As borrowers try to navigate new federal student loan forgiveness and repayment programs following the end of the Covid-era forbearance period, loan servicers have struggled.
Understaffed, inadequately funded, and tasked with implementing a wide variety of new Biden administration initiatives, student loan companies contracted with the Education Department to manage the government’s vast portfolio of accounts are under unprecedented strain. Borrowers are contending with long call hold times, processing delays, rampant billing errors, and worse.
Millions of borrowers already experienced historic loan servicing transfers in the months preceding the return to repayment. But there may be even more changes coming — and they couldn’t be happening at a worse time.
Servicers Struggling To Administer Student Loan Forgiveness and Repayment Programs
Nearly 30 million borrowers have already been through major student loan servicing changes during the last two years. Some of the largest transfers include following:
- FedLoan Servicing, which managed the Public Service Loan Forgiveness program, withdrew from the federal student loan system and transferred accounts to other Education Department loan servicers. Many of those accounts were sent to MOHELA, which now administers PSLF — a key student loan forgiveness program for nonprofit and government employees.
- Similarly, Navient also exited the department’s Direct loan servicing system and transferred its accounts to Aidvantage.
- Borrowers with federal student loans managed by Great Lakes Higher Education had their accounts transferred to Nelnet
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Student loan servicing transfers have historically caused problems for borrowers such as billing irregularities, lost records, late fees, adverse credit reporting, and processing issues, according to a 2015 report by the Consumer Financial Protection Bureau, a federal watchdog agency. And those issues seem to be happening again following the more recent round of servicing changes.
The Biden administration announced last month that nearly three million borrowers experienced billing issues associated with the return to repayment including 2.5 million who received untimely bills, resulting in hundreds of thousands of delinquencies (which normally would not count toward student loan forgiveness programs).
In addition, according to a department memo, for over 5 million borrowers trying to enroll in the new SAVE plan, “Their new loan servicers did not have the necessary information to complete the SAVE conversions because it was never transferred by the borrower’s previous servicer.” This resulted in processing delays or erroneous monthly payment calculations.
Biden Administration Announces Potential Punitive Student Loan Servicing Transfers
The Biden administration has been ramping up pressure on student loan servicers as borrowers report widespread problems. In October, the administration announced it would withhold millions of dollars in payments to MOHELA due to untimely or improperly calculated bills. Officials also said borrowers would be placed in administrative forbearances while the problems are corrected, and would receive credit toward student loan forgiveness.
Last week, the Education Department suggested it could go even further. In an announcement outlining its plan of action to hold student loan servicers accountable for ongoing problems, officials suggested that borrower accounts could be transferred from one loan servicer to another as a punitive measure.
“If servicers show they are unable to perform their duties for the borrowers they manage, the Department can suspend the allocation of additional borrowers, or re-allocate borrowers to other servicers,” according to a statement.
“The Biden-Harris Administration has made clear that we will not allow borrowers to pay the price for unacceptable servicing failures,” said Secretary of Education Miguel Cardona. “Today’s announcement should send a clear message to all our contracted student loan servicers that the Department will use the full scope of our oversight and accountability tools to ensure borrowers get the level of service they deserve.”
Other Student Loan Servicing Changes
Meanwhile, borrowers are experiencing other significant student loan servicing changes. MOHELA, one of the Education Department’s major servicers and the only one tasked with managing the PSLF program, is currently undergoing a major internal transition to a new loan servicing platform.
Starting this month, MOHELA “will begin transitioning borrower accounts to their new loan servicing platform that will better serve borrowers,” according to a department announcement. “Borrowers whose federal student loans are currently serviced by MOHELA will still have MOHELA as a servicer once this transition is complete but will access their account through a new website.”
During the transition, borrowers may temporarily lose access to elements of their account. Borrowers will receive a new account number after the transition, and will then need to create a new online account via a different MOHELA website, according to the agency. Notably, “If you made a federal student loan payment directly to MOHELA, which was not posted to your loan(s) prior to the transition, these payments may be delayed by up to 30 business days.”
According to the Education Department, the transfers will continue through the winter and spring. “Borrowers will receive a notice from MOHELA approximately 15 days in advance stating that they are about to transition to the new platform,” says the department. “Borrowers will then be notified by MOHELA when the transition is complete and their loan information has been loaded to the new system. Borrowers will also receive notices before and after the transition from the U.S. Department of Education (ED).”