Student loan repayment has been messy to start.
When federal student loan payments resumed in October of this year after being paused since March of 2020 due to the Covid-19 pandemic, academics and government policy experts reported concerns over the rollout and what would happen next.
First, the fact many borrowers hadn’t made payments for three years and had likely reconfigured their budgets without that specific debt meant that repaying loans may be unaffordable for many. There was also the problem of trying to get everyone on the right repayment plan to fit their finances after so much time had passed, as well as various issues around getting payments missed due to lost time counted toward Public Service Loan Forgiveness (PSLF) and income-driven repayment plans.
Federal student loan payments resuming has actually led to a lot of issues that people may not have seen coming. In fact, the entire rollout has been plagued with problems like incorrect bills, billing statements never being sent out, and more.
This has left many borrowers with debt wondering what steps they should take to make sure the payment amounts requested on their bills are correct and how to get them fixed if they’re not.
Missed Bills Result in $7.2 Million Penalty
To start, you should know that the U.S. Department of Education is withholding $7.2 million in payments to MOHELA , a student loan servicer, for not sending out student loan bills to over 2.5 million borrowers within the timeline required for them to make their first payment and not be delinquent on their loans. The result of this failure means that more than 800,000 borrowers failed to make their first federal student loan payment on time, many with only seven days to get their payment in after receiving it in the mail. This is despite the fact the Dept. of Education requires lenders to give borrowers much more notice than that.
“You’ll receive your monthly payment amount at least 30 days before your first payment is due,” clearly states studentaid.gov. “And you’ll get your first bill at least 21 days before your first payment is due.”
To prevent further fallout from the misstep, the U.S. Department of Education ordered MOHELA to put all affected borrowers in forbearance until the issue is resolved. Also, all time spent in forbearance will be counted toward income-driven repayment plans or Public Service Loan Forgiveness (PSLF).
Other issues have popped up along the way, however, including some borrowers having incorrect payment amounts on their statements and borrowers who have pending Borrower Defense claims incorrectly placed back in repayment status, noted the Department.
“The Biden-Harris Administration is looking out for borrowers at every step throughout their return to repayment. Our oversight efforts have uncovered errors from loan servicers that will not be tolerated. We took immediate actions to protect borrowers from the fallout of this error and hold the responsible servicers accountable, including by withholding $7.2 million in payment from one servicer,” said U.S. Secretary of Education Miguel Cardona in a press release on the action.
Problems Enrolling In Biden’s New SAVE Plan
Some of the other issues have revolved around Biden’s new SAVE income repayment plan, which was created to increase the number of people with $0 monthly payments on their federal student loans while helping most other borrowers save at least $1,000 each year. Like other income-driven plans, the SAVE plan has borrowers pay a percentage of their discretionary income for 20 to 25 years (in this case, 5% of undergraduate school loans and 10% of graduate school loans) before forgiving remaining loan balances.
Unfortunately, borrowers have run into all sorts of issues with the plan, including miscalculated payments and various administrative errors. An internal memorandum on the issue from October 29th of this year says that, for up to 5 million borrowers, servicers didn’t have the right information to convert their old monthly payments using the new formula for the SAVE plan. This led to tens of thousands of borrowers getting new monthly statements with a completely wrong amount due each month.
The memo also states that callers have been having problems reaching loan servicer call centers, and they’re waiting longer to get help when they do. Specifically, the memo stated that borrowers were waiting on hold to speak with a FSA representative for an average of 58 minutes, and that the call lengths themselves were 70 percent longer than reported in 2019.
Incorrect Loan Payment? Your Best Next Steps
When it comes to playing the blame game for all these issues, it’s probably safe to say that government bureaucracy is the root cause of most problems. The U.S. Department of Education has historically been horrible at communication and oversight.
The good news for everyone caught up in this mess is that the Department is moving loans with the issues mentioned into administrative forbearance until the payment problems are resolved.
FSA Chief Operating Officer Rich Cordray also stated that loans caught up in the MOHELA problems (with missed billing payments sent out) will not accrue any interest until the problem is fixed.
Not only that, but there’s a 12-month on-ramp for federal student loans that suspends the worst consequences of not making payments until after September 30, 2024. During this pause, studentaid.gov notes that:
- Missed payments aren’t reported to the credit bureaus
- Your account will not be considered delinquent
- Your loans will not default or be sent to collection agencies
That said, interest will still accrue on federal student loans during the on-ramp period, so you’ll want to get your issues fixed and get back on track with monthly payments quickly. If your payment amount is wrong or you think it may be, make sure to call your student loan servicer and get on the phone with a representative as soon as you can.
Hold times may be long, but you may be on your own to get your payments fixed and other issues with your loans resolved.
