What to Do If Coronavirus Forbearance Unfairly Hurts Your Credit Score

 March 18, 2021
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Update: Since the publication of this report, the government has extended the student loan repayment pause (forbearance) and enacted a wide-sweeping debt forgiveness program. See our report for more details. 

The coronavirus relief bill known as the CARES Act passed in March 2020, promising a bounty to federal student loan borrowers: an interest-free payment suspension via an automatically-awarded forbearance that wouldn’t affect consumers’ credit scores. Subsequent government moves have extended this to all the way to January of 2022.

Unfortunately for some, it hasn’t turned out this way. Some borrowers have said that their credit report and scores have taken a noticeable hit from the forbearance.

For example, one student loan borrower claimed on Twitter on May 9, 2020, that her credit score fell nearly 60 points because her federal loan servicer misreported her payment status. At the same time, similar complaints about forbearance’s effects on credit have begun surfacing on Reddit and other platforms.

If you’ve been granted a coronavirus-related forbearance, whether on federal or private student loans, here’s what you should know about the program and how you can fight back against any hits to your credit file.

What’s going on with coronavirus forbearance credit relief?

The coronavirus relief act’s federal loan benefits clearly state that any eligible borrower enjoying the payment suspension won’t be subject to adverse credit reporting.

If you were in good standing with your federal loans before the forbearance was awarded, you would stay in good standing for its duration. In fact, your credit report should count the unique, COVID-19-inspired forbearance as actively making monthly payments (unlike with a typical deferment or forbearance) — so if anything, your credit score should increase.

The same should be true of some private student loans eligible for non-federal relief. Some states, including New York, have reached agreements with private lenders to award a three-month forbearance that wouldn’t negatively affect credit (but would, unlike the federal reprieve, allow interest to accrue). Many banks, credit unions and online companies themselves have also directly offered similar forbearance programs.

Now, however, it’s apparent that not all credit reports and scores have gone unaffected — though this appears to be by mistake.

The Department of Education formally announced on May 19 that it was working with the Consumer Financial Protection Bureau to address any errors. However, on May 20, 2020, consumer advocates brought a class-action suit against a federal loan servicer and the three major credit reporting bureaus for their part in the mess.

In the meantime, many borrowers could feel the effects. In fact, the news site Politico estimated that the allegedly misreported credit information may have affected 4.8 million federal loan borrowers.

How to combat the negative credit impact of coronavirus forbearance

Given the unprecedented federal loan payment relief, it’s expected that there would be hiccups in implementation. Issues around eligibility for government coronavirus relief have left out many federal borrowers. And in a separate problem, thousands of borrowers in default have reportedly seen their wages garnished despite the government’s halt to this practice during the pandemic.

So it seems that credit reporting snafus are just the latest problem to arise, and like the others, it may take some time to fix.

If you’re taking advantage of the interest-free, six-month break from your federal loans (or a similar private loan relief program), but are worried about the impact on your credit, you might be wondering what to do next.

The first step could be as simple as speaking out. For example, mentions of problems involving student loan servicing giant Great Lakes surfaced on social media. While the servicer responded directly to some complaints, it also said more broadly that it was working with credit reporting agencies to make sure all information on Great Lakes accounts was accurate.

Great Lakes/Twitter

While it might be up for debate whether the onus of keeping credit reports accurate should be on the borrower or the servicer, sometimes you have to look out for yourself. It is probably wise to take the reins of your own credit report, especially if you don’t trust your loan servicer to act on your behalf.

If you’re unsure whether your student loan forbearance has dinged your credit, take the following steps:

Check your credit report

Request your report via annualcreditreport.com, and dispute errors as soon as you see them. The Department of Education, among others, believes that dipping credit scores were a problem with third-party monitoring services, but not at the credit bureaus themselves. It’s possible that your official credit report and score have gone unscathed.

Also, keep in mind that even if your administrative forbearance was reported correctly, your credit score could have dropped recently due to other factors. Given the murky nature of credit scores, it can sometimes be difficult to pinpoint the source of a decrease.

Call your servicer or lender

If your report shows a mistake, phone your service provider to ask about its reporting practices. Explain what you see specifically on your credit report: A federal loan that’s categorized as “payment deferred” would be a very likely sign that your servicer erred.

Remember that you might see such a notation for your private loans, if you have any. Private lenders featuring coronavirus relief aren’t completely in unison in how they report pandemic-related forbearance periods. Communicate with your bank, credit union or online company about its practices.

Monitor your credit

You’ve long been entitled to one free annual credit report per year, but in light of the credit bureaus’ response to COVID-19, you can now access your reports on a weekly basis (also free of charge) through April 2022.

Also, consider monitoring your credit using a third-party service, such as My LendingTree, to ensure that any errors are fixed promptly and don’t reappear down the road.

If your credit was harmed as a result of the administrative forbearance and your servicer has been less than helpful, consider seeking low-cost loan repayment advice elsewhere.

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