Millions of student loan borrowers are delinquent. Lawsuit blames the feds.

But those headlines ignore a question that Wayne Johnson, who led the federal Student Loan Program during President Donald Trump’s first term, said too few are asking.

“Do we really have that many deadbeat student loan borrowers?” asked Johnson, the Macon resident and former Republican congressional candidate financing the lawsuit.

The answer, he said, is no. And the truth, according to the lawsuit, is that the federal government is pushing ahead with loan collections despite knowing it was unprepared to restart the repayment operation after a long hiatus.

Credit: Miguel Martinez-Jimenez

Credit: Miguel Martinez-Jimenez

Borrowers want to return to payment, said Johnson, but the department’s poor planning has made it impossible. Yet that hasn’t stopped it from reporting borrowers to credit bureaus as delinquent, decimating their credit scores in the process.

“Twenty million Americans are going to have higher interest rates potentially for the rest of their lives because of the faulty information reported by their government,” said Devlin Cooper, the attorney litigating the case.

More than 100,000 plaintiffs have joined the class action lawsuit so far, representing a pool of an estimated 20 million borrowers. Because the lawsuit alleges that each affected borrower is owed $100,000, a victory could ultimately cost the defendants $2 trillion.

The lawsuit asks that the department stop reporting inaccurate information to credit bureaus, that the inaccurate information be purged from the credit reports, and that the department furnishes accurate information in the future.

A deluge of borrowers falling behind may be explained by their “confusion about repayment,” according to December research from J.P. Morgan Chase.

That confusion is largely rooted in the COVID era payment pause, former President Joe Biden’s push for loan forgiveness, and a string of federal lawsuits. Such fluidity made borrowers unsure when to start making payments again, and what those payments are. Cooper said the government has not communicated that information clearly, even when borrowers have sought it out.

All told, various failures by the Biden and Trump administrations, according to Johnson, have created “a perfect storm in the middle of an earthquake.”

The department, accused of violating the Fair Credit Reporting Act, did not respond to a request for comment.

Equifax, Experian and TransUnion are also named as defendants. In a statement, Equifax said that it works to make its credit reports as accurate and reliable as possible. “If a consumer reviews their credit report and finds their personal information to be inaccurate or incomplete, we encourage them to file a dispute,” it said.

J.M. Keaton, a teacher at Atlanta Public Schools and plaintiff in the lawsuit, thought her loans were still in deferment. But when she noticed her credit score fall, and called her credit bureau to investigate, she was informed the Department of Education had been reporting her as delinquent for months.

Keaton spent hours on the phone with her loan servicer that day, only to learn that not only was she apparently late on payments, but her debt had increased by $12,000. When her servicer couldn’t explain why, she called the education department. That proved unhelpful; in all the times she called the department last year, she was never able to connect to a human.

“You’re calling and you’re getting prompts, and all of the prompts are just leading you to more prompts,” she said. “They’re trying to send you to the loan servicer, and the loan servicer is sending you to Department of Education.”

Credit: AP

Credit: AP

Her experience, which she described as “a nightmare,” is not uncommon. According to the lawsuit, call wait times to the department and its contracted loan servicers regularly exceed 10 hours. Abandoned call rates exceed 95%, forcing callers who have been on hold to start all over again. When borrowers like Keaton have tried to become current, “the Department has made it impossible for them to pay or to even contact someone about restarting payment,” according to the filing.

Why impossible? Partly because the department apparently did not make adequate efforts to contact borrowers, the lawsuit says. In fact, according to the lawsuit, it does not have accurate contact information for more than 70% of them.

“So how are you telling people what they need to pay?” asked Cooper.

With so many borrowers returning to payment all at once, Johnson said the department should’ve prepared for the surge of callers who would have questions. Instead, department staff has been cut by roughly 50%, as U.S. Secretary of Education Linda McMahon has sought to dismantle the agency.

Rather than reach out to borrowers to alert them of their repayment obligations, the lawsuit argues the department has chosen to report them to credit bureaus as delinquent or in default.

“The Department knows that once a borrower’s credit score is destroyed, the borrower will be forced to somehow connect with the Department, cap in hand, to beg for relief,” reads the complaint, claiming the agency “weaponized” credit reports as a back-end collection tool.

By the time Faisal Awan was contacted about making repayments, he said, his credit score had already been damaged. “It was reported to the credit bureaus without first having a clear path of, here’s what you owe and here’s how you need to do to take care of it,” said Awan, 54, who took out loans to pay for his son’s education at Georgia State University.

Keaton has been deeply frustrated by the saga, which has taken her credit score out of good standing. “All of this hard work I had been doing, paying my bills on time, making sure that anything that could be reported was reported,” she said. “It kind of just blew it up.”