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Published: Jan 08, 2024 8 min read
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The return to monthly student loan payments has been riddled with obstacles for borrowers, according to two new reports — and the government has taken notice.

The U.S. Department of Education announced Friday it is withholding payments to three student loan servicers and placing certain borrowers into administrative forbearance after finding more than 750,000 people didn’t receive their bills in a timely manner. Borrowers have also had to deal with incorrect bills, delays signing up for repayment plans and hour-long waits when calling customer service, according to a separate report released Friday by the Consumer Financial Protection Bureau.

Though the CFPB analysis simply catalogued issues with the rollout, the Education Department is, for the second time since October, issuing penalties for the late billing. The department “will not give student loan servicers a free pass for poor performance and missteps that jeopardize borrowers,” U.S. Secretary of Education Miguel Cardona in a news release.

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The announcements are the latest evidence of a rocky return to monthly student loan bills for some of the roughly 28 million Americans whose payments resumed in the fall. Borrowers have reported flawed bills, unaffordable payments and a lot of confusion as they tried to get back into the habit of making student loan payments after three and a half years.

Education Department pauses payments, punishes servicers for late bills

To help people prepare after such a long time without required payments, student loan servicers — which manage the repayment of student loans for the federal government — were supposed to send bills to borrowers at least 21 days before their first payment was due.

But that didn’t happen for some 758,000 borrowers whose accounts were managed by Aidvantage, EdFinancial and Nelnet, the Education Department says.

Now, the department says affected borrowers will not have to make payments or pay interest on their accounts until the issue is resolved. (If you're one of these borrowers, look for communication from your servicer that says you've been placed in administrative forbearance.) The department is also withholding a payment of $2 million from Aidvantage, $161,000 from EdFinancial and $13,000 from Nelnet — amounts that are based on how many borrowers were affected.

This is the second time the Biden administration has found borrowers didn’t receive their bills with adequate lead time: At the end of October, the department withheld $7.2 million from MOHELA, another servicer, for sending late payments to 2.5 million borrowers. Like with this more recent group, those borrowers should have been placed in an interest-free administrative forbearance. In both instances, the Education Department said months spent in administrative forbearance will count as progress toward forgiveness under income-driven repayment and Public Service Loan Forgiveness.

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CFPB reports long wait times, trouble accessing new repayment plan

When borrowers have questions about their bills or repayment options, they are always directed to contact their loan servicer. But getting individualized answers from servicers has been a challenge, according to the Consumer Financial Protection Bureau.

During the last two weeks of October, the average borrower waited 73 minutes to talk to a representative when they called their assigned servicer, CFPB data shows. That’s up from an average wait of 12 minutes a few months earlier.

As expected, long wait times led to high rates of borrowers dropping calls: Nearly half of borrowers who called in the last two weeks of October hung up before their call was answered.

Alongside long wait times, the CFPB report highlighted problems with borrowers accessing income-driven repayment plans, including the Biden administration’s new Saving on a Valuable Education (SAVE) plan. The plan, which launched in August, protects more of a borrower’s income from being used for monthly loan payments and covers unpaid interest on a borrower's account.

At the end of October, more than 450,000 applications for an income-driven repayment had been pending with a servicer for more than 30 days, according to the CFPB. Loan servicer employees who were processing income-driven repayment applications had, on average, 1,335 outstanding applications each.

It’s hard to quantify how much these servicing issues may have hurt individual borrowers, but the CFPB highlights several potential negative consequences, including paying more interest and having to make a larger than necessary payment while applications were stuck in processing. In some cases, borrowers who couldn’t get in touch with their servicer may have had to take time off work to get their questions answered.

Hurdles like these can have a domino effect that causes problems in other areas of borrowers' finances, CFPB Director Rohit Chopra said in a statement, adding: “While loan servicers may not be household names, their conduct has a significant impact on household finances.”

Student loan billing issues ongoing

While both reports focus on the first weeks after the payment pause expired at the end of September, there are some indications that issues continued (at least) through the fall. For one, the CFPB report notes that at the end of October, only one servicer was processing more applications for income-driven repayment plans than it was receiving, suggesting the backlog could get worse before it gets better.

Student loan experts predicted many of these issues, particularly the delays in getting help, as the end of the payment pause approached. That's partially due to the size of the task, given that servicers had to resume billing for nearly 30 million borrowers at once. But it's also true that the companies weren't given extra resources to increase staffing levels to handle what officials knew would be a surge of questions from borrowers.

Since the fall, Abby Shafroth, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, says borrowers have continued to face missing billing statements, delays in processing applications and incorrect placement into a repayment plan or forbearance.

She applauds the department's corrective orders to servicers, which aim to protect borrowers from paying more money or falling behind on their loans due to mistakes outside their control — but notes that it's not a perfect system.

"In many cases, it still requires the servicers to implement these corrective orders, and it is not yet clear how well that is going, so the work is far from done," Shafroth writes in an email.

More from Money:

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