The government suspended federal student loan payments for six months with no interest and no penalties. But there's one loan company that has been accused of making a mistake, and borrowers claim they are seeing the effects of that mistake in their credit scores.
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Joan Stohl said she was stunned when she saw her Equifax credit score drop by 44 points and her Transunion credit score drop by 60 points. She said she got an alert indicating the drop was due to a recent student loan deferment.
"I was shocked that something that's supposed to help someone, help all of us financially would actually cause your credit score to drop," she said.
According to the Coronavirus Aid, Relief and Economic Security (CARES) Act, loan providers are required to automatically suspend federal loan payments and interest.
Borrowers' credit scores were not supposed to be impacted by this in anyway. But Great Lakes, a popular loan service company, has been accused of making a major mistake.
"What happened with Great Lakes is that they reported incorrectly," said Brian Gilder, a certified financial planner.
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Gilder said instead of reporting borrowers' accounts as "current," Great Lakes reported them as deferred. When you have a deferment on your credit report, he said your score will likely see a drop.
"And your credit score is the holy grail for money," Gilder said.
ABC7 contacted Great Lakes to find out how this could happen. A spokesperson apologized to borrowers saying, "We apologize for the inconvenience caused by this situation and have been committed to resolving the issue quickly. The CARES Act offers interest-free administrative forbearance on federally-held loans through September 30, 2020. On May 6, Great Lakes reported repayment borrowers to the credit reporting agencies in a manner it believed would not have a negative impact on borrower credit scores. On May 11, Great Lakes began receiving questions from borrowers regarding their credit scores provided through third-party credit services. Immediately, Great Lakes began researching these borrower accounts and determined there was an inconsistency between Great Lakes reporting and that of other student loan servicers. Instead of reporting borrowers as current with monthly payments of $0, Great Lakes reported borrowers as current with deferred monthly payments of $0. That same day, Great Lakes acknowledged the inconsistent coding and let our borrowers know we would adjust the inconsistency in reporting with the credit reporting agencies immediately. We also encouraged borrowers to contact the credit reporting agencies directly for information about their credit, as we believe the scores at the agencies were not impacted. An updated credit file was provided to the credit reporting agencies on May 15, and all four reporting agencies have processed the file. Our priority is providing an exceptional customer experience. When we fall short of our goal, our focus is to communicate openly and resolve the issue as soon as possible."
Great Lakes said that borrowers should contact credit reporting agencies, but they don't believe credit scores were impacted.
Stohl said that's just not true and while one of her credit scores is now back to normal the other is still down 40 points.
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"Be warned if you did not opt out...make sure you check your credit score," Gilder said.
Great Lakes now faces a class action lawsuit. The suit claims that millions of people were affected by the company's mistake and the actions of the credit agencies and they put people's credit scores in jeopardy. Great Lakes did not provide a response about the class action lawsuit.
For more information on credit scores, click here.
For more information on the CARES ACT, click here.
To view the lawsuit against Great Lakes, click here.