300,000 student-loan borrowers got their debt wiped out — but their credit is still taking a hit, a new lawsuit says

• Student-loan borrowers who got debt relief are being wrongfully reported to credit bureaus, a new lawsuit says.
• The lawsuit estimated that around 300,000 borrowers who were defrauded by their schools are affected.
• Inaccurate reporting could harm a borrower’s credit score and trigger wage and benefit garnishment.

Student-loan borrowers whose debt was wiped out are still being reported to credit bureaus, a new lawsuit says.

On Thursday, the Project on Predatory Student Lending, a borrower advocacy group, filed a lawsuit against the Department of Education. It said that the department is violating the Fair Credit Reporting Act by reporting outstanding balances on “cancelled and legally unenforceable debt.”

The lawsuit concerns borrowers whose loans were wiped out via the borrower defense to repayment program, after they were defrauded by “predatory for-profit” schools, including Ashford University and ITT Technical Institute. It specifically pertains to borrowers who received such relief between April 2022 and January 2025.

The filing said these borrowers’ balances were reported to credit bureaus as outstanding debt, which affected their credit scores. PPSL estimated that, based on publicly available data, the department is wrongfully reporting 300,000 student-loan borrowers for $4.6 billion of canceled debt.

The affected borrowers “have spent time and resources on attempts to clarify and remedy the situation,” the lawsuit said, and they’re worried that the government “will inflict further wrongful injury, including collection through wage garnishment and tax refund or Social Security offset, in satisfaction of a debt that came into being in the first place because of an educational scam and now refuses to die.”

The Department of Education did not immediately respond to a request for comment from Business Insider.

One of the plaintiffs, Mandy Woods, borrowed $65,000 to attend Ashford University, a school that the Education Department determined had defrauded its students. Despite qualifying for relief, Woods’ credit report still shows that she owes over $71,000.

“When I was told my loans would be discharged, I was so relieved. I thought I could finally put this behind me,” Woods said in the press release. “Instead, I’ve been jumping through hoops, getting different answers depending on who I talk to, and watching a debt I was told I no longer owe keep growing on my credit report.”

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