Federal agency: Student loan company errors could ‘pose serious risks’ to borrowers, the economy
PUBLISHED FRI, JAN 5 202410:00 AM ESTUPDATED FRI, JAN 5 2024AT 11:12 EST
Annie Nova
WATCH LIVE
KEY POINTS
- The Consumer Financial Protection Bureau outlined recent errors by student loan servicers, and the U.S. Department of Education announced it would withhold payments to three companies.
- “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,” U.S. Secretary of Education Miguel Cardona said in a statement.
Rohit Chopra, director of the Consumer Financial Protection Bureau, speaks during a Senate Banking, Housing, and Urban Affairs Committee hearing in Washington, D.C., Dec. 15, 2022.
Ting Shen | Bloomberg | Getty Images
When student loan servicers make errors by cutting corners or sidestepping the law, it can “pose serious risks to individuals and the economy,” said Consumer Financial Protection Bureau Director Rohit Chopra.
Chopra’s comments are part of an “issue spotlight” released by the bureau Friday, outlining a number of problems borrowers faced when their payments resumed in October after the pandemic-era pause of more than three years expired.
Borrowers experienced long phone hold times with their servicers, significant delays in the processing of their repayment applications, and inaccurate and untimely billing statements, the bureau found.
The U.S. Department of Education announced Friday that it would withhold payments to three student loan servicers as part of its efforts to hold the companies accountable.
The federal government contracts with different companies to service its student loans, and pays the servicers a total of more than $1 billion a year to do so, according to higher education expert Mark Kantrowitz.
More from Personal Finance:
More retirement savers are borrowing from their 401(k) plan
Why employers can force out small 401(k) accounts once a worker leaves a job
Job data shows two kinds of workers: the ‘haves and have nots’
Aidvantage, EdFinancial and Nelnet “all failed to meet contractual obligations to send timely billing statements to a combined total of 758,000 borrowers for the first month of repayment,” the department said.
As a result, it is withholding $2 million from Aidvantage, $161,000 from EdFinancial and $13,000 from Nelnet, it said, based on the number of borrowers affected by each company’s errors.
“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,” Secretary of Education Miguel Cardona said in a statement.
WATCH NOW
VIDEO04:14
Consumers are under real strain, says Morgan Stanley’s Chris Toomey
Affected borrowers will be placed in an administrative forbearance until the issues are resolved, the department said. In the meantime, they shouldn’t owe any payments and will not face interest charges.
The Education Department said in October that it held back
$7.2 millionfrom Mohela for failing to send timely billing statements to 2.5 million borrowers. As a result of Mohela’s errors, more than 800,000 borrowers became delinquent on their loans, the department said.
Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for federal student loan servicers, blamed the errors on a lack of resources and notice from the government.
“Time and effort spent by Federal Student Aid and the CFPB on their press strategy would be better put to use in trying to solve the actual problems by coordinating on advocating for more resources and executing better operational planning by the government,” Buchanan said.
Outstanding education debt in the U.S. exceeds $1.7 trillion, burdening Americans more than credit card or auto debt. The average loan balance at graduation has tripled since the ’90s, to $30,000 from $10,000. Around 7% of student loan borrowers are now more than $100,000 in debt.
Wait times with servicers exceeded an hour, CFPB finds
During the last two weeks of October 2023, the average student loan borrower who called their servicer waited 73 minutes to speak to a live agent, the CFPB found. “One consumer reportedly waited 565 minutes to speak with a customer service representative,” it added.
As a result of the struggles to reach their servicers, borrowers are at risk of missing their payments and not learning of their options, it warned.
Borrowers have also run into walls trying to enroll in income-driven repayment plans, it said. These plans aim to make repayment more affordable for loan holders by capping their monthly bill at a share of their discretionary income.
By the end of October, the bureau found, “over 450,000 income-driven repayment applications had been pending with a servicer for more than 30 days.”
“Across all servicers,” it said, “each employee tasked with processing income-driven repayment applications had on average 1,335 outstanding applications.”
Incorrect and untimely bills were another issue borrowers experienced, including “inflated monthly payment amounts” and “premature due dates.”
More than 21,000 people were billed “very high” and “potentially incorrect” amounts, CNBC
reported in November. One borrower was told they owed $108,895.19 for the month.
www.cnbc.com
www.businessinsider.com
taxfoundation.org
Zachary Schermele
