Buzz
By now, if you're a student loan borrower, you're likely aware of the good news: Most federal loans are automatically placed in forbearance until the fall. This means you don’t have to make any payments, but loan servicers are still reporting the loans as paid on time. It's essentially a six-month break.
However, there's a small problem: ensuring the proper information about the forbearance period is sent to the credit bureaus. As we’ve learned this spring, making widespread adjustments due to the coronavirus takes time and doesn’t always go as planned.
This is why many student loan borrowers turned to Reddit over the weekend after noticing their credit scores dropped by up to 50 points. The only explanation most users could find was that their federal student loans had been updated on their credit reports to reflect that they were deferred or in forbearance.
The CARES Act clearly states that eligible federal loans should be reported as current and in repayment. So, what's going on?
Thankfully, there’s no conspiracy to damage your credit during the pandemic. It turns out it's a technical glitch. The information comes from Betsy Mayotte, founder of the nonprofit The Institute for Student Loan Advisors (TISLA).
According to Mayotte, who frequently participates in Reddit discussions, this is the first time that student loan servicers' systems have been required to mark a large-scale payment waiver. “Until now, there were no forbearances or deferments that were to be reported as anything other than a forbearance or deferment,” she explained in r/studentloans. “The servicing systems had to be updated to report these waivers as if they were in repayment and receiving payments, even though they're technically in forbearance.”
Additionally, federal student loan servicers submit reports to credit bureaus on the 10th of every month. While they could mark the waivers on borrowers’ reports, they were unable to adjust the reporting process to indicate that all accounts are in good standing.
If your credit score has changed, Mayotte predicts it will take a few weeks for your credit report to accurately reflect the waiver program and for your score to stabilize. For now, there's no need to dispute this with the credit bureaus. However, it’s a good idea to monitor your reports closely over the next few weeks to ensure the issue is resolved.
Remember, you can access your credit report for free every week from each credit bureau until April 2021 by visiting annualcreditreport.com. While there are many other free sources to check your credit, the ability to check your report directly from each bureau weekly (instead of just once a year per bureau) can be a valuable way to stay on top of your financial situation during this time.
