Student loan lawsuit claims Department of Education inaccurately reports loan balances

Student loan class action overview:

• Who: A federal student loan borrower, Adriana Walsh, is suing the U.S. Department of Education (DOE).
• Why: Walsh claims the department is reporting inaccurate student loan balances when loans are transferred to a new servicer.
• Where: The student loan lawsuit was filed in New York federal court.

A new class action lawsuit alleges the U.S. Department of Education is reporting inaccurate student loan balances when loans are transferred to a new servicer, causing financial harm to borrowers.

Plaintiff Adriana Walsh filed the class action complaint against the DOE on Feb. 18 in New York federal court, alleging violations of the Fair Credit Reporting Act (FCRA) and the Privacy Act.

The lawsuit claims the DOE fails to accurately report the balances of student loans after they are transferred from one servicer to another, resulting in borrowers appearing to owe double the actual amount.

According to the class action, the DOE contracts with servicers like Nelnet and MOHELA to manage federal student loans. When a loan is transferred from one servicer to another, the original servicer is supposed to report a $0 balance to credit reporting agencies (CRAs) like Equifax, Experian and TransUnion.

However, the DOE allegedly directs the original servicer to “suppress” the account, leading to the full pre-transfer balance being reported as open and due.

This practice results in borrowers seeing two separate accounts with outstanding balances on their credit reports, the class action lawsuit says.

DOE allegedly aware of FCRA compliance issue

The class action lawsuit alleges that the DOE has been aware of this issue but has failed to take corrective action.

The problem has reportedly drawn attention from the Consumer Financial Protection Bureau and the media, with the DOE receiving about 500 credit reporting complaints since December 2023.

Walsh claims she discovered the issue after her student loans were transferred from Nelnet to MOHELA. Despite the transfer, her credit report showed she owed more than $300,000, double the actual amount.

Walsh says she disputed the inaccurate information with Experian multiple times, but the DOE failed to correct the error.

The student loan lawsuit seeks to represent a class of borrowers who have experienced similar issues. It is seeking statutory, actual and punitive damages for the alleged violations of the FCRA and the Privacy Act.

In other student news, a federal judge has granted final approval to a $17 million settlement resolving claims that Pennsylvania State University breached its contract with students when it transitioned to remote learning during the COVID-19 pandemic.

What do you think of the claims made in this student loan class action lawsuit? Let us know in the comments.

The plaintiff is represented by Courtney L. Weiner of the Law Office of Courtney Weiner PLLC and John Soumilas of Francis Mailman Soumilas P.C.

The student loan class action lawsuit is Walsh v. United States Department of Education, Case No. 1:26-cv-01358, in the U.S. District Court for the Southern District of New York.

Read About More Class Action Lawsuits & Class Action Settlements:

• H&R Block class action claims military members overcharged for tax refund advance loans
• Meta, Google social media addiction trial hears expert testimony
• Saputo USA recalls Great Value Cottage Cheese due to pasteurization concerns
• Mattress Firm faces class action lawsuits over alleged fake, limited-time sales