Dept. of Education Falsely Reports Discharged Federal Student Loans to Credit Agencies, Class Action Lawsuit Claims

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A proposed class action lawsuit alleges that the United States Department of Education falsely represents to credit reporting agencies that certain borrowers’ previously discharged federal student loans are still outstanding and accruing interest, causing significant financial and reputational harm.

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The 28-page lawsuit accuses the U.S. Department of Education of damaging borrowers’ credit by continuing to represent to credit reporting agencies discharged federal student loans as active, interest-accruing debts, even though the agency, between April 2022 and January 2025, granted unconditional federal student loan relief to former students of certain for-profit educational institutions.

The suit claims that the Education Department’s “nonsensical and plain wrong” credit reporting has resulted in inaccurate credit profiles for borrowers, in violation of the Fair Credit Reporting Act (FCRA), a federal law which plainly prohibits furnishing inaccurate or misleading credit information.

“[Proposed class members] face a higher cost of borrowing, the potential loss of credit opportunities, and are at risk of other financial and reputational consequences because their credit reports include tens or even hundreds of thousands of dollars of debt that the Department has conceded they have no obligation to ever repay,” the class action lawsuit summarizes.

According to the complaint, the Education Department’s group discharge decision was based on findings of apparent “widespread fraud and misconduct” at certain “predatory” for-profit schools, and was applied automatically to “any and all” federal loans related to borrowers’ enrollment at those institutions.

However, the filing contends that the DOE has violated the FCRA by continuing to falsely and inaccurately report discharged federal student loans to credit reporting agencies as active, to the detriment of borrowers who were told that they “had no present or future obligation” to make payments and that no action was needed on their part.

“This erroneous, inaccurate, and misleading information is reflected on Plaintiffs’ consumer credit reports, factors into their credit profiles, and is seen by any individual or entity that utilizes consumer credit information in making determinations about whether to extend credit (and on what terms), offer employment, grant a security clearance, or agree to provide housing,” the case stresses.

Per the lawsuit, the plaintiffs notified each major credit reporting agency that the Education Department was providing false information, and provided the department with evidence that their loan debt was “legally extinguished,” copies of their individualized notices where available, and proof of attendance at a covered group-discharge institution to dispute the credit reports.

Despite the apparent preponderance of evidence, the DOE has failed to update or correct its credit reporting to reflect that more than 1.5 million affected borrowers’ federal loans were discharged, the lawsuit alleges. The case accuses the department of having plainly violated the FCRA, which requires that entities that furnish information about consumer debt only provide “complete and accurate” information, and that inaccurate information must be modified, deleted or blocked from being reported.

Accurate and complete consumer credit report information is critical because even small errors can impact a consumer’s cost for mortgages, auto loans, credit cards, and more, the complaint says.

The United States Department of Education class action lawsuit looks to cover all individuals with an address in the United States and its territories who had Federal Student Aid account(s) for Direct or Federal Family Education Loan(s) and met the criteria for one or more of the DOE’s group discharge decisions, but whose loans the department reported to credit reporting agencies as having an outstanding balance owed on qualified loan debt, for the period beginning two years prior to the filing of the complaint until the date of the court’s class certification order.

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