Many warned early on that student loan borrowers could run into a few hiccups as a massive reboot of monthly payments kicked off in October.
And those experts did not disappoint.
About 305,000 student loan borrowers ran into an issue where their loan servicer gave them the wrong amount for their monthly payment, according to data provided to the Free Press Friday from the U.S. Department of Education.
While it’s a large number of people, the Education Department noted that the glitch hit less than 1% of the 28 million borrowers who benefited from a pandemic related payment pause that began in March 2020 but now need to resume making student loan payments.
The COVID-19 payment pause has ended. Interest resumed building in September on federal student loans that were covered under the unique pause that began three-and-a-half years ago and kept, repeatedly, getting extended.
Borrowers didn’t have to make any payments on their federal student loans that were covered under the pause, freeing up $300 or $400 a month in some cases. The pause temporarily froze most federal student debt with a 0% interest rate.
For many borrowers, the first payment is due in October. Exact payment dates vary. The Education Department has noted previously that borrowers were to get a bill, detailing their payment amount and due date, at least 21 days before their specific due date.
Some told they owe more than they do
In recent weeks, some people who logged into their individual student loan account, according to experts, spotted a payment amount that was higher than it should have been. And, as might be imagined, borrowers who faced questionably higher figures weren’t too happy.
“Servicers are being held accountable and borrowers will not have payments due until these mistakes are fixed,” according to the Education Department.
Borrowers are to be notified by loan servicers of any errors that took place — such as indicating a payment due that’s much higher than was quoted for a new SAVE plan. Loan servicers are to put the borrowers into “administrative forbearance until their correct payment amount was calculated, so there would be as little impact as possible on borrowers,” the Education Department stated.
Borrowers wise to double-check their statements
The department said its stringent oversight efforts contributed to quickly catching these errors.
On Sept. 29, a letter was sent to President Joe Biden and Secretary of Education Miguel Cardona, signed by attorneys general from 19 states, including Michigan, which raised concerns about receiving “consumer complaints from borrowers struggling to get timely and accurate information from servicers.”
The letter indicated that one borrower had complained of seeing a monthly bill jump to $444 a month from $293 a month, following the automatic switch from an old REPAYE plan to the SAVE plan. Something was clearly wrong.
Another borrower, according to the letter, reported that their monthly payment skyrocketed to more than $6,800 a month from $759 to $6,843 after seemingly being removed from an extended repayment plan.
Others complained of seeing incorrect loan balances and interest rates
The letter noted: “Since the system-wide payment pause began in March 2020, several federal student loan servicers have left the market, causing the transfer of over 30 million borrower accounts to another servicer.”
“We know from experience that servicing transfers create a high risk of servicing errors. Before the COVID-19 pandemic, borrowers regularly reported issues with servicer transfers, such as lost paperwork, incorrect records and delays in communication.”
Given news of some of the bad billing numbers, it does not hurt to review your payment amount to make sure it is correct.
Most issues have been resolved at this point, according to loan servicers, but borrowers are wise to double check their bills against any information they received when they signed up for the SAVE plan or other income-driven repayment plans, too.
If you’re having trouble getting a call into a loan servicer, you know what could be causing some of the hold up. The phone lines are clogged — and loan servicers complain that Congress did not provide more money to address the higher administrative costs associated with this massive, unprecedented restart.
The Education Department said it is working closely with student loan servicers to “ensure that they are providing borrowers the information they need and holding servicers accountable when they do not. ”
In many cases, the glitches involved incorrect calculations by federal student loan servicers for payment amounts under the SAVE plan — the new Saving on a Valuable Education Plan that promotes itself as an option for lowest payments possible for many people on a federal income-driven repayment.
For some borrowers who have very limited incomes, the SAVE plan can get monthly payments down to $0 a month. The Education Department noted that some who received incorrect information qualify for $0 monthly payments under SAVE.
Nearly 5 million borrowers already are enrolled in the new SAVE plan, which will cut payments in half for many borrowers, according to the Education Department.
SAVE plan switch triggered some mix up
Some bad numbers rolled out, though, as accounts for a sizable number of borrowers were automatically converted into the new SAVE plan.
The new SAVE plan replaces the old Revised Pay As You Earn or the REPAYE Plan, an income-driven repayment plan. Borrowers on the REPAYE Plan automatically are being put on the SAVE Plan and do not need to sign up.
Scott Buchanan, the executive director of Student Loan Servicing Alliance, an industry trade group, said technical issues arose involving data, as servicers tried to convert about 3 million borrowers from an old REPAYE plan into a new one and enroll others in that new payment plan.
When automatically transitioning borrowers from the REPAYE to the SAVE Plan, the Education Department stated, one loan servicer, MOHELA, “inadvertently used the 2022 — instead of 2023 — poverty guidelines tables to calculate payments.”
The U.S. Department of Education’s servicer oversight team identified this error and corrected it, according to the Education Department. As of last month, the Department “notified affected borrowers about their correct payment amount, which will be lower than was initially communicated.”
Monthly payments under the SAVE plan are based on your discretionary income — the difference between your adjusted gross income and 225% of the poverty line for your family size, up from the 150% guideline used in other repayment plans. The objective is to protect a minimum amount of income to ensure that borrowers can cover basic necessities like food and housing costs.
Using the old poverty guideline would trigger higher monthly payments, even though those payments should be lower under the SAVE plan. As a result, the borrower could have been looking at paying more than they would actually owe.
“There is a lot of finger-pointing going on,” said student loan expert Mark Kantrowitz, as to who deserves more of the blame the U.S. Department of Education or loan servicers.
The Education Department is blaming the loan servicers, Kantrowitz said, but perhaps the U.S. Department of Education is also partly to blame as they provided the loan servicers with inaccurate data for borrowers involved in income-driven repayment.
Incorrect payment amounts were given for other income-driven repayment plans, too, not just the SAVE plan, according to Kantrowitz who has heard from upset borrowers.
Some errors can be blamed soley on the loan servicers, he said, “such as using the wrong year’s poverty lines and putting some borrowers into a different repayment plan than the one they were signed up for.”
Some borrowers deal with a new servicer
About four out of 10 borrowers have a new student loan servicer and won’t be dealing with the same servicer they had before the COVID-19 pandemic pause began in March 2020. And that’s created some issues, as expected earlier, Kantrowitz said.
The new servicers, he said, received income, family size and tax filing status information from the U.S. Department of Education, but this information was incorrect for some borrowers.
The Education Department stated that its standard monitoring and review process uncovered some discrepancies in the calculations of payment amounts given by some servicers.
“So the department asked servicers to audit their files regarding calculations made to family size, income, or marital status last month,” according to the Education Department.
Some borrowers were being hit by calculations that drove up the monthly payment higher than it should have been. And the Education Department stated that “a very small number of borrowers” saw that their calculated payment amount was lower than it should have been.
Restarting student loan payments and launching a new, more affordable payment plan at the same time proved, as frankly one would have expected, to overload the system.
“One of the challenges here was we’ve been trying to do sort of five things at once,” Buchanan said.
Loan servicers needed to restart the payment process after a hiatus of three-and-a-half years — which had never been done before.
Servicers, Buchanan said, also needed to implement some waiver programs involving one-time limited changes in the public student loan forgiveness program, he said.
The new SAVE plan was launched in late August by the Biden administration — dubbed as the “most affordable student loan repayment plan ever.” Many borrowers had to sign up at StudentAid.gov/SAVE first to get lower monthly payments.
It was a short window to sign up, if you wanted a lower monthly payment at the restart in October. But there isn’t a deadline for signing up for the SAVE plan, so many borrowers can still make the move to the SAVE plan if their payments aren’t doable given their family size and income.
“So far, the challenges have been the system implementation of things,” Buchanan said.
As of early September, some 143,600 student loan borrowers in Michigan already were set up to reduce their monthly payments through the SAVE plan, according the U.S. Department of Education. The figure reflects both those who signed up on their own and those who were automatically shifted over from an earlier income-driven repayment plan, called REPAYE.
The education department wanted to speed up the introduction of the SAVE plan, Buchanan said, which gave loan servicers a few months to start a program that might normally take eight months.
Congress hasn’t provided additional resources to cover the crush of extra demands, he said.
“Not everyone got a billing statement with that incorrect information,” Buchanan said. “A lot of people just logged in and looked and ‘Said hey, this looks higher.'”
For most people, he said, such issues were corrected before they even got a billing statement.
“For some, they got revised billing statements that said “Here is the issue. It’s been corrected. This is your correct payment amount.”
In another case, Buchanan said, a data table from the Department of Education had incorrect information for a borrower’s adjusted gross income — a key piece of data if an income-driven repayment plan is being used to calculate a monthly bill.
“To put it in context, our estimates are it’s less than probably 5% of the total student loan population who may have had an error. Some had their billing amount slightly under, some were over. But I think nearly all of those have been corrected now.”
Right now, Buchanan said, student loan borrowers should have accurate billing information.
A few individuals could face issues, he said, but the majority of cases have been fixed.
If people think there is an error, he said, the borrowers can reach out to their servicer to validate if the payment information has been corrected.
Of course, many borrowers are complaining that it’s tough to get a servicer on the phone.
Don’t get tricked by a scammer
What borrowers shouldn’t do, though, is jump at an unsolicited email or text about your student loans from some outfit that promises to cut through the red tape or cut your monthly bill.
Anecdotally, Buchanan said, student loan related scams seem to be picking up dramatically.
“Scammers often target distressed borrowers or people looking for help to manage their loans,” according to a warning from the Consumer Financial Protection Bureau.
Often, consumers easily trust what they find online, too, not realizing that fraudsters take out ads online or impersonate others with fairly decent looking websites.
Borrowers are encouraged to use self-service options at the websites for their loan servicers, such as updating their contact information, checking their loan balance, and applying for an income-driven repayment plan.
In addition, a previously announced on-ramp program is providing borrowers a transition into repayment where they will not be harmed if they miss a payment during the restart.
As a nod perhaps to the reality that there would be some glitches along the way, a temporary “on-ramp” to repayment was put in place to run from October through Sept. 30, 2024, to protect financially vulnerable borrowers who miss payments. No action will be taken then that could result in declaring a loan in default or otherwise hurt a borrower’s credit.
As I reported earlier, some borrowers are seeing due dates in November, December and even January, particularly if they made some payments toward their federal student loans sometime during the pandemic.
As the payment pause ends, the restart date might reflect when your loan servicer last received a payment from you during the pandemic. In some cases, the last payment might be treated as an extra payment that has now pushed back your upcoming restart of payments.
Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on Twitter @tompor.
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