Student Borrowers Sue Education Department for Reporting Cancelled Loans as Debt
PPSL estimates that Department is falsely reporting $4.6 billion of cancelled debt, impacting over 300,000 people
September 24, 2026 — Student borrowers today filed a proposed class action lawsuit against the U.S. Department of Education for continuing to report federal student loans as active, years after the Department cancelled the loans. The lawsuit, filed in the U.S. District Court for the District of Columbia, seeks damages under the Fair Credit Reporting Act.
Between April 2022 and January 2025, the Department announced final group discharges covering more than 1.5 million borrowers and $23.4 billion in loans associated with schools where it found widespread fraud and misconduct. The Department told eligible borrowers that the relief was automatic, that they had no obligation to make additional payments, and that they did not need to take further action.
Despite those final decisions, the Department continues to furnish information to Equifax, Experian, and TransUnion showing cancelled loans as outstanding debt, often with balances that continue to grow as interest accrues. PPSL estimates, based on publicly available data, that the Department is falsely reporting $4.6 billion of cancelled debt, impacting more than 300,000 people.
Those inaccurate credit reports affect borrowers’ ability to qualify for mortgages, rent homes, obtain auto loans and credit cards, secure employment, and build financial stability. For example, lenders offering federally-insured home loans are required to count deferred student loan debt when deciding whether a prospective homeowner qualifies for a mortgage, which can add hundreds of dollars to a borrower’s monthly payments.
“The government cannot tell borrowers their loans are cancelled, report those same loans as debts they still owe, and then ignore them when they try to correct the record,” said Eileen Connor, President and Executive Director of PPSL. “These borrowers have done everything asked of them, but this false debt is still shaping where they can live, what they can borrow, and what their futures look like. PPSL has fought for years to secure relief for people harmed by predatory schools. Now we are fighting to make sure that relief is real — and to hold the government financially accountable when its failures continue to harm borrowers.”
The Fair Credit Reporting Act requires entities that supply information to credit bureaus to investigate disputes reasonably and correct or delete information that is inaccurate, incomplete, or unverifiable. In 2024, the U.S. Supreme Court unanimously held that federal agencies are subject to the law’s damages provisions just like private creditors.
Plaintiff Mandy Woods borrowed approximately $65,000 to attend Ashford University. In January 2025, the Department announced that qualifying Ashford loans would be discharged automatically. Woods contacted her servicer and Federal Student Aid repeatedly, sought help from the FSA ombudsman and her member of Congress, and submitted detailed disputes to all three major credit bureaus. Her servicer deemed correspondence about the dispute “frivolous” or “irrelevant.” As of August 2026, her credit reports showed that she owed $71,901 — approximately $2,000 more than when she filed the disputes.
“When I was told my loans would be discharged, I was so relieved. I thought I could finally put this behind me,” said plaintiff Mandy Woods. “Instead, I’ve been jumping through hoops, getting different answers depending on who I talk to, and watching a debt I was told I no longer owe keep growing on my credit report. I’ve done everything they asked me to do, and I’m still stuck in limbo. The Department said these loans would be cancelled. It needs to follow through and make that real.”
Plaintiff Jorge Cortes, a Marine Corps veteran, borrowed federal student loans to attend ITT Technical Institute. The Department’s August 2022 group discharge covered his loans, but his August 2026 credit reports still showed a balance of $21,586. After Cortes disputed the reporting with all three major credit bureaus, his servicer said it had investigated and concluded the information was accurate.
“When the Department of Education told me these loans were discharged, I thought I could finally put them behind me and start rebuilding my life, but my credit report tells a different story,” said plaintiff Jorge Cortes. “Years ago, I trusted ITT’s promises and was lied to. Then I trusted the government when it said my loans were cancelled because of ITT’s fraud, and now I feel like I’ve been lied to all over again. I know there are so many others in this position who feel scared and don’t know what rights they have. I’m part of this lawsuit to bring this problem to light and fight for all of us.”
The lawsuit marks a new phase of PPSL’s work to hold the federal government accountable to student borrowers. After securing the historic $23 billion Sweet settlement — the largest class action settlement in U.S. history and the largest financial settlement ever against the federal government — PPSL is now seeking damages for borrowers whose financial lives continue to be harmed by debts the Department has already cancelled.
The complaint is available here. For more information about Woods v. US Department of Education, visit the case page.
PPSL previously filed a lawsuit against the U.S. Department of Education after the agency failed to respond to fifteen Freedom of Information Act (FOIA) requests seeking records about its implementation of these group discharges.
About the Project on Predatory Student Lending
The Project on Predatory Student Lending (PPSL) is the leading legal organization representing student borrowers against predatory for-profit colleges and the policies that enable institutions to exploit and cheat students. PPSL uses bold, strategic litigation and advocacy to demand accountability in the higher education space and influence policy solutions to create a more just and affordable education system. PPSL represents more than two million student borrowers and its work has resulted in the cancellation of $50 billion of fraudulent student loan debt.
About Berger Montague
Berger Montague is one of the nation’s preeminent law firms focusing on complex civil litigation, class actions, and mass torts in federal and state courts throughout the United States. With more than $2.4 billion in 2025 post-trial judgments alone, the Firm is a leader in the fields of complex litigation, antitrust, consumer protection, defective products, environmental law, employment law, securities, and whistleblower cases, among many other practice areas. For over 55 years, Berger Montague has played leading roles in precedent-setting cases and has recovered over $50 billion for its clients and the classes they have represented. Berger Montague is headquartered in Philadelphia and has offices in Chicago; Malvern, PA; Minneapolis; San Diego; San Francisco; Toronto, Canada; Washington, DC, and Wilmington, DE.
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