A coalition of 300,000 student-loan borrowers filed a lawsuit on Thursday against the U.S. Department of Education, alleging the agency violated federal credit reporting laws by continuing to report $4.6 billion in canceled debt as active obligations on credit reports.
The lawsuit, filed by the Project on Predatory Student Lending (PPSL), targets the department’s handling of debt relief granted under the borrower defense to repayment program. This relief was provided to borrowers who attended predatory for-profit schools, including Ashford University and ITT Technical Institute, after the schools were found to have defrauded students. The lawsuit specifically covers borrowers who received relief between April 2022 and January 2025.
According to the complaint, the department’s actions have directly harmed borrowers’ credit scores, limiting their ability to secure mortgages, auto loans, rental housing, and employment. The PPSL estimates that the wrongful reporting affects 300,000 borrowers with $4.6 billion in canceled debt still listed as outstanding.
One plaintiff, Mandy Woods, borrowed $65,000 to attend Ashford University, a school later determined by the Education Department to have defrauded its students. Despite qualifying for debt relief, her credit report continues to show an outstanding balance of over $71,000. "When I was told my loans would be discharged, I was so relieved. I thought I could finally put this behind me," Woods said in a statement. "Instead, I've been jumping through hoops, getting different answers, and watching my credit score suffer."
**Legal Allegations and Claims
The lawsuit, filed in the U.S. District Court for the District of Columbia, argues that the Department of Education is violating the Fair Credit Reporting Act (FCRA) by reporting canceled and legally unenforceable debt to credit bureaus. The plaintiffs contend that the department’s actions have caused financial harm, including wage garnishment threats, tax refund offsets, and Social Security deductions, despite the debt being legally canceled.
The complaint states that borrowers have spent time and resources attempting to correct their credit reports, only to face persistent inaccuracies. The lawsuit seeks compensation for damages and an order requiring the department to cease reporting canceled debt as active obligations.
**Department of Education’s Response
As of publication, the Department of Education has not publicly responded to requests for comment on the lawsuit. The agency has previously stated that it is working to address borrower concerns related to credit reporting, though no formal policy changes have been announced.
**Background: Borrower Defense to Repayment Program
The borrower defense to repayment program allows students who were defrauded by their schools to apply for federal student loan forgiveness. The program was expanded under the Biden administration, which has approved billions in relief for borrowers affected by predatory institutions.
However, the lawsuit highlights a gap between debt cancellation and credit reporting, where borrowers remain financially penalized despite having their loans legally forgiven. The PPSL argues that this inconsistency undermines the purpose of the relief program and exacerbates financial hardship for affected individuals.
**Potential Broader Impact
If successful, the lawsuit could force the Department of Education to overhaul its credit reporting practices for canceled student loans. Advocacy groups warn that without intervention, thousands of borrowers may continue to face long-term financial barriers due to inaccuracies on their credit reports.
The case also raises questions about accountability within federal student loan programs, particularly regarding how agencies handle the aftermath of debt relief decisions. Borrowers and legal experts are calling for transparency and systemic changes to prevent similar issues in the future.