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Several readers wrote to sound the alarm that student loan giant Sallie Mae has screwed up, and their error may cost you money. Bethany writes:
I had been keeping an eye on my credit, making up for my past mistakes by paying on time meticulously and paying off my credit card debt. Yesterday my Equifax score dropped 76 points because Sallie Mae changed the way they report graduated loans. Turns out, I am not the only one.
Another reader named Rebecca saw her score drop from 770 to 650 overnight.
What happened? Bankrate offers a summary of the problem:
Last Thursday, May 8, Sallie Mae made an error in the way it reported some student loans to credit reporting agencies. Essentially, it reported graduated or extended repayment plans as arrangements for partial payment, causing Equifax, one of the three national credit reporting agencies, to code the accounts as delinquent, even if they were current.
[...]
Borrowers with extended or graduated repayment plans who applied for credit or pulled their credit scores in the last three business days may have had “one or more of their accounts show up as delinquent, and had an adverse credit rating,” says Tom Joyce, spokesman for Sallie Mae.
Why is this a big deal? Because your credit score not only affects how much you pay for loans, it can also affect the interest rate on your credit cards and how much you pay for insurance. If you’re in the process of buying a house and your credit score drops by 120 points, it could cost you a small fortune.
This appears to be a temporary glitch in the system. One commenter at the myFICO discussion forum received a call from the Sallie Mae customer advocacy group. Sallie Mae intends to fix the problem by the end of the week, and it’s possible that Experian could have updated information in their system within ten days.
What should you do? If you are concerned that your credit report may have been affected, you should probably obtain your free annual credit report from Experian to see if there’s an issue. (But note that your credit report and credit score are different things — it costs money to get your credit score.) My guess, however, is that there’s not much you’ll be able to do other than wait a few weeks for the problem to be fixed.
The discussion thread at myFICO contains the best, breaking news on this story.
More information about credit reports and credit scores:
- myFICO allows users to track their credit scores for a fee. I haven’t used it, but that’s how many people first learned of this problem.
- Here’s my guide to obtaining your free credit reports from Equifax, Experian, and TransUnion.
- I’ve also described the anatomy of a credit score and explained proper care and feeding of a credit score.
I can’t help but think there are real problems with a system in which a glitch at a single company can potentially cost millions of people millions of dollars.
This article is about Debt, News Wednesday, 14th May 2008 (by J.D. Roth)
May 14th, 2008 at 9:51 am
Thanks for posting this J.D. I just want to also point out that my mom, the co-signer on my loan (another bullying move by SallieMae), was affected by this, but I wasn’t, and I’m not even on the graduated payment plan. It’s craziness.
May 14th, 2008 at 10:05 am
I’m closing on a house next week and I have a student loan! I wonder if I’m affected? I can’t check my credit report for free until June!
Well, I’m not closing until next Thursday and according to the post it will be cleared up by the end of this week, I should be OK.
Thanks for the info!
May 14th, 2008 at 10:24 am
Ugh, Sallie Mae…they almost borked our mortgage application a few years back by having one student loan listed like 5 times in different states of payment/non-payment. (Which, by the way, I think is a good argument for getting a mortgage from an institution that you trust. The guy at our credit union got it all straightened out, no big deal. He said it happens pretty regularly.)
When my husband finished his degree a few years back, we reconsolidated everything with Direct Loan (dept of Ed) and it’s been totally smooth.
May 14th, 2008 at 10:28 am
As a recent college grad with student loans through Sallie Mae (2 of them being on the “graduated plan” that this post talks about), I received my free Equifax report last week and noticed some issues with the way they reported my loans. However, I did not have any black marks against my credit, unlike the issue addressed here.
I am monitoring my credit through a free, 1 month offer from Amex that has been working well. If you have an Amex card, check out the Amex creditsecure program. It is free for 30 days.
May 14th, 2008 at 11:11 am
Thanks for the info, GRS, and thanks for the credit monitoring info from Stephen as well. I was wondering how Bethany and Rebecca were monitoring their credit scores, on what seemed like a daily basis. As GRS points out, annual credit reports are free but getting your credit score costs money, so I wonder if it is worth paying the money if you are not about to apply for a major loan (like a mortgage).
May 14th, 2008 at 11:38 am
@ JB: I wouldn’t assume on this one. You could end up paying a lot more in the long run. Fork over the money to check your scores, then cancel the service afterwards.
@ Students: If you have any choice at all at your college, go with Direct Loans as much as possible. You can specify the loan types you want on the FAFSA or with the Financial Aid office on campus.
Sallie Mae is the loan shark of the financial aid industry. When my mom went back to school she had (and still has) recurring problems with them borking the way they accredit payments and they use very aggressive tactics if you get behind. Not to mention the recent scandal with urging preferred treatment in schools.
I’ve only used Direct Loans and haven’t had a single problem. Every issue I’ve had has been handled promptly, even when consolidating. With the things I’ve seen my mom go through I refuse to use Sallie Mae, even though it’s limiting how I go to college.
May 14th, 2008 at 11:44 am
I just spent a while looking at the mentioned thread on MyFICO (I have a graduated payment plan with SM), and it appears as if everything has been fixed at this point. SM has admitted that it is an error, and that graduated payment plans should not be coded as being derogatory. They’ve sent Equifax an updated file and Equifax should have everything corrected within a few days. I’ll have to keep an eye out on my credit card and other interest rates though to make sure they don’t go up as a result..
@Lo. Price:
Take a look at creditkarma.com. Supposedly, they can give you your FICO credit score for free, and as often as you’d like. Unfortunately I cannot try it out because I have Debix credit service and they put a fraud alert on my credit reports.. (I might cancel it just so I can get the free credit reports!)
May 14th, 2008 at 12:04 pm
Has anyone else used creditkarma.com? I’d love to see my credit score for free, but this is the first I’ve heard of them.
We’ve got some student loans and we’re about to buy a house. It’d be nice to see what my score is before we go loan hunting.
May 14th, 2008 at 12:12 pm
Lo.Price — In addition to Amex mentioned above, other credit cards will watch your credit score for free. I have a WaMu credit card that sends me a notice every time my score goes up or down by 20 points, for no extra charge. If you have a card, log in online and see if it’s an option with yours.
May 14th, 2008 at 12:19 pm
I am glad I was lucky enough to work and pay cash through college. I just hope that Sallie Mae and other Loan Sharks pay for their mistakes. (Financially Speaking)
May 14th, 2008 at 12:53 pm
I’m not surprised to hear this news about Sallie Mae. Years ago I had a student loan through Sallie Mae, one day I got a letter from them stating that my payment amount would be increased effective immediately. The letter went on to say that they had “miscalculated” the interest. I was struggling to get by at the time and had a hard time coming up with the unexpected increase. I was upset that I had to pay for THEIR mistake. The day I paid off my loan was wonderful.
May 14th, 2008 at 1:06 pm
interesting. i just printed off my wife’s credit report this weekend and i noticed that one of the loan accounts (that was already paid off) had been noted “delinquent”. i was a bit perplexed by this, but i admittedly grew complacent over the last few days and did nothing. foolish, i know. i’ll be interested to see how quickly this resolves itself.
May 14th, 2008 at 1:17 pm
I use MyFico’s Scorewatch and saw my score drop 121 points based on this. I pulled my “ScorePower Report” through MyFico and saw that my score has already increased back to the level it was at before. Give it a few days for the automated systems to pick it up, but your score should already be fixed if a lender or anyone else does pull of your score.
May 14th, 2008 at 1:36 pm
I receive score alerts from myfico and noticed a 55 point drop. Glad to have an explaination for this now. I’m anxious for the problem to be fixed. Thanks for the update!
May 14th, 2008 at 1:45 pm
I have a student loan consolidation (not an original student loan) with Sallie Mae. I am officially petrified that this is going to hork my credit just as the wife and I are in the midst of preparing to buy a house! Not good!
May 14th, 2008 at 4:25 pm
MY friend has a student loan with Sallie Mae. A couple of days ago her parents, who cosigned the loan, called her at work because Sallie Mae called them to say she was overdue. She had actually paid online three days before the payment was due, but it wasn’t “processed” in time. Her parents were contacted the VERY SAME DAY the payment was due, because of their own error.
Something tells me Sallie Mae is in serious financial trouble or they wouldn’t be pulling stunts like this.
May 14th, 2008 at 4:43 pm
Coincidentally, I applied to refi an auto loan on 5/12 and my Equifax came in at 658… I didn’t get a good rate in return and was thinking I was going to have to spend days getting my Equifax report cleaned up.
After reading this story, I re-ran my Equifax report today… score = 772. That’s more like it.
Thanks for the tip! Looks like Sallie Mae/Equifax have fixed the issue.
May 14th, 2008 at 4:58 pm
great. i might be calling the loan servicer (not sallie mae) for some of my original college loans and seeing if they’ll consolidate me once i graduate.
May 14th, 2008 at 5:19 pm
Nicstarling,
It’s very likely that this says more about Sallie Mae’s operations and quality assurance processes than about its financial difficulties. While it’s true that cutting costs can result in screwed-up operations, it’s also true that operations can be screwed-up for many, many other reasons.
There’s an old saying I learned my first day in tech support: “Never attribute to malice what can be adequately explained by stupidity.” Usually these sorts of things are poor execution, not an intentional screw-up (malice) or due to underfunding.
(I’m not saying it’s OK for Sallie Mae to do this, or that it’s not a valid reason to refinance away from SM if you can. Just that it says more about the SM’s ability to execute than SM’s finances per se.)
May 14th, 2008 at 7:02 pm
I was quaking yesterday when I heard about this because I had just authorized a potential landlord to run a credit check as part of a rental application. Wouldn’t you know this glitch would strike on the one day in the last 2 years that anyone other than me looks at my credit? Fortunately they apparently don’t use Equifax for their their credit checks since my score came back at a healthy 797. And apparently I’m not on the Interpol Most Wanted list either. good thing too.
May 15th, 2008 at 8:37 am
Anyone have any issues where they have a completely unrelated credit card that retains the right to up their rate if the customer is delinquent in *any* credit account?
If you were listed as delinquent because of this screw up, I’d check with any other place you have credit with and see if they’ve upped your rate because of it.
May 16th, 2008 at 12:21 am
This happened to me! I pulled my score YESTERDAY and it was 611! It was 721 six months ago! I noticed the Salle Mae comment, disputed it, and have so far NOT gotten it resolved. I hope this turns around SOON!