President Donald Trump, left, greets Education Secretary Linda McMahon during a back-to-school event in the Rose Garden of the White House, Monday, Aug. 24, 2026, in Washington. The Department of Education is facing a new lawsuit over allegations of botched student loan repayments. (AP Photo/Alex Brandon)
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Student borrowers filed a new class-action lawsuit against the Department of Education on Thursday, claiming their previously canceled student loans were illegally reported on their credit reports, long after the debts were supposed to disappear. The allegations are just the latest example of mishandling and botched implementation of debt relief, which advocacy groups are increasingly calling a crisis.
“The government cannot tell borrowers that their loans are forgiven, report those same loans as debts they still owe, and then ignore them when they attempt to correct the record,” Eileen Connor, president and executive director of the Project on Predatory Student Lending, the legal organization representing the borrowers in the lawsuit, said in a statement released Thursday. “These borrowers have done everything asked of them, but this false debt continues to determine where they can live, what they can borrow and what their future will look like.”
Here’s what the latest student loan lawsuit against the Department of Education is about and what it means for borrowers.
The Ministry of Education had approved collective student loan forgiveness
The lawsuit’s main allegations center on the Department of Education’s pre-approval of mass releases for borrowers who took out student loans to attend specific institutions that the department said engaged in widespread misconduct. The department approved more than $23.4 billion in student loan discharges for 1.5 million borrowers who had attended nearly a dozen separate institutions.
The relief was authorized under the Borrower Defense Until Repayment Program, a federal student loan forgiveness program that gives borrowers a way to eliminate their student loans if they can demonstrate that their school misled them or engaged in other serious misconduct to convince them to enroll or keep them enrolled. The department approved mass discharges of some borrowers at specific institutions and promised to cancel their federal student loans, refund any prior payments they had made, and delete any credit reports associated with those loans. The department promised that covered borrowers would automatically receive the relief, even if they never submitted a borrower defense application.
“The U.S. Department of Education (ED) announced that borrowers who enrolled at Ashford University (Ashford), now known as the University of Arizona Global Campus, between March 1, 2009 and April 30, 2020, will receive 100% discharge of their eligible federal student loans,” the Department of Education announced last year. “Approximately 261,000 borrowers will receive an automatic discharge of approximately $4.5 billion in loans. This collective discharge will provide relief to borrowers harmed by Ashford’s actions, including borrowers who have not yet requested a borrower defense. Borrowers do not need to take any action to obtain their discharge.”
The department had concluded that “Ashford made numerous misrepresentations that borrowers relied on in ways that harmed them,” including regarding “students’ ability to obtain necessary licensure, transfer credits, the cost and amount of financial aid, and the time it would take to complete a degree.” The announcement then describes the specific student loan relief that covered borrowers would be eligible for.
“Borrowers will have their loans remain in forbearance/collections stopped and will not need to resume payments while ED processes their discharges,” the department said. “When their discharges are processed, borrowers will have all remaining loan balances adjusted and lines of credit removed. Any payments they made to ED on their corresponding federal student loans will also be refunded.”
The Department of Education made similar group student loan discharge announcements for borrowers who had attended Lincoln Technical Institute, the Art Institutes, the University of Phoenix, ITT Technical Institutes and several other institutions. Group outing announcements are always posted on a large Ministry of Education website.
Lawsuit Claims Department of Education Messed Up Student Loan Discharge Reports
But in the lawsuit filed this week, the borrowers allege that the Department of Education continues to report discharged student loans on borrowers’ credit reports, in violation of the Fair Credit Reporting Act, a federal law that requires lenders and servicers to report accurate information to state credit reporting agencies. More than 300,000 federal student loan borrowers are affected by $4.6 billion in misreported student loans that have been discharged, according to the Predatory Student Loan Project.
“ED recognizes that its group discharge decisions are final and therefore lacks any legal basis to collect or attempt to collect, or otherwise enforce or attempt to enforce, any qualified loan debt,” the borrowers said in their complaint filed Thursday in the U.S. District Court for the District of Columbia. “Despite these facts, ED continues to describe plaintiffs’, and others similarly situated, qualifying loan debt to consumer credit reporting agencies (CRAs) as enforceable debts that must be repaid in full. »
“The department continues to provide information to Equifax, Experian and TransUnion showing forgiven loans as unpaid debts, often with balances that continue to grow as interest accrues,” PPSL said in its statement. “These inaccurate credit reports affect borrowers’ ability to qualify for mortgages, rent homes, obtain auto loans and credit cards, secure employment, and build financial stability. For example, lenders offering federally insured home loans are required to take deferred student debt into account when deciding whether a prospective homeowner qualifies for a mortgage, which can add hundreds of dollars to a borrower’s monthly payments.”
The lawsuit seeks to prohibit the Department of Education from continuing to report canceled student loans to state credit reporting agencies and seeks monetary compensation for borrowers under the Fair Credit Reporting Act. The department has not publicly responded to the allegations in the lawsuit, but is expected to file a formal response in court in the coming weeks.
Lawsuit is latest challenge facing Department of Education over student loan issues
Allegations in the new lawsuit that the Department of Education botched credit reports for forgiven student loans are just the latest in a series of problems borrowers claim to be experiencing as they navigate major changes to the federal student loan system.
Earlier this week, dozens of national nonprofit and civil rights organizations, labor groups and student borrower advocacy organizations called on Congress to hold emergency hearings into reports that borrowers were experiencing widespread problems accessing affordable repayment plans and student loan forgiveness programs. Recent reports have highlighted fake delinquency notices, significant processing delays in various student loan programs, and erroneous monthly payment calculations. Borrowers also reported that the Department of Education unilaterally canceled credits acquired for loan forgiveness under the PSLF program. Some advocacy groups are calling for a nationwide pause on student loan payments or a suspension of forced repayment plan transitions until the Department of Education can resolve widespread processing problems and borrowers are able to properly access programs to which they are legally entitled.
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