With dreams of purchasing her first home, Alexandra Pimentel, a 32-year-old nonprofit worker in Seattle, meticulously monitored her credit report. Everything seemed normal until April last year, when she noticed a significant discrepancy. Her student loan balance, which should have been $45,000, was listed twice, effectively doubling her debt on paper.
Pimentel's situation stemmed from an error during the transfer of her loan from her old servicer, Nelnet, to her current servicer, the Missouri Higher Education Loan Authority (MOHELA). This mistake resulted in her loan appearing twice on her credit report, a problem that didn't resolve itself after several months. Despite her proactive efforts to address the issue, including filing disputes with credit agencies and complaints with the Consumer Financial Protection Bureau (CFPB), the duplicate record persisted, significantly impacting her credit score.
The Broader Impact
Pimentel's experience is far from isolated. At least 1.4 million duplicate student loan records have appeared on credit reports, according to sources familiar with the issue. This widespread problem affects many borrowers who may be unaware that their credit scores are being unfairly penalized. A lower credit score can lead to higher costs for car loans, mortgages, and other financial products, making this glitch a significant barrier for affected individuals.
The root of the problem lies in a 2021 change in how student loan servicers report transferred loans to credit reporting agencies like Experian, Equifax, and TransUnion. Previously, the servicer transferring the loan would close the associated credit tradeline, and the receiving servicer would open a new one. However, this procedure occasionally hindered borrowers' ability to challenge their previous repayment records. To address this, the Education Department mandated that the receiving servicer submit a file indicating the debt transfer and retain the borrower's prior repayment history. Unfortunately, this file often fails to process correctly, leading to duplicate records on credit reports.
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Efforts to Resolve the Issue
The Education Department has acknowledged the problem and is working on a permanent solution, but the process is slow. In the meantime, borrowers like Pimentel are left to navigate a confusing and often unresponsive system. When Pimentel initially contacted the credit reporting agency Experian, she was told that the servicers were reporting the loan accurately and nothing could be done. Similar frustrations were echoed by Weston Loehr, a doctor in Virginia, who discovered a duplicate $600,000 student loan balance on his credit report.
Loehr's attempts to resolve the issue through Experian were initially unsuccessful, leading him to file a complaint with the CFPB. After months of persistence, his duplicate record was finally removed. Loehr's experience highlights the significant time and effort required to correct these errors - a luxury not all borrowers can afford.
In response to the growing number of complaints, the Education Department has provided guidance to student loan servicers, instructing them to delete or close duplicate records when borrowers raise the issue. However, this workaround often results in the loss of borrowers' prior repayment histories, which can further complicate their financial situations.
Moving Forward
The Consumer Data Industry Association, representing credit agencies, has acknowledged the problem and is working with student loan servicers to address it. The association advises borrowers to monitor their credit reports regularly and report any inaccuracies.
Despite these efforts, the process remains cumbersome and slow. For borrowers like Pimentel and Loehr, the experience has been frustrating and disheartening. Pimentel, who had to put her home search on hold due to her damaged credit score, finally saw some relief when her credit score improved by 34 points after the error was corrected. However, the emotional and financial toll of the experience has left a lasting impact.
The glitch in the student loan transfer process underscores the importance of accurate and efficient credit reporting. As the Education Department and credit agencies work towards a permanent solution, borrowers must remain vigilant in monitoring their credit reports and advocating for their financial well-being. For many, like Pimentel, the journey to homeownership and financial stability has been significantly delayed, highlighting the need for swift and effective resolution of such systemic issues.
