Class Action Sues Education Dept. Over Reporting Forgiven Student Loans as Active Debt

Key points

• The Project on Predatory Student Lending (PPSL) filed a lawsuit in the U.S. District Court for the District of Columbia on behalf of borrowers who received debt forgiveness between April 2022 and January 2025.
• Plaintiffs claim the Department of Education violates the Fair Credit Reporting Act by reporting canceled debts from fraudulent for-profit schools, such as ITT Technical Institute and Ashford University, as active obligations.
• PPSL estimates that over 300,000 borrowers are affected, with a total of $4.6 billion in canceled debt still being reported to credit agencies like Equifax, Experian, and TransUnion.
• The lawsuit argues that these inaccurate reports negatively impact borrowers' ability to secure mortgages, rental housing, auto loans, and employment, despite their debts being legally discharged.
• The Department of Education did not immediately respond to requests for comment from CNBC or Business Insider regarding the allegations.

Background

This dispute arises in a broader context of student loan policy debates. Recent legislative gridlock has stalled efforts to cap interest rates or expand forgiveness, while rising national debt has increased concerns about borrowing costs for consumers. Previous coverage noted that while some borrowers have received relief through settlements or specific programs, systemic issues in debt reporting and policy implementation remain contentious. The current lawsuit highlights a specific administrative failure where forgiven debts continue to affect creditworthiness, contrasting with broader political debates over new interest caps or retirement age changes.

How outlets are covering it

Both CNBC and Business Insider report on the same lawsuit filed by the Project on Predatory Student Lending (PPSL). However, they emphasize different aspects of the case. CNBC focuses on the practical consequences for individual borrowers, such as Marine veteran Jorge Cortes, whose credit report still showed a $21,586 balance despite forgiveness in 2022. It highlights how these errors affect housing and employment opportunities. Business Insider, in contrast, places greater emphasis on the legal framework, specifically citing the Fair Credit Reporting Act and the total financial scale of the issue, noting $4.6 billion in canceled debt. Business Insider also details the specific schools involved, such as Ashford University, and includes quotes from plaintiff Mandy Woods regarding the ongoing confusion and growing debt on her credit report. While both sources agree on the core allegation that the Department of Education is reporting forgiven debt as active, Business Insider provides more detail on the legal basis and the aggregate financial impact, whereas CNBC focuses on the personal impact and the timeline of the forgiveness program.

Why it matters

The lawsuit highlights a significant consumer protection issue where administrative errors in federal debt reporting can have lasting negative effects on individuals' financial lives. If the allegations are proven, it could lead to widespread corrections in credit reports for hundreds of thousands of borrowers, potentially improving their access to credit and housing. It also raises questions about the Department of Education's compliance with consumer protection laws and the effectiveness of its debt forgiveness programs.

What to watch

The next steps will likely involve the Department of Education responding to the lawsuit and potentially updating its reporting practices. If the class action proceeds, it could result in a settlement or court order requiring the Department to correct credit reports for affected borrowers. The outcome may also influence future policies regarding the administration of student loan forgiveness programs and the coordination between federal agencies and credit reporting agencies.