Students: Check Your Credit Reports for Student Loan Glitches
Source: SDI Productions / Getty
A glitch with paperwork that transfers student loan accounts is creating duplicate balances on credit reports. The error occurs when the current loan service provider transfers the loan to another service provider. As a result, student credit scores are lowered. However, the duplicate record disappears within a few months. It’s being reported that about 1.4 million duplicate student loan records are impacted by this issue and that students are unaware that it’s happening.
In 2021, student loan servicers that manage the government’s $1.6 trillion education loan portfolio changed how they report transferred loans to credit reporting agencies, Experian, Equifax or TransUnion. The policy previously required that the service provider with the loan, close the records connected with the account, the credit tradeline, and the receiving service provider would open another account. This procedure created problems with borrowers who needed to dispute their prior repayment history with the credit bureaus. The current policy allows the service provider receiving the loan to submit a file, a L1segment, to the credit bureaus informing them that the debt transferred from another service provider and that the prior history should be retained. According to the U.S. Department of Education, the reports are not being processed properly by credit agencies.
The U.S. Department of Education says that it has received close to 500 credit reporting complaints since December. They are unable to verify how many complaints are based on student loan duplications. However, the student aid office of the Education Department has made credit agencies aware of what it calls a “weakness” in the reporting process. Federal and state regulators have also been advised about the glitch in paperwork.
