And What Borrowers Can Do When Their Servicer Fails Them
Federal student loan borrowers are entering their fourth month of repayment since the end of the payment pause in September 2023. For many, the return to repayment has created uncertainty and anxiety about managing an additional monthly payment and understanding loan repayment options, and about 40% of borrowers missed payments the first month. Contributing to the confusion, the Department’s loan servicers have committed numerous widespread and documented errors in billing borrowers and managing their loans.
The Department has announced that its federal student loan servicers, MOHELA, Advantage, EdFinancial, and Nelnet, failed to send or did not send timely billing statements to approximately 3.2 million federal student loan borrowers during the first month of repayment. As a result, the Department imposed financial penalties on these servicers, totaling $9.3 million. The largest fine, $7.2 million, was imposed on MOHELA at the end of October 2023 for failing to send billing statements on time to 2.5 million borrowers.
In addition, the Department documented other errors committed by loan servicers during the first month of repayment, including:
- Failing to properly convert borrower accounts to the new SAVE repayment plan;
- Sending incorrect monthly bills to borrowers;
- Failing to keep borrowers with pending Borrower Defense (BD) applications in forbearance; and
- Failing to send IDR disclosures after converting borrower accounts from the older REPAYE plan to the new SAVE plan.
Protections Made Available to Borrowers Harmed by Return to Repayment Servicing Errors
To protect borrowers from the negative impact of servicing errors during the return to repayment, the Department has instructed servicers to place all borrowers negatively impacted by the errors documented above into an administrative forbearance period until the errors are corrected. During this period, these borrowers will not be required to make any payments, and any interest that accrues during the forbearance will be canceled. Additionally, any months spent in this forbearance status will count towards loan forgiveness under Public Service Loan Forgiveness (PSLF) and income-driven repayment (IDR) plans.
Servicers must notify impacted borrowers that their loans have been placed in an administrative forbearance and provide the reason for doing so. Additionally, they must offer to refund recent payments made by impacted borrowers and pay any non-sufficient funds (NSF) or overdraft fees incurred as a result of these servicer errors.
More Servicing Problems Documented by the CFPB
In addition to the servicing errors identified by the Department, the CFPB published a new report documenting numerous servicing problems facing borrowers during the return to repayment, including but not limited to long call wait times, delayed processing of IDR applications, and inaccurate and untimely billing statements. On average, borrowers are waiting over an hour (73 minutes) to speak with a servicer representative. As of late October 2023, the Department’s servicers had a staggering 1.25 million IDR applications waiting to be processed.
My Account was Impacted by a Servicing Error; What Should I Do?
Borrowers who believe that they were impacted by one of the five servicing errors found by the Department should automatically be placed in an interest-free administrative forbearance and should receive credit towards loan forgiveness under PSLF and IDR during months while the error is being remedied. Borrowers who believe that they were impacted by one of these errors but who have not been notified that they’re receiving this remedy should contact their loan servicer about the error, explain what the error was and if it is ongoing, and request to be included in the relief, including placement in an interest-free administrative forbearance with credit toward PSLF and IDR until it is resolved.
Additionally, borrowers may request a refund if they overpaid because their servicer miscalculated their monthly payment in IDR, experienced an auto-debit without receiving a bill in advance, or were charged overdraft fees or non-sufficient fund fees when they were charged without proper notice.
Borrowers can call and, in some cases, email or chat with their servicers to request relief.
Borrowers who experience other types of servicing errors beyond those documented by the Department of Education and borrowers who request relief from their servicer but do not get it should consider filing a complaint with the Department of Education’s Federal Student Aid Ombudsman office to be considered for relief. Borrowers should also consider filing a complaint with the Consumer Financial Protection Bureau (CFPB).
Share Your Story
Borrowers can also share their stories about servicing errors with NCLC. We share borrower stories with the Department, lawmakers, and policy advocates on a regular basis to help make things better for borrowers.
