More than 300,000 student loan borrowers were told years ago that their debts — totaling $4.6 billion — had been officially cancelled. According to a proposed class-action lawsuit filed this week, the U.S. Department of Education never stopped reporting many of those same balances to credit bureaus as if they were still owed.

The suit, Woods v. U.S. Department of Education, was filed September 24 in federal court in Washington by the Project on Predatory Student Lending, the same legal group behind the landmark Sweet v. Cardona borrower-defense settlement. It alleges the Department violated the Fair Credit Reporting Act by continuing to report cancelled balances as active debt to the three major credit bureaus, in some cases for years after the loans were discharged.

Two borrowers, one pattern

The discharges at the center of the case stem from a wave of group loan cancellations the Department announced between April 2022 and January 2025, covering more than 1.5 million borrowers and $23.4 billion tied to for-profit schools found to have committed widespread fraud, according to reporting from the Washington Post. Named plaintiff Mandy Woods borrowed roughly $65,000 to attend the for-profit Ashford University; her credit report currently shows $71,901 owed — a balance that has actually grown by about $2,000 even after she disputed it. Fellow plaintiff Jorge Cortes, a U.S. Marine Corps veteran who borrowed about $54,000 for ITT Technical Institute between 2006 and 2013, had his loan covered under the Department's August 2022 group discharge for ITT borrowers — yet his credit report as of August 2026 still showed $21,586 owed, nearly four years later.

THE GOVERNMENT CANNOT TELL BORROWERS THEIR LOANS ARE CANCELLED, REPORT THOSE SAME LOANS AS DEBTS THEY STILL OWE, AND THEN IGNORE THEM

\"The government cannot tell borrowers their loans are cancelled, report those same loans as debts they still owe, and then ignore them\" when correction requests go nowhere, the Project on Predatory Student Lending said in its announcement of the suit. The complaint seeks statutory damages of up to $1,000 per violation on a class-wide basis, covering the full 300,000-plus affected borrowers, according to CNBC's coverage of the filing.

The alleged harm goes beyond a bad credit score: plaintiffs say the erroneous reporting affected their ability to get mortgages, rent apartments, secure auto loans and pass employment credit checks — years after they were told, officially, that the debt no longer existed.

The Department of Education has not yet filed a formal response to the complaint. The case will now proceed in federal court in Washington, D.C., where plaintiffs are seeking class certification that would let all affected borrowers join the suit, per Forbes' reporting on next steps.