Student loan servicing errors pose risks to borrowers and economy: CFPB

The bureau found that borrowers faced long wait times with their service providers, significant delays in processing their payment requests, and inaccurate and untimely billing data.

The U.S. Department of Education also announced Friday that it will withhold payments to three student loan servicers as part of its efforts to hold the companies accountable. (The federal government contracts with various companies to service student loans, and pays servicers upwards of $1 billion annually to do so, according to higher education expert Mark Kantrowitz.)

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Aidvantage, EdFinancial and Nelnet “all failed to meet their contractual obligations to send billing data in a timely manner to a total of 758,000 borrowers in the first month of repayment,” the department said.

As a result, it decided to withhold $2 million from Aidvantage, $161,000 from EdFinancial, and $13,000 from Nelnet. These numbers are 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 errors that put borrowers at risk,” U.S. Secretary of Education Miguel Cardona said in a statement.

The ministry said that the affected borrowers will be placed in an administrative period until the problems are resolved. In the meantime, they should not owe any payments and will not face interest charges.

The US Department of Education garnished $7.2 million from Mohila in October for failing to send billing data in a timely manner to 2.5 million borrowers. As a result of Mohila's mistakes, more than 800,000 borrowers have become delinquent on their loans, the ministry 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.

“The time and effort that Federal Student Aid and the CFPB put into their press strategy would be better used trying to solve actual problems by coordinating in advocating for more resources and implementing better operational planning by the government,” Buchanan said.

Education debt in the United States exceeds $1.7 trillion, burdening Americans more than credit card or car debt. The average loan balance upon graduation has tripled since the 1990s, from $10,000 to $30,000. About 7% of student loan borrowers now owe more than $100,000.

During the last two weeks of October, the CFPB found that in 2023, the average student loan borrower who called their servicer waited 73 minutes to speak to a live agent. “One consumer reportedly waited 565 minutes to speak with a customer service representative,” she added.

He warned that as a result of difficulties in accessing service providers, borrowers are at risk of missing their payments and not knowing their options.

Borrowers have also hit walls trying to enroll in income-driven repayment plans. These plans aim to make repayment more affordable for loan holders by capping their monthly bill with a share of their discretionary income.

By the end of October, the office found that “more than 450,000 income-based reimbursement requests had been pending with one provider for more than 30 days.”

“Among all providers, each employee charged with processing income-based reimbursement requests had an average of 1,335 pending requests,” she said.

Incorrect and inappropriate billing was another problem borrowers faced, including “inflated monthly payment amounts” and “early due dates.”

More than 21,000 people were billed for “very high” and “potentially incorrect” amounts, CNBC reported in November. One borrower was told they owed $108,895.19 for the month.