As Student Loan Payment Issues Persist, Biden Puts 750K Borrowers in Forbearance

• The Department of Education withheld $2.2 million in payment to loan servicers.
• As a result of servicer missteps, the department also placed 750,000 borrowers in administrative forbearance.
• This action comes after the department previously withheld $7.2 million from the servicer MOHELA.
• After a three-year pause, interest began accruing on federal student loans again on Sept. 1, 2023.

The Department of Education (ED) penalized three federal student loan servicers for not sending "timely" billing statements and instituted a payment pause for more than 750,000 impacted borrowers.

ED announced Friday that it is withholding approximately $2.2 million worth of payments from three federal student loan servicers. These servicers reportedly did not send billing statements to 758,000 borrowers in time, and the amounts withheld from each servicer are based on the number of borrowers impacted by the errors.

The servicers penalized include:

• Aidvantage — $2 million
• EdFinancial — $161,000
• Nelnet — $13,000

"Today's actions make clear that the Biden-Harris Administration will not give student loan servicers a free pass for poor performance and missteps that jeopardize borrowers," ED Secretary Miguel Cardona said in a statement. "When unacceptable errors are uncovered, servicers should expect to be held accountable and borrowers should count on this administration to hold them harmless."

This move comes a few months after ED withheld $7.2 million from the Higher Education Loan Authority of the State of Missouri (MOHELA). MOHELA's billing statement errors impacted 800,000 borrowers, according to ED.

The department added that it placed all affected borrowers — more than 1.5 million Americans in the last four months — in administrative forbearance while the servicers resolve their billing issues.

While in forbearance, borrowers do not have to make payments on their loans and interest will not accrue. Additionally, any months spent in administrative forbearance will count toward the timeline to loan forgiveness for both the Public Service Loan Forgiveness (PSLF) program and any income-driven repayment (IDR) plan.

Following Payment Pause, Servicing Mishaps Persist

In March 2020, lawmakers established a student loan payment pause in response to the COVID-19 pandemic, and ED — under both former President Donald Trump and President Joe Biden — repeatedly extended it.

The department's last extension at the end of 2022 sought to give the U.S. Supreme Court time to rule on the president's one-time debt forgiveness plan that would have erased up to $20,000 in federal student loan debt per borrower making less than $125,000 per year.

In May 2023, House Republicans and Biden reached a compromise deal to raise the federal debt ceiling through 2024 and end the payment pause. A month later, the Supreme Court blocked Biden's student debt forgiveness plan.

The payment pause ended Aug. 29, 2023; interest began accruing Sept. 1, and payments were due starting in October.

The Consumer Financial Protection Bureau (CFPB) in the first week of January 2024 released a report highlighting three areas of concern regarding student loan servicing practices since the resumption of student loan repayments:

• Long hold times and abandoned calls with servicers
• Delays in processing IDR plan applications
• Inaccurate and untimely billing statements

According to the CFPB, billing statement issues include borrowers receiving premature due dates before the payment pause was officially over. There have also been reported issues in calculating a borrower's payment while enrolled in an IDR plan.

"If student loan companies are cutting corners or sidestepping the law, this can pose serious risks to individuals and the economy," CFPB Director Rohit Chopra said in a statement.

Republicans: Biden Set up Servicers to Fail

U.S. Sen. Bill Cassidy, the Republican ranking member of the Senate Health, Education, Labor and Pensions (HELP) Committee, said Biden's administration is unfairly shifting blame on servicers through this latest action.

"The Department of Education missed deadlines and was unable to provide timely and basic information the servicers need to do their job," Cassidy said in a Jan. 5 statement. "Now they are blaming the crisis they created on the servicers they set up to fail."

He added that despite repeated requests from congressional Republicans, ED failed to share details on how it prepared servicers for the end of the payment pause. Without the necessary guidance, loan servicers were destined to err while resuming payments, he said.

Cassidy added that ED's announcement to withhold $2.2 million from these three servicers is an attempt to "draw attention away" from errors in the rollout of the new Free Application for Federal Student Aid (FAFSA).

ED soft-launched the Simplified FAFSA on Dec. 30, but the rollout has been plagued with reported issues, leaving many unable to submit their forms.