How Credit Report Data May Be Masking the True Scope of the Problem

By Eric Espinoza, Associate Director of Programs and Strategic Advocacy
August 12, 2019

The memo outlines two systematic phenomena in consumer credit reporting that have major implications for all analysis on student loan debt done using credit bureau data. In short, the issue lies in the fact that the Department of Education’s student loan servicers completely stop reporting outstanding loan balances to the credit bureaus in two common, mostly predictable, sets of circumstances: (1) when loans go into default, (2) when loans are mistakenly deemed to have expired past their statute of limitations period under the Fair Credit Reporting Act, creating a gap in reporting that can be detected by cross referencing borrower’s loan information as listed in the federally owned National Student Loan Data System (NSLDS).

The implications of these findings are deeply troubling since so much of what we know about consumer debt in the United States is informed by research whose data is sourced directly from consumer credit reports. If consumer credit reports obfuscate important truths about the debt balances of student borrowers in default, so too will any research that relies on this data. The risk here is that policymakers who depend on this research will be insufficiently equipped to design informed and effective interventions.

Our concern is compounded by the fact that, student loan default in particular, is extremely common among borrowers. Approximately 9 million borrowers are currently in default status, with over 1 million defaults occurring every year – this translates to nearly 1 in every 5 borrowers defaulting, with one student loan default occurring every 30 seconds.[i] The prospect of this large a segment of borrowers getting left out of key data analysis was the impetus for this piece.

Read the memo here.

[i] Federal Student Aid: An Office of the U.S. Department of Education. “Federal Student Loan Portfolio.”