In late October, former Trump administration official Wayne Johnson and four borrowers filed a class-action lawsuit against the U.S. Department of Education (DOE) and three major credit reporting agencies (Equifax, Experian, and TransUnion), accusing them of falsely reporting student loan delinquencies and defaults, intentionally violating the Fair Credit Reporting Act (FCRA).
The total amount of federal student loans managed by the U.S. Department of Education exceeds $1.6 trillion, involving around 44 million borrowers.
Johnson, who was responsible for the federal student loan program during Trump’s first presidential term, seeks to represent millions of federal borrowers in a collective lawsuit and has hired the law firm Cooper, Barton & Cooper in Atlanta to file the suit in the U.S. District Court for the Northern District of Georgia.
The lawsuit alleges that the Education Department, as both the largest loan servicer and credit reporting agency in the United States, failed to provide effective service after the repayment pause for student loans during the pandemic ended and repayment obligations resumed in 2025, potentially mislabeling student loans as “severely delinquent” or in default.
The lawsuit also connects the Education Department’s mass layoffs of over 1,300 employees, about half of its total staff, to this “misconduct,” claiming that it resulted in the department’s “service collapse.”
The lawsuit accuses the Education Department of weaponizing negative credit reports as backend collection tools, coercing borrowers to contact the department for repayment by damaging their credit scores.
The lawsuit seeks compensation, including “returning $100,000 to each member and removing all negative credit records from borrowers’ credit reports,” with a potential total compensation exceeding $500 billion.
The lawsuit documents claim that since January 1, 2025, over 5 million people have been erroneously declared severely delinquent, with many also declared in legal default, due to the Education Department’s failure to fulfill its basic duty of providing effective service to borrowers.
The lawsuit predicts that if the Education Department does not correct these errors, the number of affected individuals could double to 10 million by the end of 2025 and reach 20 million by April 2026.
According to the lawsuit documents, the Education Department, as a “credit information provider” under the FCRA, failed to provide accurate and fair reports to credit agencies.
Even when borrowers attempt to restart repayments, they are unable to do so because the Education Department’s service system automatically pushes accounts into 30, 60, 90, 120, or even 270 days of delinquency. Federal loan servicing agencies’ phone wait times exceed 10 hours, with a disconnection rate of over 95%, preventing borrowers from making payments or contacting relevant individuals to restart the repayment process.
The Education Department refuted these claims.
A spokesperson for the Education Department stated that the documents showed that “ideological fanatics are attempting to maliciously change the way the government collects student loans.”
During the pandemic in 2020, the first Trump administration implemented a policy to halt loan collections, and five years later, in May 2025, the second Trump administration resumed collections.
Secretary Linda McMahon defended the Education Department’s decision to resume collections. In an April opinion article, she stated that resuming collections does not mean being unfriendly to student loan borrowers.
She argued that borrowing money and not repaying is a crime, and there are victims because debt does not disappear; it only shifts to someone else.
After 90 days of student loan delinquency, loan servicing agencies report the delinquent or overdue accounts to major credit bureaus, which then use this information to recalculate the borrower’s credit score.
By federal law, student loan defaults typically occur after 270 days of delinquency, triggering wage garnishment, tax refund offsets, or Social Security garnishment.
According to data from the New York Federal Reserve Bank, as of the end of March 2025, about a quarter of student loan account holders are delinquent in repayments for more than 90 days; by mid-year, 10.2% of student loans (equivalent to approximately 5 million borrowers nationwide) are in severe delinquency status.
On November 5 (Wednesday), the New York Federal Reserve Bank released a new report indicating a significant increase in financial stress among young people.
The report revealed that about 3% of unpaid debts entered severe delinquency, defined as being 90 days or more overdue, in the third quarter, marking the largest quarterly increase since 2014. In the 18-29 age group, this ratio is approximately 5%, more than double compared to the same period last year, and the highest among all age groups.
One of the main reasons causing this stress is the overdue repayment of student loans. In the third quarter, the total outstanding student loan debt surged to a record $1.65 trillion. As student loan repayments restart, many young people are facing repayment challenges.
(Reference from the report by Newsweek)