Democrats urge DeVos to punish student loan firm for emergency relief blunder

Democrats are urging Education Secretary Betsy DeVos to take “immediate and aggressive action” against a student loan company that incorrectly dinged the credit reports of nearly 5 million borrowers whose payments were automatically suspended under the CARES Act.

POLITICO first reported last week that the Trump administration was rushing to fix errors made by Great Lakes Educational Loan Services in how the company reported information about federal student loan borrowers to credit bureaus. The errors lowered borrowers’ credit scores in some cases.

Six Senate Democrats, led by Sen. Elizabeth Warren, on Thursday wrote to DeVos that the Education Department should “take immediate action to fully remedy this issue, hold Great Lakes accountable for this inexcusable blunder, and provide Congress with a detailed accounting of how this breakdown occurred.”

Great Lakes, which is owned by Nelnet Inc., is one of several companies that collects and manages federal student loans on behalf of the Education Department under contracts that are worth hundreds of millions of dollars.

Democrats said they want DeVos to consider “any consequences or penalties allowed under the Department’s contact with Great Lakes, which may include the reduction of loan volume.”

Great Lakes incorrectly reported to credit bureaus — including Equifax, TransUnion and Experian — that borrowers whose payments were automatically suspended by the CARES Act were in a “deferment” on their federal student loans. The CARES Act, and the department’s instructions to loan companies, required those loans to be reported as though a borrower was making current and on-time payments.

The company and the Education Department have insisted that there was little or no damage to borrowers’ credit scores. But Senate Democrats said that’s not the case.

“It is difficult to know how far reaching the consequences of this error will be for millions of borrowers who might attempt to purchase a home, start a new job, or take out a loan to stay financially afloat during this economic crisis,” the senators wrote in their letter.

Besides Warren, the letter was signed by Sens. Jeff Merkley (D-Ore.), Dick Durbin (D-Ill.), Sherrod Brown (D-Ohio), Richard Blumenthal (D-Conn.) and Tina Smith (D-Minn.).

Some borrowers’ VantageScore was lowered by the error. Jeff Richardson, a spokesperson for VantageScore, one of two major providers of credit scores, said that the company “had treated a deferment code as a negative factor in calculating scores in some cases” but that the company was in the process of changing its methodology so that wouldn’t be the case.

FICO, a competing and larger credit score provider, said that it does not consider deferments in calculating its scores.

The lawmakers urged DeVos to audit all of the companies hired by the Education Department to make sure they are correctly reporting borrowers’ credit information. In addition, they requested documents and information related to the error.

Education Department spokesperson Angela Marabito said in a statement, “How is this news? There is nothing new said in the letter, and the problem is already being resolved.”

Morabito last week said that providing incorrect information to credit bureaus was “totally unacceptable” but that Great Lakes had “quickly corrected the coding issue” and sent corrected information to the credit bureaus.

A department official told POLITICO last week that the department’s Office of Federal Student Aid, led by Mark Brown, had not yet made a “formal determination” whether Great Lakes ran afoul of the department’s instructions on how to report student loans covered by the CARES Act to credit bureaus.

Democrats said in their letter that they were unsatisfied with Brown’s response so far. The letter accuses him of having “doubled down on past efforts to deflect responsibility, blaming ‘third-party credit service companies’ and failing to even identify Great Lakes by name in an alert that purports to be ‘information for borrowers.’”

The Senate Democrats’ letter follows similar criticism of the credit-reporting error earlier this week from House Democrats. The letter, led by Rep. Susan Wild (D-Pa.), called the error “unacceptable” and said the Education Department “should have ensured that it did not happen.”