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Education Department Penalizes Student Loan Servicers for Billing Errors

Federal student loan borrowers are encountering major issues in restarting payments, which has prompted increased oversight and penalties for service providers.

Delays, billing errors, and staffing shortages contribute to the growing frustration among the 22 million affected borrowers.

Federal Student Loan Payments Resume

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After a three-year pause due to the pandemic, federal student loan payments resumed in October. This affected millions of borrowers, marking a significant shift from the relief measures implemented since March 2020.

Background Of Repayment Pause

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The repayment pause, initiated as a pandemic relief measure, provided a break for over 45 million borrowers who collectively owe about $1.6 trillion. This pause was part of broader financial relief efforts during the pandemic.

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Biden’s Cancelled Debt Relief Plan

BRUSSELS, BELGIUM. 24th March 2022. Joe Biden, President of United States of America, during press conference after NATO extraordinary SUMMIT 2022. — Photo by gints.ivuskans

The Biden administration attempted to alleviate the burden by proposing to cancel up to $20,000 in student debt for eligible borrowers. However, this plan was halted by the Supreme Court in June.

Director Rohit Chopra’s Concerns

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The director of Consumer Financial Protection Bureau (CFPB), Rohit Chopra, expressed concern over the issues being faced by student loan borrowers. He stated that “the resumption of student loan payments means that borrowers are making billions of dollars of payments each month. If student loan companies are skirting the law or taking short cuts, this could put people’s safety and the economy in danger.”

Major Issues Identified By CFPB

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The CFPB identified critical issues like long hold times on calls and abandoned phone calls. Borrowers frequently faced over an hour’s wait, often giving up without receiving assistance.

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Staffing Challenges At Service Centers

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Many loan service centers reduced their staffing during the pandemic, leading to inadequate support for the surge in borrower demands. This mismatch has resulted in service shortfalls and increased borrower frustration.

Billing Errors And Confusion

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Borrowers have been receiving incorrect bills with errors such as premature due dates and inflated payment amounts. These errors were often due to the use of outdated poverty guidelines.

Delays In Application Processing

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There were substantial delays in processing income-driven repayment plan applications. Millions of applications were submitted, with over 1.25 million pending as of late October, some for more than 30 days.

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Federal Response

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The Education Department is withholding payments from Aidvantage, EdFinancial, and Nelnet for not meeting contractual obligations. This action is part of the department’s effort to hold servicers accountable and protect student loan borrowers.

Financial Penalties For Service Providers

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Due to billing errors, the Education Department withheld a significant amount of payment. These include $2 million from Aidvantage, $161,000 from EdFinancial, and $13,000 from Nelnet.

Assurance From Secretary Of Education

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Secretary Miguel Cardona assured that servicers would be held accountable for errors. He emphasized the administration’s commitment to borrower interests and rigorous oversight of loan services.

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Statements From Nelnet And Aidvantage

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Nelnet acknowledged billing statement errors in a statement to NBC, but pointed out that it was affecting only a small percentage (0.4%) of their borrowers. Aidvantage spokesperson Eileen Cassidy Rivera expressed its commitment to rectify errors and ensure borrower rights are protected in a statement.

Mohela’s Previous Penalty

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Prior to these incidents, MOHELA faced a $7.2 million withholding by the Education Department for failing to send timely billing statements to 2.5 million borrowers. This was a move to ensure borrower protection.

Ensuring Fair And Accurate Loan Services

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The resumption of student loan payments has brought various operational challenges to the forefront, triggering federal actions to safeguard borrower interests. The government’s response signifies a commitment to ensuring fair and accurate servicing in the student loan sector.

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