For hundreds of thousands of Americans, student loan cancellation was supposed to erase years of debt. A new lawsuit alleges that, for some, the debt never disappeared from their credit reports. Two borrowers filed a proposed class-action lawsuit against the US Department of Education on 24 September, alleging that federal loans already approved for cancellation continue to be reported as outstanding.
The Project on Predatory Student Lending, or PPSL, which represents the plaintiffs, estimates that $4.6 billion in cancelled debt affecting more than 300,000 borrowers remains on credit reports. The figure is PPSL's estimate based on publicly available data, not a finding by the court. The allegations have not been proven in court.
Cancelled Loans Allegedly Remain on Credit Reports
The case, Woods v. US Department of Education, was filed in the US District Court for the District of Columbia and seeks damages under the Fair Credit Reporting Act. It concerns group discharges announced between April 2022 and January 2025. Those decisions covered more than 1.5 million borrowers and $23.4 billion in federal loans associated with schools where the Education Department found widespread fraud and misconduct.
Eligible borrowers were told that the relief was automatic, that they did not need to make additional payments and that no further action was required. The lawsuit alleges, however, that some cancelled loans continue to be reported to Equifax, Experian, and TransUnion with outstanding balances. That alleged reporting can have consequences beyond student loan repayments. PPSL says the balances can affect access to mortgages, rental housing, car loans, credit cards, and employment.
Marine Veteran Says $21,586 Remained
One of the named plaintiffs is Jorge Cortes, a Marine Corps veteran who borrowed money to attend ITT Technical Institute. His loans were covered by an Education Department group discharge announced in August 2022. Yet his credit reports in August 2026 allegedly continued to show $21,586 outstanding.
Cortes disputed the information with all three major credit reporting companies. His loan servicer subsequently said it had investigated and concluded that the information provided to the agencies was accurate, according to the complaint. Cortes said he had believed the loans were behind him after being told they were discharged. His case is one of two individual examples cited by the plaintiffs in support of their wider proposed class action.
Another Borrower Allegedly Owed $71,901
The second plaintiff, Mandy Woods, borrowed approximately $65,000 to attend Ashford University. In January 2025, the Education Department announced that qualifying Ashford loans would be discharged automatically.
According to PPSL, Woods repeatedly contacted her loan servicer and Federal Student Aid, sought assistance from the FSA ombudsman and her member of Congress, and disputed the debt with the three major credit reporting companies. Despite those efforts, her August 2026 credit reports allegedly showed an outstanding balance of $71,901, approximately $2,000 more than when she filed her disputes.
Why the Credit Reports Matter
The lawsuit centres not simply on whether the loans were approved for cancellation, but on how they were subsequently reported. An outstanding balance can influence a borrower's financial position when applying for other credit. PPSL says lenders offering federally insured mortgages may have to consider deferred student debt when assessing whether an applicant qualifies.
The plaintiffs are pursuing claims under the Fair Credit Reporting Act. PPSL says the law requires entities supplying information to credit bureaus to reasonably investigate disputes and correct or delete information that is inaccurate, incomplete or unverifiable. In 2024, the US Supreme Court unanimously ruled that federal agencies can face damages claims under the Act, a point PPSL cites in its case against the Department.
Borrowers Seek Damages
The plaintiffs are seeking class-action status and damages for borrowers they allege were affected by the reporting. No class has yet been certified, and the Education Department had not filed a response to the allegations when the case was reported on 24 September.
The lawsuit therefore remains at an early stage. At its centre is a question with significant financial consequences for the borrowers involved: whether federal loans they were told had been cancelled continued to appear on their credit reports as money they owed.
