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June 25, 2024

CFPB Report Reveals Widespread Issues With Student Loan Servicers As Payments Resume

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Jan 5, 2024

The Consumer Financial Protection Bureau (CFPB) released a new report on Thursday outlining serious issues borrowers have faced with student loan servicers as pandemic payment pauses ended in 2022. The report reveals billing errors, poor communication, and lack of support have created financial hardship and confusion for millions of borrowers.

Overview Of CFPB Findings

The CFPB report found:

  • High call wait times – Borrowers waited over 70 minutes on average to speak to a servicer agent after payments restarted in 2022
  • Payment processing errors – 1 in 10 borrowers were put into the wrong repayment plan or had payment issues
  • Missing billing statements – Over 10 million statements were never sent to borrowers
  • Lack of communication – Many borrowers missed key information on recertification deadlines, payment changes

Rohit Chopra, Director of the CFPB, stated these issues created “risks for borrowers and their families facing challenging financial circumstances as well as broader risks for the economy.”

Billing Errors Create Confusion And Hardship

The most pressing issues found were widespread errors in payment processing and billing when student loans switched from pandemic payment pause status to active repayment.

Key problems reported by borrowers:

  • Incorrect repayment plans
    • Ex: being put in standard 10-year repayment instead of their previous income-driven plan
  • Payments withdrawn multiple times unintentionally
  • Payments higher than expected
  • Payments withdrawn when loans should still be on hold

These billing mishaps are financially straining for those already struggling to manage student debt burdens. The COVID-19 payment pause gave borrowers over 2 years of relief – adjusting to new required payments has been rocky and exacerbated by servicer mistakes.

30-year old pharmacy technician Jessica Enwright shared her experience:

“My student loan servicer began taking $300 per month out when payments started again last March. That’s $100 more than I used to pay. I reached out to ask why, and they realized they put me on the wrong plan by accident. But after 6 months of overpaying, they still haven’t refunded the difference.”

Stories like Jessica’s are shockingly common in recent months. For borrowers already dealing with repayment anxiety, servicer errors add insult to injury. Chopra explained the ramificationsextend beyond individual borrowers:

“The challenges borrowers are reporting threaten not just their long-term financial security but that of their families. Through no fault of their own, millions of borrowers may see their credit damaged, debt loads become unmanageable, and progress toward milestones like buying a home slowed.”

Servicers Overwhelmed By Volume Of Borrowers

Given over 40 million Americans have student debt, major servicers like Nelnet, Navient, and MOHELA manage accounts for millions of borrowers. The pandemic payment pause meant a complete halt of account management functions like sending billing statements, processing payments, communicating with borrowers.

The October 2022 restart activated all these account functions for millions of borrowers simultaneously. Strained student loan servicer operations struggled, resulting in widespread issues. Many servicers use outdated systems and inadequate staffing for such a large volume spike after 2+ years dormancy.

An employee working for a major servicer explained just how unprepared her company was for the payment restart:

“Our systems couldn’t handle switching so many loans from non-repayment to active repayment at once. We had huge backlogs of pending requests around incorrect repayment plans too. I’d say we were getting up to 15,000 emails per day from angry borrowers due to all the mistakes on payments.”

Non-Profit Servicer Faces Criticism

In particular, the Pennsylvania Higher Education Assistance Agency (PHEAA or FedLoan Servicing), the largest non-profit federal servicer, faced notable criticism for poor support around the payment restart. This likely stems from FedLoan borrowers requiring more personalized service compared to other servicers.

Here’s why FedLoan borrowers had acute issues transitioning back into repayment:

  • Only non-profit servicer – Focused on superior customer service
  • Sole Public Service Loan Forgiveness (PSLF) Program servicer – Program requires complex account management
  • All income-driven repayment borrowers – Recertification delays impacted this group

The convergence of factors above meant FedLoan Servicing struggled immensely to handle its nearly 9 million borrowers returning to active repayment status after years of dormancy.

Richard Cordray, previous CFPB Director, underscored why non-profit servicers like FedLoan fill such a critical role:

“Mission-driven non-profit and state-based loan servicers have shown repeatedly that they have the skills and values needed to effectively and humanely administer the federal student loan portfolio”

Summary Of Key Events

Here’s a timeline showing how issues rapidly escalated with some servicers as pandemic protections dropped off:

August 2022 – Last month borrowers had payment pause protection
September 2022 – First wave of billing cycles started for millions of borrowers
October 2022 – Call wait times spike as confused borrowers seek support
November 2022 – Issues with incorrect payment amounts emerge
December 2022 – CFPB complaints dramatically escalate around student loans
January 2023 – FedLoan leaves federal student loan system as servicer
Present Day – CFPB report confirms breadth of problems seen

What Happens Next?

In response to the egregious servicing breakdowns, the Department of Education took punitive actions. They announced nearly $2 million in penalties against Nelnet, MOHELA, and PHEAA for failing borrowers. The servicers downplayed the fines as minor fees.

Beyond financial penalties, reform advocates say structural changes to servicer operations and incentives would help avoid mass borrower harm when crisis events like payment pauses end. Some potential steps include:

  • Upgrade outdated systems prone to errors
  • Review staffing to ensure volume spikes are handled
  • Enhance compliance monitoring and quality control
  • Improve communication for milestones like recertification due dates
  • Create new emergency response plans for mass exits from aid programs
  • Incentivze servicers to get the right repayment plan for borrowers

In the interim, observers warn borrowers remain at risk of credit score damage and restart repayment struggles from servicer mistakes made in recent months. The lack of accountability and resistance to change leaves little confidence the servicer operations will run smoothly next crisis.


More On Student Loan Servicer Issues

Statements from key leaders and research groups on recent challenges student loan servicers have caused for millions of borrowers as pandemic protections halted:

Persis Yu Of National Consumer Law Center:

“Although progress has been made, student loan servicer practices continue to be riddled with problems, hurting borrowers and putting our economy at risk.”

Center for Responsible Lending:

“Borrowers need dependable access to accurate information, fair repayment terms, and well-performing loan servicers to manage student debt loads.”

Seth Frotman, Executive Director of the Student Borrower Protection Center:

“It’s an absolute disaster. Financial harm has probably been experienced by millions of people, and it didn’t have to happen.”

The breakdown exposes the precarious and often shoddy infrastructure supporting the student loan system. Stakeholders agree much work lies ahead to avoid similar mass borrower failures seen in 2022’s repayment restart.

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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