The Student Loan Credit Crisis
How government errors are dragging down credit scores across the country
The federal student loan system has long been riddled with errors. But since the government resumed collections on defaulted loans without ensuring accurate loan information, these failures have compounded into a persistent, large-scale problem—with serious consequences for borrowers’ credit scores and reports.
Millions of people are struggling with false, misleading, or outdated credit reporting tied to their federal student loans. Thanks to systemic failures by the Department of Education and its contractors, loan data, like balance, payment and delinquency status, is routinely misreported to credit agencies. Some borrowers see their balances misreported with higher totals than they owe, while others find loans that have already been paid off, forgiven, or discharged still reported as active.
The Result:
Credit scores are being dragged down through no fault of the borrower and rampant errors on credit reports—making it harder to rent an apartment, finance a car, or even get a job or healthcare. Even one inaccurate detail can drag down a credit score for years. That can mean:
A family turned away or unfairly charged more for housing.
A worker denied a job opportunity.
A patient turned away from healthcare or charged more for insurance.
A borrower forced to pay higher interest or fees on everyday credit.
Trapped in a Broken System
Once an error lands on their credit report, borrowers have no real way to fight back. The dispute process is supposed to fix mistakes—but in reality, it rarely works. Borrowers spend months navigating a maze of servicers and credit reporting agencies, only to see errors remain.
Low income students and students of color—who are more likely to borrow, hold higher balances than their peers, and are less likely to have built other forms of credit—are especially vulnerable. These errors reinforce inequity and deepen the wealth gap.
Erica D. from California
“I received a letter from the Department of Education in 2022 stating that all of my loans from Heald College were fully discharged. However, my servicer, Aidvantage, only discharged some of the loans and reported the rest as active to the credit bureaus. My credit score dropped drastically, and my credit card limit was even reduced because of a loan balance that should not exist.
I have contacted both the Department of Education and Aidvantage multiple times, only to be bounced back and forth with no solution. As a single parent, this has been stressful and disruptive, and I hope it is corrected soon.”
Philip S. from Florida
“I already felt like I’d be paying off my loans forever, like I’d never be able to buy a house — and then MOHELA suddenly added another $15,000 I don’t even owe, all at once in May. I only found out because it showed up on my credit report.
When I called, they told me, ‘oh, don’t worry about it, we’ll put that extra money towards one of your other loans after this one is paid off.’ But that means I’d pay extra interest instead of paying down my principal debt. That’s not how loans work.
Now I have to check my credit constantly because I don’t trust them. The fact that they can just add $15,000 I don’t owe — and it goes straight onto my credit score — is fraud."
Our Commitment
The Project on Predatory Student Lending has been fighting for student borrowers for more than a decade. Now we are leading a national campaign to expose the Student Loan Credit Crisis and demand accountability from the government and its contractors.
“Borrowers are being punished for errors they didn’t cause and cannot fix. These systemic failures aren’t just technical glitches—they’re life-changing blows that block people from opportunity. Our clients deserve fairness, accountability, and a real chance to rebuild.”
Eileen Connor, President & Director of the Project on Predatory Student Lending
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