Rohit Chopra, Director of the Consumer Financial Protection Bureau (CFPB), speaks during a hearing of the Senate Committee on Banking, Housing and Urban Affairs on Thursday, December 15, 2022, in Washington, DC, USA.
Ting Shen | Bloomberg | Getty Images
When student loan servicers make mistakes by cutting corners or skirting the law, it can “pose serious risks to individuals and the economy,” said Rohit Chopra, director of the Consumer Financial Protection Bureau.
Chopra's comments are part of a bureau “topic spotlight” released Friday that outlines a series of issues borrowers faced when their payments resumed in October after the end of the more than three-year pandemic-era pause .
The bureau found that borrowers experienced long wait times with their servicers, significant delays in processing their repayment requests, and inaccurate and untimely billing statements.
The U.S. Department of Education also announced Friday that it would withhold payments to three student loan servicers to hold the companies accountable. (The federal government contracts with various companies to service its student loans, paying the servicers a total of more than $1 billion a year 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 timely statements to a total of 758,000 borrowers for the first month of repayment,” the ministry reported.
As a result, $2 million will be withheld by Aidvantage, $161,000 by EdFinancial and $13,000 by 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 carte blanche for poor performance and missteps that put borrowers at risk,” U.S. Education Secretary Miguel Cardona said in a statement.
Affected borrowers will be placed in regulatory forbearance until the issues are resolved, the ministry said. In the meantime, they should not owe any payments and no interest will accrue.
The U.S. Department of Education withheld $7.2 million from Mohela in October for failing to send timely statements to 2.5 million borrowers. As a result of Mohela's errors, more than 800,000 borrowers defaulted on their loans, the ministry said.
Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for federal student loan providers, blamed the mistakes on a lack of resources and a lack of government notification.
“The time and effort that Federal Student Aid and the CFPB spend on their press strategy could be better spent addressing the real problems by helping advocate for more resources and conduct better operational planning by the government coordinated,” Buchanan said.
Outstanding education debt in the U.S. exceeds $1.7 trillion, burdening Americans more than credit card or car debt. The average loan balance at closing 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 final two weeks of October 2023, the average student loan borrower who called their servicer waited 73 minutes to speak with a live agent, the CFPB found. “A consumer reportedly waited 565 minutes to speak with a customer service representative,” it added.
Because of the difficulties in reaching their servicers, borrowers are at risk of missing their payments and not being informed about their options, she warned.
Borrowers have also encountered obstacles when attempting to participate in income-driven repayment plans. These plans aim to make repayment more affordable for borrowers by limiting their monthly bill to a portion of their discretionary income.
As of the end of October, the Bureau found that “over 450,000 income-based repayment applications had been pending with a service provider for more than 30 days.”
“Across all service providers,” it said, “each employee assigned to processing income-based repayment applications had an average of 1,335 outstanding applications.”
Incorrect and untimely bills were another problem borrowers faced, including “excessive monthly payment amounts” and “early due dates.”
More than 21,000 people were charged “very large” and “potentially incorrect” amounts, CNBC reported in November. A borrower was told he owed $108,895.19 for the month.