Elizabeth Warren probes student-loan transfer that tanked borrowers' credit scores

By Jillian Berman

The letter to student-loan servicers and credit-reporting agencies is the latest example of scrutiny from the U.S. senator and consumer advocates

A group of Democratic senators is accusing student-loan servicers and credit-reporting agencies of botching the transfer of student-loan accounts and tanking the credit scores of more than 1 million borrowers in the process.

Democratic Senators Elizabeth Warren, Richard Blumenthal and Jeff Merkley wrote to MOHELA, Nelnet Inc. (NNI) and the three main credit-reporting agencies - Experian (UK:EXPN) (EXPGY), TransUnion (TRU) and Equifax Inc. (EFX) - asking how they handled a mass transfer of student-loan accounts that began in 2023.

The letter comes after the Washington Post reported earlier this year that more than 1.4 million borrowers whose loans were transferred from Nelnet to MOHELA had duplicate balances showing on their credit reports, putting them at risk of being saddled with inaccurately low credit scores.

A botched credit score can have a widespread impact on a consumer's financial life. A credit score is key to a consumer's ability to get a mortgage or car loan, and it affects the price they pay for the debt if they qualify. A student-loan balance appearing twice on a borrower's credit report could impact their credit score and other metrics that lenders use to evaluate consumers, like their debt-to-income ratio. Having a debt-to-income ratio that's too high is one of the most common reasons prospective home buyers are denied mortgages.

"The collective incompetence that MOHELA, NelNet, and the credit reporting agencies have shown in navigating this situation is disgraceful," the senators wrote. "Each of these entities must work swiftly to resolve this issue and ensure this mistake does not happen again."

Ben Kiser, a Nelnet spokesperson, told MarketWatch that the company informed the Education Department in November that some borrowers who had their loans transferred were facing credit-reporting problems and that Nelnet continues to raise the issue.

"We share borrowers' frustration," Kiser wrote in an email. "Nelnet accurately reported borrower transfers to the credit reporting agencies."

MOHELA told MarketWatch that the organization "reported accurately" and operated according to the standards set by the government.

As a federal contractor, "MOHELA's highest priority is providing high quality service to the borrowers we serve. We share borrowers' concern," MOHELA wrote in the statement adding that the organization "remains committed" to helping borrowers and the government with credit reporting.

The credit reporting agencies didn't provide comment on the letter. The Consumer Data Industry Association, a trade group representing credit-reporting agencies, said in an email that the companies are aware that some student loan borrowers are facing issues and are "actively working" with student loan servicers to address the problem. The association suggests consumers proactively monitor their credit reports so they can find any inaccurate or incomplete information provided to credit bureaus.

"The credit reporting industry is committed to helping consumers resolve potential discrepancies on their credit reports and we are working diligently across the financial ecosystem to make sure data on consumer credit reports is reliable and comprehensive," the organization wrote in a statement.

Warren and advocates have scrutinized student-loan servicers for years

The letter is the latest example of scrutiny of the student-loan industry and servicers in particular by Warren and consumer advocates. They have said for years that servicers create obstacles that prevent borrowers from successfully managing their loans.

The return to student-loan payments after a more than three-year COVID-era pause last fall heightened their concerns. Borrowers reported facing hours-long wait times when they called their servicers, receiving inaccurate billing information, and struggling to receive the debt cancellation they'd been promised.

After the pause caused by the COVID-19 pandemic, roughly 40% of borrowers had a different servicer than the one they had before the pause. It's not uncommon for student-loan borrowers to have their accounts transferred between servicers, in some cases with little issue. But loan-servicing transfers have also resulted in errors in borrowers' accounts that can impact their progress toward debt relief.

MOHELA in particular has drawn the ire of lawmakers and advocates over the past several months. They've accused the organization of mishandling a loan forgiveness program for public servants and making it difficult for them to reach customer service agents to help resolve problems. The complaints come as MOHELA's loan portfolio has grown dramatically over the past few years.

MOHELA has denied these claims and has previously told MarketWatch that "providing support to student-loan borrowers is the utmost priority for the organization."

Advocates and lawmakers have also zeroed in on MOHELA's role in the broader battle over student-debt forgiveness. Multiple lawsuits filed by Republican-led states challenging the Biden administration's debt relief plans, including one that resulted in the Supreme Court striking down the White House's mass debt forgiveness plan, have relied in part on the plaintiffs' ties to MOHELA to make their case. MOHELA executives have said the organization wasn't involved in the states' decision to sue.

-Jillian Berman

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

08-09-24 1459ET

Copyright (c) 2024 Dow Jones & Company, Inc.