suddenly got an email saying his Equifax score dropped 53 points last week.
“There was a remark on my account, and the remark had said that my loans had been put into deferment," says Dellinger. "I’m paid ahead through October actually, and I have auto-pay set to pay beyond the minimum amount required, so the irony of it is pretty stark.”
Dellinger says the remark on his federal student loans with servicing company Great Lakes was the only change to his account.
Then, Dellinger did what many people would do in a similar situation: he took the matter to Facebook, and found some of his friends had experienced the same thing. 26-year-old Paul Hotaling of Utica is over six months ahead on his student loan payments — but both his Equifax and TransUnion scores dropped about 20 points, seemingly after his automatic April payment was set aside by the CARES Act.
“Probably closer to the average based on what I’ve seen," says Hotaling. "Like on Twitter, and what people were talking about, it seems to be 20-30 [points] is about the average. But again, that can swing pretty wildly I guess.”
Hotaling has been researching the claims online ever since — but aside from personal accounts on social media and the occasional report by a local news outlet, information has been hard to come by, making for a rather confusing few days. Great Lakes appears to be the only loan servicer mentioned so far, with some borrowers reporting a range of dropped scores, and others seeing no negative change at all.
When the CARES Act passed in March, Great Lakes notified customers that it was moving accounts — even those with auto pay — into administrative forbearance through September. Borrowers could contact Great Lakes to opt out of forbearance and continue making payments if they wanted, but Section 3513 of the CARES Act explicitly states that the Department of Education and its servicers must report suspended payments to credit reporting agencies as if nothing is wrong — as if they are regular, scheduled payments.
"So clearly this is an error on the part of Great Lakes and how they're reporting it — what are they going to do to resolve it?" asks Dellinger.
Great Lakes didn’t respond to multiple calls from WAMC seeking comment, and the U.S. Department of Education did not respond in time for broadcast. In a social media post late last week, Great Lakes denied any wrongdoing, writing: “We’re working with credit reporting agencies (Equifax, Experian, TransUnion, and Innovis) 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 recommend contacting credit reporting agencies directly to obtain your actual credit score and credit report, rather than relying on information from third party services, which often use different formulas.”
— Great Lakes (@MyGreatLakes) May 14, 2020
FAFSA recently echoed those sentiments in its own statement, prompting Credit Karma to shoot back on Twitter: "Credit Karma does not create credit scores or credit reports. Credit reports and scores are determined by the credit bureaus and credit scoring companies. Credit Karma relays the information created by those companies."
Hotaling got another answer: he says when he called Great Lakes himself, the servicer appeared to take responsibility.
“They said that the way they’re gonna go about fixing it is the remark’s gonna remain throughout April, and then they’ll fix it for May going forward and retroactively change April," Hotaling explains. "But they only fix things on a month-end basis, so I guess they expect people to just kinda live with this for a month.”
Dellinger says he was told the same thing, easing fears for the time being despite the wait. But William Riccardi, assistant professor at the University at Albany School of Business, says it may not be that easy. He says Great Lakes is basically just the messenger — while it may retroactively fix the mark on its end, that doesn’t necessarily mean the credit reporting agencies will budge.
“There might be no problem, the credit reporting agency might update it — or they might not. And if they don’t update it, at that point Great Lakes has done everything that they’re supposed to do," says Riccardi. "And it’s very, very difficult to get in contact with somebody at the credit reporting agencies to explain the situation to a person and tell them, ‘Look, this is what happened, the lender fixed it, but it’s still on my credit report. What do I do?’”
Recounting his own experience a few years ago, Riccardi says it took several months for one of the agencies to fix an error on his report, even with two separate letters from the lender taking full responsibility for the mistake. Riccardi guesses that, given the quick turnaround of the CARES Act, the recent discrepancies could be the result of a simple technological error at Great Lakes. But he also notes that the calculations behind our credit scores and the machinations of credit reporting agencies are rarely transparent, and therefore it’s often hard to determine who’s at fault in these situations.
Luckily, Dellinger says he’s in a good place financially at the moment, and he is putting his home search on hold until his score is corrected. But he feels bad for people who may be seeking additional funding, especially right now. The pure confusion and lack of communication, he says, has been the most frustrating.
"I want a practical solution for this, and I want the person who's accountable for it to own it and say, 'Hey, we're sorry that we did this, this is really unfortunate, let's correct it,'" says Dellinger. "It's a simple thing that people are asking for here: own it, and fix it."
After calling Great Lakes again, Dellinger says the servicer acknowledged the reporting error and said it would expedite its correction process in light of his housing plans. In response to complaints online, Great Lakes has typically written back: “If you believe our reporting is inaccurate or has negatively impacted your score, please give us a call at (800) 236-4300."