KPRC 2 Investigates: Student loan borrowers hit with credit score penalty

About one in every eight people in the U.S. has student loan debt.

HOUSTON – About one in every eight people in the U.S. has student loan debt.

Payments for about 80% of those borrowers have been deferred or postponed until May 1, 2022 but one man says his loan servicer reported his account delinquent, causing a big drop in his credit score. He called KPRC 2 Investigates for help.

At the start of the pandemic, the way some loan servicing companies reported deferred payments negatively impacted borrower’s credit scores. Those issues have since been corrected, but Austin O’Neal still can’t get Nelnet loans to correct his credit report.

O’Neal earned a degree in studio art from the University of Houston in 2013. Every month for about seven years Austin and his parents have sent a payment to loan servicing company Nelnet. When President Trump announced in March 2020 that payments for all federally-backed student loans would be deferred under the CARES Act, the O’Neals stopped paying. Austin’s dad Eddie said their Nelnet account confirmed they didn’t owe anything.

“It says current amount due- $0,” the elder O’Neal showed us on his son’s Nelnet account.

But in November, Austin got an alert about his stellar 781 credit score.

“All of a sudden it dropped 150 points in a minute,” he explained. “That’s when I knew something was wrong.”

Austin said Nelnet reported his loan delinquent, causing his score to crash to 632.

“It means a lot whenever I need to go find a new apartment or a new townhome, house anything,” the 33-year-old explained. “If I need to refinance my vehicle, even new employers will check credit history and it’s very important to me to stay on top of my credit score.”

When the O’Neals called Nelnet, a representative told them Austin’s student loan is private, not a federal loan, and therefore not eligible for deferment.

“I’m not asking for anything special. I just want it removed from my history,” Austin explained.

Nelnet’s Communications director sent KPRC 2 this statement:

“Thank you for reaching out and providing Nelnet an opportunity to respond. Because the security and privacy of customer information is a top priority for Nelnet, we are unable to discuss any specifics related to customers and/or their accounts. However, please know we have also reached out to the borrower directly to see if there is an opportunity to assist him.

For more than 40 years, Nelnet’s focus has been on living our core value of providing superior customer experiences. With the complexity of student loans, every interaction with borrowers is an opportunity to ensure they receive the reliable and effective service they deserve as they manage their loans.

We also understand the unique challenges the pandemic has brought for so many, and we have friendly, qualified associates ready and willing to help borrowers with any questions or concerns they may have about their loan(s).”

Help with your loan servicer

If you experience this same or similar problem, and your loan servicer is not working with you, file a complaint with the Consumer Financial Protection Bureau here. The lender will have to answer your complaint.

How to find out if your student loan is a federal loan

If, like Austin, you’re not sure if your student loan is federally backed by the Department of Education, there’s an easy way to check.

Login to studentaid.gov. Click on “view details,” then look for “loan breakdown” on the aid summary page to see a list of your federal student loans. If the servicer name begins with “Dept. of Ed,” your loan is owned by the U.S. Department of Education. Payments for these loans are deferred until May 1, 2022.

If you do have an federally backed loan, you may be able to have your loan forgiven or discharged if you work in public service, you’re a teacher or are disabled.

Click here for instructions on how to apply for relief if you fall into one of those categories.

If you need help with the loan servicer of your federal loan, you can reach out to the FSA Ombudsman here.


About the Author:

Passionate consumer advocate, mom of 3, addicted to coffee, hairspray and pastries.