The return to student loan payments has gotten off to a predictably rocky start, and the Department of Education is cracking down on loan servicers who make widespread errors.
The Department of Education is now ordering loan servicers to reimburse borrowers affected by billing errors. In some cases, incorrect billing information has led to borrowers’ bank accounts being overdrawn, and the department says servicers must cover these non-sufficient funds (NSF) or overdraft fees, according to an internal note the agency released this week. Any interest charges due to errors must also be refunded or waived.
“Anyone who has paid attention to the student loan system over the past few years expected it to be an absolute disaster,” says Abby Shafroth, an attorney who directs National Consumer Law’s Student Loan Borrower Assistance Program. Center.
The system was not designed for tens of millions of borrowers to start making payments at once, she adds. The Department of Education memo concedes this point, noting that borrowers are facing “substantial challenges” with their loan servicers “as expected,” it says.
Overall, the department has identified about 2.7 million federal borrowers who have had serious problems with their loan servicer since payments restarted in October, and many of them will be eligible for refunds or reimbursements.
Here’s what borrowers need to know.
Government Orders ‘Corrective Actions’ for Borrowers Affected by Widespread Service Errors
The Department of Education contracts with a handful of private loan servicing companies to issue and collect federal student loan payments. These companies include Edfinancial, MOHELA, Aidvantage and Nelnet.
After the moratorium on student loans expired at the end of September, some 28 million Americans had to make loan payments again for the first time in three and a half years — or, in some cases, for the first time ever, according to the Department of Education. Shafroth says that’s about 20 times the number of borrowers who would start making payments in a typical month.
Loan servicers are tasked with managing this monumental transition while implementing directives from the Biden administration. new student loan repayment plan, SAVE. As many expected, errors are commonplace.
The Department of Education’s memo focuses on several key issues facing nearly 3 million borrowers.
- 2.5 million borrowers received their student loan billing statements late – or never received one in the first place. Service officers were legally required to provide at least 21 days’ notice, according to the ministry.
- 153,000 borrowers Likewise, they were not properly informed of their new payment amount when they moved from an old repayment plan to the new SAVE plan. In the memo, the Department of Education says they were supposed to be informed “in understandable terms” at least 30 days before their first bill.
- 78,000 borrowers received inaccurate monthly bills due to errors when switching to the new SAVE plan, which is intended to be more affordable than other repayment options. In several cases, the borrower’s new SAVE bill was higher than their pre-pandemic payments due to calculation errors and incorrect data.
- 21,000 borrowers received incredibly high bills due to errors that set their loan term at one or two months instead of 120 or 240 months – in effect requiring the entire loan to be repaid at once. This caused some monthly bills to exceed $100,000. In one particular case shared by the department, a borrower’s monthly bill came to $108,895.19.
These errors have led some borrowers to find themselves in default of payment, to lack payment credit towards a forgiveness programaccrue incorrect interest and incur bank charges due to overdrafting their accounts.
The Ministry of Education has already taken action against MOHELA – a loan servicer – for failing to inform borrowers of their due date, leading to 800,000 borrowers defaulting. Earlier this week, the ministry announced it was withholding a $7.2 million payment to MOHELA for October.
“The department has directed servicers to place all affected borrowers in administrative forbearance until the issue is resolved,” Rich Cordray, chief operating officer of Federal Student Aid, said in a statement. statement about MOHELA errors.
Additionally, the memo asks servicers to reimburse certain bank charges and offer to repay incorrect invoices, without jeopardizing the borrower’s payment history.
Since servicing is already bogged down, it’s unclear how or when they will begin repaying borrowers.
“Service providers will contact affected borrowers with updated information shortly,” a Department for Education spokesperson told Money. Money attempted to reach MOHELA, Aidvantage, Edfinancial and Nelnet. Only Nelnet responded, directing questions to the Ministry of Education.