Secretary of Education Miguel Cardona answers questions during the daily briefing at the White House, Aug. 5, 2021.
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As student loan bills restarted in October for tens of millions of Americans, the companies that service those loans made errors that potentially violate federal and state consumer protection laws.
In a memo quietly published Wednesday night on the U.S. Department of Education’s website, senior officials in the department’s office of Federal Student Aid detail how some of its servicers botched the return to repayment, and possibly put the government at “substantial reputational risk.”
“The restart of repayment has caused pure chaos for nearly 3 million borrowers,” said higher education expert Mark Kantrowitz, who reviewed the memo at CNBC’s request.
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Education Department staff said in the memo that they had identified 78,000 borrowers who received incorrect monthly bills under the Biden administration’s new Saving on a Valuable Education, or SAVE, plan. That plan, which was touted as the “most affordable repayment plan ever,” was meant to ease the transition back to payments for borrowers. Federal student loan payments had been on pause for more than three years until they resumed last month.
Yet one woman who signed up for the SAVE plan got a bill for $355, the memo says, when she was only supposed to owe $58. Her bill before the pandemic was $130 per month.
More than 21,000 people were billed “very high” and “potentially incorrect” amounts, according to the memo. One borrower was told they owed $108,895.19 for the month. (That was their total balance, but their servicer had erroneously reduced their loan term to two months from 120 months.)
The Education Department pays the companies that service its federal student loans — including Mohela, Nelnet and EdFinancial — more than $1 billion a year to do so.
The memo also details the problems that resulted from Mohela’s failure to send timely billing statements to 2.5 million borrowers this fall, including some 830,000 people becoming delinquent. The department announced last month that it will withhold $7.2 million in payments to Mohela in October for those errors.
Student loan servicers have diminished their call center capacity by reducing their hours and hiring less experienced representatives, Education Department officials wrote. It described many people waiting an hour or more on the phone to reach someone, and half of borrowers failing to get through to anyone at their servicer.
Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for federal student loan servicers, said the government and insufficient funding was largely to blame for the mess.
“We have long warned these potential issues would arise with the government choosing to not pay for more staff and resources,” Buchanan said.
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