Education Department Discovers Student Loan Servicing Errors, Could Face Legal Action
Inappropriate and late billings impact 2.5 million borrowers as servicers mishandle restart of student loan repayments, with possible legal action on the way if issues remain unresolved.
- The Education Department identified key errors in student loan servicing, causing confusion and undue financial instability for 2.5 million borrowers. The servicer, MOHELA, was punished by withholding $7.2 million in payments after failing to deliver timely bills, leading over 800,000 borrowers into delinquency.
- Errors found by the Education Department included incorrect monthly bills affecting around 78,000 borrowers due to problems with the new SAVE income-driven repayment plan, and about 153,000 borrowers not receiving any information on their new monthly payment until it was due.
- In extreme cases, billing errors led to substantially incorrect amounts, with some borrowers being billed over $100,000 per month. One borrower was billed for their entire loan total in a single month due to a servicing error that shortened the loan term from 120 months to just two.
- The proposed corrections from the Education Department include placing impacted borrowers on administrative forbearance with no interest accrual until errors are fixed and offering refunds on any payments made while account statements were incorrect. Any months in forbearance will be counted toward loan forgiveness for income-driven repayment and Public Service Loan Forgiveness.
- As the department continues its oversight enforcement of servicers, there may be potential legal action against servicers if these issues remain unresolved, posing challenges to the department's future ability to facilitate and collect loans.
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