Written By Adam S. Minsky, JD
The return to repayment is not going very well for millions of student loan borrowers.
The Covid forbearance (also known as the student loan pause) ended in the fall of 2023. Most federal student loan borrowers had three-and-a-half years of suspended payments and no interest accrual. The forbearance period also counted toward student loan forgiveness for borrowers pursuing Public Service Loan Forgiveness (PSLF) or (Income-Driven Repayment (IDR) loan forgiveness.
But Congress and President Biden reached a deal in 2023 to avoid a debt ceiling crisis, and one of the provisions of that bipartisan agreement was for student loan repayment to resume. Since then, borrowers have been encountering a wide array of problems, including billing errors, processing delays and impossibly long call wait times.
The Biden administration has blamed loan servicing companies and has taken steps to address the problems by penalizing servicers and instructing them to place borrowers into administrative forbearance. But so far, the problems are continuing.
Here's the latest.
Widespread and pervasive student loan servicing problems
According to a recent report by the Consumer Financial Protection Bureau (CFPB) – a federal watchdog agency — borrowers are encountering a wide array of loan servicing problems:
Call center problems
The CFPB found that borrowers are “frequently forced to wait on hold for more than an hour when calling their servicer, and many give up without ever receiving assistance… Average call wait times to speak to a live representative have risen from 12 minutes in August 2023 to over 70 minutes in October 2023. As a result, nearly 30% of calls were abandoned in October 2023.”
Related: End of Student Loan Pause Could Be Disastrous, Warns CFPB
The CFPB noted that several loan servicers scaled down call center operations during the pandemic “to boost their financial performance,” but did not staff up in time for the return to repayment despite “foreseeable borrower demand” for assistance.
Loan servicers and the Education Department have also blamed inadequate funding for the staffing shortage, as Congress has failed to fund the Office of Federal Student Aid at requested levels.
Processing delays
Borrowers have experienced long processing times when submitting applications for various programs, particularly Income-Driven Repayment (IDR) requests. “Millions of income-driven repayment plan applications were submitted between August and October 2023. As of late October, servicers reported more than 1.25 million pending income-driven repayment plan applications — with more than 450,000 of those applications pending for more than 30 days with no resolution.”
The CFPB noted uneven performance between loan servicers, saying that some servicers are taking five times longer than other servicers to process IDR requests. “These delays put borrowers at risk for making significantly higher payments than they can afford,” warned the CFPB.
Billing problems
There have also been reports of widespread billing issues, including untimely billing statements or inaccurate payment calculations. These issues have also been separately corroborated by the Education Department.
“Errors include listing premature due dates before the end of the payment pause, inflating monthly payment amounts due to the servicer using outdated poverty guidelines, or using the incorrect income when calculating a borrower’s new income-driven repayment plan payment,” said the CFPB.
Related: Your Action Plan to Dispute Student Loans
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Biden Administration imposes financial penalties on several student loan servicers
In the first week of January 2024, in response to the ongoing problems with the return to repayment, the Education Department announced that it would be imposing financial penalties in the form of withheld payments to Aidvantage, Edfinancial and Nelnet. This follows an earlier announcement in the fall of 2023 of financial penalties imposed on MOHELA.
This means that all four major student loan servicers contracted with the federal government to manage its sprawling federal student loan portfolio are now subject to withheld payments.
“Today’s actions make clear that the Biden-Harris Administration will not give student loan servicers a free pass for poor performance and missteps that jeopardize borrowers,” said U.S. Secretary of Education Miguel Cardona in a statement last week. “As millions of Americans return to repayment, the Department of Education will continue to engage in aggressive oversight of student loan servicers and put the interests of borrowers first.”
“We will not allow servicers to cause harm to borrowers as they resume making their monthly payments,” Federal Student Aid Chief Operating Officer Rich Cordray said. “We are committed to providing a seamless repayment experience for borrowers. We will continue our strong oversight and efforts to hold servicers to their contractual obligations and make sure borrowers are not harmed by these errors.”
In comments to the Washington Post, representatives for both Aidvantage and Nelnet indicated that they were taking steps to address the problems and that only a small fraction of borrowers were impacted by the issues referenced in the Education Department’s announcement (perhaps fewer borrowers than the announcement had suggested).
Advocacy groups and senators are speaking up
The financial punishments have resulted in tepid responses from both student loan borrower advocacy groups and congressional Republicans.
“To hear that more borrowers have been harmed by servicer error is, unfortunately, not surprising,” said a statement released during the first week of January 2024 by the Student Debt Crisis Center, a student loan borrower advocacy organization. “However, we are tired of seeing these headlines month after month. Borrowers have been expected to make timely payments, yet servicers have not been doing what is expected of them. Borrowers deserve better.”
Meanwhile, Senator Bill Cassidy (R-LA), the ranking Republican on the Senate Health, Education, Labor, and Pensions committee, suggested that the Biden administration’s actions were announced to distract from the Education Department’s rocky rollout of the new FAFSA form.
Many borrowers placed in student loan forbearance
As a result of the ongoing loan servicing problems, the Biden administration has instructed loan servicers to place impacted borrowers into an administrative forbearance.
At least 758,000 borrowers were affected across Aidvantage, Edfinancial and Nelnet, according to the Education Department. This is in addition to the more than two million MOHELA borrowers the department identified as experiencing problems last fall.
“To remedy the impact of these errors on borrowers, the Department directed each servicer to place affected borrowers into administrative forbearance until the issues were resolved,” said the department. “While their loans are in administrative forbearance, borrowers will not owe payments and any accrued interest will be adjusted to zero.”
The department also indicated that the administrative forbearance period would count toward student loan forgiveness for borrowers pursuing PSLF or IDR loan forgiveness. “The Department’s action will ensure that borrowers are not harmed by these servicer errors and that servicers are held accountable for their actions.”
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