Private companies overseeing the federal government’s college loan programs made “millions” of errors implementing new repayment plans, costing student borrowers time and money, according to a new congressional report.
The report, released by Massachusetts Sens. Elizabeth Warren and Ed Markey, along with two other Democratic lawmakers, said the major loan servicers under contract with the U.S. Department of Education made more than 3.9 million “billing-related errors” once repayment of federal student loans resumed last fall.
“The four student loan servicers that were under contract with ED at the end of the payment pause had ample time, clear contractual requirements, and sufficient funding from the federal government,” the report states. “Yet, they still made a series of mistakes that harmed millions of borrowers when payments restarted.”
The report is based on data from the U.S. Education Department and federal audits that detailed delayed billing statements, “miscalculations” for borrowers converting to the new SAVE income-driven repayment plan, and payment miscalculations on borrowers’ income, family size or marital status.
The loan servicing companies – EdFinancial Services, Higher Education Loan Authority of the State of Missouri, Maximus Education and Nelnet Diversified Solutions – responded to the allegations in a series of letters to the lawmakers that detail how they were challenged once loan repayments resumed.
In a January letter, MOHELA said it has struggled to adjust to “evolving” loan servicing requirements from the U.S. Department of Education’s office of Federal Student Aid when millions of borrowers resumed repayments after a multiyear pause. A lack of federal funding compounded the efforts, the company said.
“FSA has allocated only limited funding for servicing during the unprecedented event and throughout the ‘on-ramp’ period, funding which pales in comparison to the enormity of work associated with assisting millions of borrowers in a condensed time frame,” the company wrote.
Nelnet blamed the federal government, in part, for the bungled resumption of student loan repayments and said it could “have avoided foreseeable borrower impacts and created a better customer experience.”
“Unfortunately, borrowers were instead met with confusing and conflicting announcements of program changes, were told no payments were required, that interest would not accrue, indefinitely, and were promised their loans would be discharged,” Jeffrey Noordhoek, NelNet’s CEO, wrote to Warren.
It’s not clear if the congressional report will lead to sanctions against the loan servicers. Last year, the Education Department released guidelines outlining steps it could take to punish servicers who fail to fulfill their contractual obligations, including withholding pay and transferring borrowers to other loan servicers.
But the lawmakers said in the report that more should be done to help borrowers impacted by the errors, and called on the Biden administration to provide debt relief for those who were overbilled on loan repayments.
“To remedy servicers’ historic failures and protect borrowers from future harms, there must be a path for debt relief for borrowers harmed by their servicers,” they wrote.
Federal student loan servicing companies have been under intense scrutiny from Congress, which has held oversight hearings grilling education officials on efforts to reduce student debt. More than 43 million borrowers in the United States are carrying an estimated $1.6 trillion in student loan debt, according to federal data.
Overall, the lawmakers said loan servicing companies have a “decades-long pattern of failures” and said the COVID-19 pandemic exacerbated a lack of accountability in the system that “allowed abuses to go unchecked and caused harm for borrowers crushed by student loan debt.”
“These failures have resulted in borrowers being unable to properly manage their loans and take advantage of long standing student debt relief programs,” they wrote.
Christian M. Wade covers the Massachusetts Statehouse for North of Boston Media Group’s newspapers and websites. Email him at [email protected].
By Christian M. Wade | Statehouse Reporter
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