Canceled Student Loans Are Still Haunting Credit Reports

Imagine getting a letter from the government saying your student loans are gone — then finding out your credit report still says you owe the money. For hundreds of thousands of borrowers, that is not a hypothetical. It is the center of a new class-action lawsuit claiming the U.S. Department of Education reported about $4.6 billion in canceled student loans to the three major credit bureaus as if the debts were still alive.

The suit, Woods v. U.S. Department of Education, was announced on September 29, 2026, by the law firm Berger Montague and the Project on Predatory Student Lending. It alleges the department violated the Fair Credit Reporting Act by listing already-discharged loans as “Deferred” debts with Equifax, Experian, and TransUnion — in some cases with balances that kept growing, according to Berger Montague’s September 29 release. Bloomberg Law’s coverage notes the case was filed in federal court in Washington, D.C.

The loans were canceled years ago

Between April 2022 and January 2025, the Education Department wiped out roughly $23.4 billion in federal loans for about 1.5 million borrowers who had been defrauded by for-profit colleges. Schools named in the group discharges include Corinthian Colleges, ITT Technical Institute, the Art Institutes, and Ashford University. Borrowers were told they owed nothing and needed to take no further action.

But clearing a loan at the department is not the same as clearing it everywhere. Credit bureaus build your score from what lenders and agencies report to them, and the lawsuit says the department kept sending the old, canceled debts as live accounts. The plaintiffs’ analysis of public records puts the number of affected borrowers above 300,000 — a population large enough to fill several football stadiums — with the phantom balances adding up to that multibillion-dollar total.

What “ghost debt” does to real people

The complaint puts names on the problem. Plaintiff Mandy Woods had a $65,000 Ashford University debt discharged, yet her credit file reportedly still shows roughly $71,000 owed. Plaintiff Jorge Cortes, a Marine veteran, had his ITT Tech loans forgiven in August 2022, but a balance of about $21,586 was still sitting on his report this past summer, per the plaintiffs’ account.

Those phantom balances are not just embarrassing line items. A wrongly reported debt can drag down a credit score, which decides how much you pay to borrow, whether a landlord approves your rental application, and sometimes whether an employer extends a job offer. The plaintiffs say borrowers also fear the government could one day try to collect on debts it claims were canceled — through wage garnishment or seized tax refunds. As Project on Predatory Student Lending president Eileen Connor put it, these borrowers “have done everything asked of them” and the false debt is still shaping “where they can live, what they can borrow, and what their futures look like,” according to the group’s September statement.

What the lawsuit is asking for

The proposed class action seeks statutory damages of $100 to $1,000 per Fair Credit Reporting Act violation — and each erroneous credit entry can count as a separate violation — plus actual and punitive damages, attorney’s fees, and a jury trial. Berger Montague shareholder John Albanese said the department told borrowers their debts were gone while “their credit reports say otherwise,” and argued borrowers scammed by their schools are now “paying the price a second time” through higher borrowing costs and lost opportunities.

A few caveats matter. These are allegations, not court findings, and the department had not issued a substantive public response as of September 30. It is also possible that part of the mess comes from processing backlogs rather than policy: canceling 1.5 million loans is an enormous paperwork job, and credit reporting lags happen even in normal times. The borrower and dollar estimates come from the plaintiffs’ own analysis of public records, not an independent audit.

What borrowers should do now

If you are one of the borrowers with canceled student loans — or you are just nervous about your credit file — this is a good week to pull your three free credit reports and scan them for old student loan accounts that should be gone. Federal law lets you dispute errors directly with the bureaus, and the lawsuit itself is a reminder that “canceled” does not always mean “corrected.”

There is also some unrelated but timely news for current federal borrowers: on September 29, the department extended the deadline to enroll in autopay for a one-percentage-point interest rate reduction to December 31, 2026, from September 30. About 2 million borrowers have signed up since June, according to the department. The discount is temporary — it runs through June 30, 2028 — and it excludes defaulted loans, but for anyone still paying, it is free money on the table.

The bigger question is the one the lawsuit raises: when the government erases your debt, who makes sure the eraser reaches every copy? Until someone answers it, the advice is the same one consumer advocates give every year — check your reports, dispute what is wrong, and do not assume a closed chapter is closed everywhere. For more on the money pressures facing young adults right now, see why a record share of young adults are living with their parents and the Social Justice desk.