What Are the Best Practices for Reporting Student Loan Accounts?

Student loans are a major part of consumer credit and require careful reporting to ensure accuracy, transparency, and compliance with the Fair Credit Reporting Act (FCRA). Proper reporting of student loans helps consumers build credit, provides clarity to lenders, and ensures that loan repayment histories are accurately reflected in credit reports.

Understanding Student Loan Reporting

Student loans can be federal or private, and each type follows specific reporting guidelines:

• Federal Student Loans: Managed by the U.S. Department of Education and serviced by authorized loan servicers.
• Private Student Loans: Issued by banks, credit unions, and private lenders with unique repayment terms.

Regardless of the type, student loans must be reported correctly to reflect their repayment status, deferments, and potential delinquencies.

Best Practices for Reporting Student Loan Accounts

1. Report Loans Individually if Disbursed Separately
   • If a student receives multiple disbursements (e.g., one per semester), each disbursement should be reported as a separate tradeline.
   • This ensures accurate tracking of repayment schedules and balances.
2. Use the Correct Loan Status Codes
   • Student loans can have various statuses, including:
     • “In School” – The borrower is enrolled in school and payments are not yet required.
     • “Deferment” – Payments are temporarily postponed due to hardship or continuing education.
     • “Forbearance” – Temporary pause or reduction in payments due to financial hardship.
     • “Repayment” – The borrower is actively making payments.
     • “Delinquent” – Payments are past due, typically starting at 30 days late.
     • “Default” – The borrower has missed payments for 270 days (federal loans) or as defined by the lender (private loans).
3. Ensure Accurate Reporting of Income-Driven Repayment (IDR) Plans
   • Many federal loans are eligible for Income-Driven Repayment (IDR) plans, where monthly payments are based on the borrower’s income.
   • Even if a borrower’s required monthly payment is $0 under IDR, the loan should still be reported as current (on-time payments) rather than delinquent.
4. Apply Special Comment Codes for Loan Deferment or Forbearance
   • Use Special Comment Codes to indicate:
     • “Loan in Deferment” – If the borrower has postponed payments due to school enrollment or hardship.
     • “Loan in Forbearance” – If payments are paused due to financial difficulty.
     • “Natural Disaster Forbearance” – If the borrower’s payments are suspended due to a declared disaster (e.g., COVID-19 relief measures).
   • These codes prevent inaccurate delinquency reporting while loans are in deferment or forbearance.
5. Report Delinquencies and Defaults Properly
   • Federal Student Loans enter default after 270 days (approximately 9 months) of missed payments.
   • Private Student Loans may default sooner, depending on lender policies.
   • DO NOT report a student loan as defaulted before the required timeline.
6. Maintain Accurate Date of First Delinquency (DOFD)
   • The DOFD determines when negative student loan information will be removed from the credit report.
   • Delinquencies and defaults stay on a credit report for seven years from the DOFD.
7. Notify Consumer Reporting Agencies (CRAs) of Loan Forgiveness or Discharge
   • If a loan is forgiven under programs such as:
     • Public Service Loan Forgiveness (PSLF)
     • Teacher Loan Forgiveness
     • Total and Permanent Disability Discharge (TPD)
   • The account should be updated as “Paid in Full – Loan Forgiven” rather than “Defaulted” or “Settled”.
8. Ensure Proper Handling of Loan Transfers Between Servicers
   • If a student loan is transferred to a new servicer, the original servicer should:
     • Report the account as “Transferred – Account Sold” with a zero balance.
     • The new servicer should report a new tradeline with accurate payment history and balance.
   • This prevents duplicate reporting and maintains accurate credit history.

Compliance with the FCRA

The FCRA mandates that student loan reporting be:

• Accurate – Loan statuses, balances, and payment histories must reflect the correct borrower activity.
• Complete – Include all repayment updates, deferment periods, and loan transfers.
• Timely – Report delinquencies, loan forgiveness, and loan transfers promptly to avoid inaccuracies.

Impact on the Consumer’s Credit Report

1. Credit Score Considerations
   • On-time payments on student loans positively impact credit scores and help build credit history.
   • Delinquencies and defaults significantly harm a borrower’s credit, making it harder to qualify for future loans.
2. Transparency for Lenders
   • Properly reported student loans give lenders a clear view of the borrower’s financial responsibility.
   • Loan status updates (e.g., deferment or forbearance) provide additional context for future credit decisions.

Conclusion

Student loans play a major role in consumer credit, and accurate reporting is essential for maintaining FCRA compliance and credit transparency. By correctly reporting repayment statuses, deferments, defaults, loan forgiveness, and servicer transfers, lenders can help consumers build stronger credit profiles while maintaining fairness in the credit reporting system.