The 5 Wildest Student Loan Repayment Errors Derailing Forgiveness

Student loan borrowers are encountering a wide array of problems as payments start up again after a three-and-a-half year pause. Billing mistakes, forced forbearances, and other issues are interfering with loan repayment and derailing those who are pursuing student loan forgiveness.

The issues stem from the unprecedented, simultaneous return to repayment by 40 million borrowers, and an unprepared and underfunded loan servicing system that is buckling under the pressure while trying to implement multiple new student debt relief initiatives. The Biden administration is stepping up oversight and enforcement efforts. Last week, the Education Department issued a financial penalty to a loan servicing company, as well as compensation for borrowers harmed by the student loan repayment errors.

But as the Biden administration releases more details, it is becoming increasingly clear that some of the hurdles borrows are facing are particularly egregious.

Massive Bills During First Month Of Student Loan Repayment

In a memorandum released last week outlining some of the student loan repayment mistakes borrowers have encountered this month, the Education Department indicated that at least 20,000 borrowers were issued billing statements showing an erroneous amount due. Some of these bills were for comically large amounts.

“Hundreds of borrowers received bills stating they owed over $10,000 per month,” said the department. And some borrowers were sent bills saying they had to pay over $100,000 per month. One borrower received a monthly billing statement for $108,895.19.

Approved For Student Loan Forgiveness, But Getting Billed Anyway

More than 15,000 individuals who have been approved for student loan forgiveness, and should not be required to make payments while awaiting a discharge, were improperly billed, according to the Education Department. These borrowers had been approved for relief through the Borrower Defense to Repayment program.

“Borrowers with pending [Borrower Defense] applications or pending BD discharges, should be in a BD forbearance or other non-pay status,” said the Education Department in its memo. The department “is prohibited from actively collecting against many borrowers with pending BD applications or discharges due to a court order.” Nevertheless, some borrowers were “taken out of forbearance when borrowers returned to repayment” and were then sent billing statements by their servicer.

Forbearance For A Decade? What About Student Loan Forgiveness?

Loan servicers are increasingly resorting to placing borrowers in administrative forbearances due to processing delays and billing errors. In some cases, the Education Department is ordering servicers to put borrowers into forbearance, particularly if there was a student loan repayment plan error.

But some borrowers are receiving notifications that they have bene placed in forbearance until the 2030’s or 2040’s — a period of a decade or longer. These forbearance notices are likely erroneous, as well. However, they will no doubt compound the confusion and frustration borrowers are experiencing, as typically forbearance periods are ineligible for interest subsidies and don’t count toward student loan forgiveness under key programs.

Delinquency After Receiving No Student Loan Bill

Millions of borrowers received untimely billing statements during the first month of student loan repayment, according to the Education Department. More than 740,000 borrowers were sent billing statements sometime after the purported “send date” on the letter. And some individuals did not receive bills until after their billing due date had already passed.

As a result of these issues, 830,000 people became delinquent on their student loans. In other words, some borrowers received no bill, only to find out that they were now late on their student loan bill after the due date had already passed.

Student Loan Payments Getting Rejected

Some borrowers are also reporting student loan payment processing errors, such as payments being made on time but subsequently then rejected by the loan servicer. Or borrowers provide authorization for a payment to be made, but then find out there is no record of the payment actually going through.

In addition, most individuals who were on auto-debt prior to the student loan pause have to reestablish automatic payments, which many may not be aware of.

What Borrowers Should Know About Student Loan Repayment Problems

Top Biden administration officials indicate that they are aware of the problems and are working to hold loan servicers accountable for the mistakes.

“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,” said Education Secretary Miguel Cardona in a statement last week. “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. The actions we’ve taken send a strong message to all student loan servicers that we will not allow borrowers to suffer the consequences of gross servicing failures.”

The administration has also announced that some borrowers will be compensated for the student loan repayment errors through a combination of waived interest, cancelled payments, and credit toward student loan forgiveness.

Further Student Loan Forgiveness Reading

Check Your Email: 50,000 Borrowers Get Student Loan Forgiveness Notices, And Yes, They’re Real

Hardship May Soon Be The Basis For A New Biden Student Loan Forgiveness Plan

Education Department Unveils Major Details On New Student Loan Forgiveness Plan

5 Student Loan Forgiveness Updates As On-Ramp Begins And Problems Worsen