The U.S. Department of Education has been accused of a systematic reporting error that continues to list forgiven federal student loans as outstanding balances. On September 24, 2026, the Project on Predatory Student Lending (PPSL) filed a proposed class action in the U.S. District Court for the District of Columbia, alleging that the agency still reports $4.6 billion of cancelled debt as owed.
This case, styled Woods v. U.S. Department of Education (No. 1:26-cv-3335), centers on the group discharges announced between April 2022 and January 2025. Those discharges covered more than 1.5 million borrowers and $23.4 billion in loans tied to institutions the Department identified as fraudulent, including Corinthian Colleges, ITT Tech, the Art Institutes and Ashford University. PPSL’s analysis of public records suggests that over 300,000 former students still see those loans on their credit reports.
What the plaintiffs are seeking
The complaint invokes the Fair Credit Reporting Act (FCRA) and asks a court to award statutory damages ranging from $100 to $1,000 per violation, plus actual, punitive damages, attorneys’ fees, and a jury trial. The plaintiffs argue that each erroneous entry constitutes a separate FCRA violation, potentially entitling affected borrowers to substantial compensation.
How false reporting damages credit and finances
When a loan that has been officially forgiven remains on a credit file, it continues to influence the borrower’s credit score and debt-to-income calculations. Federal Housing Finance Agency guidelines, for example, treat 1% of a deferred or forbearance balance as a monthly payment. Consequently, $25,000 of cancelled debt adds roughly $250 to a borrower’s monthly debt-to-income ratio, jeopardising mortgage eligibility. The complaint notes that lenders, landlords, auto financiers, credit-card issuers, employers and even security-clearance reviewers reference these inflated balances, which can accrue interest and worsen a FICO score month after month.
Illustrative stories: Woods and Cortes
Mandy Woods attended Ashford University from 2013 to 2015, borrowing about $65,000. On January 15, 2025, the Department announced an automatic discharge for roughly 261,000 Ashford borrowers. Woods repeatedly contacted her loan servicer MOHELA and Federal Student Aid (FSA), only to be bounced between the two. After disputing the balance with all three credit bureaus on February 9, 2026, she attached her transcript, diploma and the Department’s own announcement. MOHELA replied on March 17, 2026, labeling the dispute “frivolous” or “irrelevant.” A September 10, 2026 email from FSA confirmed the problem, stating: “As of the date of this letter, FSA has not directed MOHELA to process your loan discharge.” Her August 2026 credit report still showed a $71,901 balance—about $2,000 higher than the amount she disputed.
Jorge Cortes a Marine Corps veteran, borrowed roughly $54,000 to attend ITT Technical Institute between 2006 and 2013. The Department’s August 16, 2022, discharge for ITT covered 208,000 borrowers, and Cortes received an individual notice in November 2022. After filing disputes with the three bureaus in May 2026, his servicer Aidvantage responded that “the information we provided to the [CRAs] is accurate.” Yet his August 2026 reports still listed $21,586 as owed, nearly four years after the borrower-defense discharge was announced.
Why the balances persist
The complaint points to a Department directive known as Change Request 6346, which tells servicers to complete discharge accounting within 15 to 45 days and to delete related tradelines at the next regular reporting cycle. In practice, many accounts linger in a “Deferred” status, showing a balance and a future payment date. A 2024 Government Accountability Office (GAO) review found similar backlogs when servicers awaited further instructions.
Other lawsuits cited in the complaint reveal that the Department has not finished discharge steps for roughly 13,500 Westwood College borrowers (17%) and about 108,700 Corinthian borrowers (19%). The Department’s full-time staff dropped from 1,433 to 777 in 2025, and a March 2026 GAO report noted a halt in oversight of servicer accuracy, explaining many of the lingering errors.
Legal footing under the Fair Credit Reporting Act
In February 2024, the Supreme Court ruled in Department of Agriculture Rural Development Rural Housing Service v. Kirtz that federal agencies can be sued for damages under the FCRA just like private entities. That precedent empowers borrowers to seek monetary relief when the government fails to correct disputed credit information. The proposed class would include anyone with a U.S. address who held Direct or FFEL loans, qualified for a group discharge, and still sees a balance reported from two years before filing onward.
The class definition stretches from the 2022 Marinello Schools of Beauty discharge to the January 2025 CEHE, Drake and Lincoln Tech discharges, potentially encompassing millions of borrowers whose credit files remain tainted by erroneous entries.
While the Department has not yet responded to the filing, federal agencies typically have 60 days to answer. The next procedural milestones will be a motion to dismiss—if the Department files one—and a ruling on class certification. Observers will be watching whether servicers begin deleting the disputed tradelines before the court issues a decision, especially given the Department’s staffing shortfalls.
