The former head of the Department of Education’s student loan portfolio during President Trump’s first term is behind a class-action lawsuit that was filed last week accusing the department and the three major credit reporting agencies of violating the Fair Credit Reporting Act for allegedly forcing student loan borrowers into default by inaccurately furnishing information about the debts.
The background: The complaint, filed in federal court in Georgia, claims that operational breakdowns at the Department of Education following the restart of student loan payments in 2025 caused millions of borrowers to be incorrectly reported as delinquent or in default.
- More than 5 million borrowers have been improperly declared seriously delinquent, with that number projected to double by the end of the year, according to the complaint.
- The complaint alleges the department’s “collapse in servicing capacity,” fueled by mass layoffs, underfunding, and inadequate systems left borrowers unable to reach anyone at the department or its servicers, resulting in automatic delinquency and default statuses.
- The lawsuit blames the department for “weaponiz[ing] the credit reporting system as a back-end collection tool” by reporting negative data to the credit bureaus in an effort to coerce borrowers into contact.
- One striking passage from the complaint alleges that 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.”
The claims: The plaintiffs, representing a proposed nationwide class of borrowers, accuse the Department of Education and the three credit bureaus of violating multiple provisions of the Fair Credit Reporting Act. The department is alleged to have furnished unfair and inaccurate information, failed to conduct reasonable investigations of disputes, and ignored its statutory duty to ensure data accuracy. The credit bureaus, meanwhile, are accused of “blindly and unquestionably relying” on the department’s reports despite internal data suggesting widespread inaccuracies.
- The suit seeks declaratory and injunctive relief, including an order stopping the department from furnishing any information to the credit bureaus, the removal of all student loan data reported since January 1, 2025, and at least $100,000 in damages per borrower.
- The complaint estimates collective damages could exceed $500 billion and potentially reach $2 trillion by 2026 if uncorrected.
