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Sallie Mae error caused credit scores to plummet

Student loan provider Sallie Mae reports that the coding error that caused some borrowers' credit scores to plummet has been resolved as of Tuesday evening, May 13.

Some Sallie Mae student loan holders may have gotten nasty surprises if they checked their Equifax credit scores after Thursday last week. Their credit scores, based on their Equifax credit files, had plummeted overnight, thanks to a coding error made by Sallie Mae. While some of the borrowers were actually delinquent, many were current on their payments.

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What happened
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 treat them as derogatory marks. Sallie Mae spokeswoman Martha Holler says that "some of the credit monitoring services then took the interpretation one step further and labeled the derogatory mark a delinquency."

An extended payment plan allows the borrower to pay back the loan over 12 to 30 years as opposed to the standard plan, where the borrower has up to 10 years to pay back the loan. A graduated payment plan begins with low payments and the payment gradually increases every two years over a term of 12 to 30 years.

"There are some repayment plans that on our system are considered a partial payment. They're still in a current status, but they're essentially for an extended or graduated repayment plan, and with our interpretation of these industry guidelines on how to code that (is) where we made an error," says Holler. "What happened was the way a credit bureau translates that, they read that as a derogatory, when in fact that may not have been our intent."

Borrowers with extended or graduated repayment plans who pulled their credit reports or scores sometime between Thursday and Tuesday evening may have seen that "one or more of their accounts show up as delinquent, and had an adverse credit rating," says Tom Joyce, spokesman for Sallie Mae.

Some student loan holders complained in the FICO forums that their FICO scores had dropped 100 points or more due to Sallie Mae's snafu. Since then, some have reported that their scores returned to where they were before the error was made.

Joyce says "less than 10 percent" of their 10 million borrowers, or less than 1 million borrowers, were affected by the mistake.

Credit reports restored
Holler reports that the issue was resolved and customers' credit reports were corrected on Tuesday evening. "We are pleased that customers' credit reports have been restored to what they would have and should have been," she says.

Sallie Mae will supply a credit reference for people who need one to correct their credit scores or prove to a potential lender that the error is Sallie Mae's. Sallie Mae urges borrowers concerned about the mistake to call (888) 2-SALLIE or (888) 272-5543.

All credit reporting agencies have been notified of the issue and consumers do not need to pull their credit reports if they have not already done so, nor do they need to dispute the error with the credit bureaus, says Joyce. They should call Sallie Mae directly.

Bankrate.com's corrections policy
-- Updated: May 15, 2008
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