One of the government’s student loan servicers failed to send timely billing statements to roughly 2.5 million borrowers, pushing more than 800,000 into delinquency, the Department of Education said Monday.
As a result, the agency is withholding $7.2 million in payments to the servicer, the Missouri Higher Education Loan Authority, or MOHELA, this month, the Department said.
The announcement comes after weeks of complaints from borrowers as student-loan payments resumed for the first time in more than three years after the pandemic-era payment pause. Borrowers have reported long call wait times, getting incorrect monthly payment quotes and receiving bills even after they’ve been told by the government that they qualify for debt forgiveness.
Advocates and borrowers have demanded the Department hold servicers accountable for these issues. Monday’s announcement marks the first time in recent history that the agency has publicly announced it’s withholding payment from servicers.
“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,” Secretary of Education Miguel Cardona said in a statement announcing that the agency would withhold funds from MOHELA. “We are committed to fixing our country’s broken student loan system, and that includes strengthening oversight and accountability and taking every step possible to improve outcomes for borrowers.”
Advocates warned for months about the prospect of turning the student-loan system back on for roughly 28 million borrowers without major changes to it. For years, they’ve said servicers don’t provide borrowers with enough or the right information to successfully manage their federal student loans. The Biden administration had also argued in court that resuming payment without some broad-based debt cancellation could push large swaths of borrowers into delinquency and default.
Complicating the unprecedented task of resuming payments was the Biden administration’s announcement that it would revamp student loan repayment plans. Officials launched the SAVE plan earlier this year. While the program provides historically low monthly payments for wide swaths of borrowers, it’s new both to servicers and to borrowers, which has posed challenges for implementation.
The Department previously said about 305,000 borrowers received incorrect billing statements.
Servicers and the agency are dealing with less than ideal levels of funding as payments resume, they’ve said. Congress didn’t provide as much funding to the Office of Federal Student Aid, which oversees student loan servicers, as the Department of Education requested. That left the firms with fewer resources and they cut staff and call center hours.
The agency said it identified errors across other servicers that resulted in borrowers receiving incorrect payment information and borrowers who say they were scammed by their schools incorrectly being put back into repayment status.
Borrowers affected by these errors as well as borrowers impacted by the MOHELA billing statement issue will be placed into forbearance the agency said. Any months spent in forbearance will count as progress towards various forgiveness programs, the Department said.
Though borrowers have reported challenges across multiple servicers, MOHELA deals with a population with a particular set of needs. The organization works with borrowers in the Public Service Loan Forgiveness program, which allows those working for the government and certain nonprofits to have their debt canceled after 10 years of payments and work in these fields.
For years, borrowers who met the spirit of the law have struggled to access this forgiveness, due to technicalities. The Biden administration has made changes to the program so borrowers can access it more swiftly and hundreds of thousands have had their debt canceled under the program over the past few years. Still, borrowers have reported challenges getting accurate payment counts and having their forms processed.
MOHELA has also grabbed headlines over the past several months for another reason — it was at the center of one of the cases challenging the Biden administration’s mass student debt relief plan. The Supreme Court struck down the plan to provide up to $20,000 in relief for the majority of federal student loan borrowers in part based on arguments that it would harm MOHELA’s bottom line.
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