Student Loan Servicers Were Late on Billing Statements, Miscalculated Payments: Report

One servicer was late to send bills to over 2.5 million borrowers, resulting in approximately 800,000 defaults.
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Matthew Arrojas is a news reporter at BestColleges covering higher education issues and policy. He previously worked as the hospitality and tourism news reporter at the South Florida Business Journal. He also covered higher education policy issues as...
Published on October 31, 2023
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  • MOHELA reportedly was late in sending billing statements to over 2 million borrowers.
  • The Department of Education will withhold payment to this loan servicer.
  • MOHELA will place affected borrowers into forbearance so the errors don't negatively impact them.
  • There have also been reported issues with incorrect payment bills.

The Department of Education will withhold payment to one federal student loan servicer due to errors committed by the servicer in recent months.

Secretary of Education Miguel Cardona announced Monday that the Department of Education (ED) found that the Higher Education Loan Authority of the State of Missouri (MOHELA) failed to send billing statements to 2.5 million borrowers on time. ED will withhold $7.2 million from MOHELA in October due to the error.

The department stated that the late billing statements resulted in over 800,000 borrowers being delinquent on their federal student loans.

ED directed MOHELA to place those borrowers into forbearance "until the issue is resolved," the department said. While in forbearance, interest typically continues to accrue on a loan, but Federal Student Aid Chief Operating Officer Rich Cordray said the department would erase interest for affected borrowers.

Time spent in forbearance will also count toward a borrower's timeline to loan forgiveness under income-driven repayment (IDR) plans or Public Service Loan Forgiveness (PSLF), Cordray said.

"Our top priority is to support borrowers as they return to repayment and fix the broken student loan system, and we will not tolerate errors from loan servicers that cause confusion and unwarranted financial instability for borrowers and families," he said in a statement.

"Through vigorous monitoring of borrower accounts, we were able to detect these mistakes and take swift action to remedy them. We are committed to making things right for borrowers and holding our contractors accountable for errors when they do occur."

Additionally, ED identified "a small number of borrowers" who received incorrect payment amounts on their student loan bills. The department will also place these borrowers into forbearance until it resolves the issue.

Politico reported that just over 300,000 borrowers received an incorrect bill.

ED did not specify which servicers provided incorrect bills.

Approximately 28 million borrowers reentered repayment of their federal student loans in October. This ended a three-year pause on payments, which went into effect due to the COVID-19 pandemic. The pause on federal student loan payments ended Aug. 28.