WASHINGTON, DC – May 24: Richard Cordray, Chief Operating Officer, Office of Federal Student Aid, … [+] The U.S. Department of Education delivers its opening statement during a House Committee on Education and the Workforce hearing. The Biden administration announced steps to protect borrowers from student loan repayment errors by waiving interest and crediting borrowers over time for student loan forgiveness. (Photo by Ricky Cariotti/The Washington Post via Getty Images)
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Student loan repayment is a bit of a hassle right now. Large scale billing irregularities are resulting in miscalculations, untimely statements and rampant misinformation. Some borrowers have received massively inflated bills, with loan servicers asking them to pay thousands of dollars for their student loans. As a result, many people are facing the possibility of defaulting or losing progress toward student loan forgiveness.
The problems are the result of a perfect storm of issues. Millions of federal student loan borrowers resumed repayments last month for the first time in three years, following the end of the student loan pause. Republican leadership in Congress opted to flat-fund the Department of Education in protest of President Biden’s previous student loan forgiveness plan. And loan servicers contracted with the department to manage the vast federal student loan system are under immense strain as they deal with processing delays, staffing shortages and call center backlogs while trying to implement several of the Biden administration’s new student loan relief measures. Let’s deal with.
In some cases, the consequences that borrowers face as a result of these problems can be serious. Here’s what’s happening, and what to do if you encounter student loan repayment errors.
Massive Student Loan Repayment and Billing Errors
The Education Department last week provided detailed information about some of the most common billing mistakes faced by student loan borrowers.
In one case, a borrower received a student loan bill for $108,895.19, representing their entire loan balance. “The borrower’s loan servicer mistakenly shortened the loan term (the amount of time the borrower has to repay the loan amount) from 120 months to 2 months,” the Education Department said in a memo. According to the department, several other borrowers also received bills of more than $100,000, while several hundred more people were billed more than $10,000.
Overall, the Education Department estimated that more than 20,000 people received incorrectly inflated student loan billing statements for the month of October. Some of these borrowers had selected an income-driven repayment plan, but were “affected by ‘fat fingering’ on the borrower’s annual income” – thereby accidentally inflating their income by as much as $1 million per year. Approximately 80,000 borrowers experienced billing errors related to their conversion to the new SAVE plan, where monthly payments were incorrectly calculated by loan servicers based on incorrect income or family size information, or because the loan servicer transferred the information. The flow was disrupted.
In addition to incorrect billing amounts, millions of borrowers received untimely bills, and some did not receive any bills for the month of October. As a result, hundreds of thousands of borrowers became delinquent on their student loans, according to the department.
The Biden administration has taken some steps to address student loan repayment problems
The Biden administration announced it is taking steps to alleviate these student loan repayment problems and minimize harm to borrowers.
“The Department has directed service providers to place all affected borrowers on administrative forbearance until the issue is resolved,” Rich Cordray, chief operating officer of Federal Student Aid, said in a statement last week.
However, large-scale administrative tolerance is becoming a widespread issue in its own right. Typically, these periods do not count toward student loan forgiveness, and interest still accrues. However, Cordray said, “We will offset to zero any interest and credits that accrue [borrowers] “With progress toward public service loan forgiveness and income-driven repayment” while they are on administrative hold.
Additionally, the Department of Education announced that it would “withhold $7,209,735.13 in payments to MOHELA for the month of October” due to that servicer’s billing errors (although repayment problems are not limited to MOHELA). Cordray argued that this would send a message to student loan servicers that “there will be consequences for their actions when they do not meet the terms of their contracts.”
Tips for Borrowers to Avoid or Fix Student Loan Repayment Problems
To avoid some serious student loan repayment problems, borrowers should take at least a few steps to protect themselves:
- Be careful if you are on auto debit, as monthly payments may be deducted from your bank account and you may not even realize there has been a mistake in the payment. Log in to your loan servicer’s online student loan account on a monthly basis to ensure there are no billing irregularities. If you’re not sure who your loan servicer is, check at StudentAid.gov.
- Try to verify that your monthly billing amount is accurate. If you were on a modified Pay As You Earn (repayment) plan before the student loan pause and you have not reported updated income information since 2020, you should have automatically converted to SAVE with lower monthly payments.
- If you think your calculated income-driven repayment amount is incorrect, cross-reference the calculation using the Department of Education’s Student Loan Simulator. Make sure to use the correct income information you provided when submitting your IDR application.
- Take advantage of the Biden administration’s on-ramp transition period, during which borrowers who miss payments will not be reported as delinquent or in default, according to the Education Department. Instead, missed payments will be retroactively converted into deferment. However, missed payments cannot count toward student loan forgiveness under IDR and PSLF, and interest may still accrue.
- If there is a problem, contact your loan servicer, or submit a dispute to the Department of Education’s FSA Feedback or FSA Ombudsman group. You should also file a complaint with the federal Consumer Financial Protection Bureau.
Further Reading Student Loan Forgiveness
Hardship could soon form the basis of a new Biden student loan forgiveness plan
Major student loan forgiveness deadline nears, but it could be extended
Education Department reveals key details on new student loan forgiveness scheme
5 student loan forgiveness updates as the on-ramp begins and problems get worse
Source: www.forbes.com
