Education Department punishes student loan servicer for billing mistakes

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WASHINGTON (NPR) — The U.S. Department of Education has taken the unusual step of punishing one of the largest federal student loan servicers for failing to send on-time billing statements to 2.5 million borrowers.

The department said on Monday that it would withhold $7.2 million in payment owed to the Higher Education Loan Authority of the State of Missouri, better known as MOHELA, for the month of October. It announced that, of those 2.5 million borrowers, more than 800,000 failed to make an on-time loan payment in October, the first month that payments are due since the pandemic pause began in March 2020.

“The actions we’ve taken send a strong message to all student loan servicers that we will not allow borrowers to suffer the consequences of gross servicing failures,” Education Secretary Miguel Cardona said in a statement. “We are committed to fixing our country’s broken student loan system, and that includes strengthening oversight and accountability and taking every step possible to improve outcomes for borrowers.”

MOHELA did not respond to a request for comment.

The department’s announcement comes amid widespread reports of loan servicing errors and of borrowers waiting on hold for hours before reaching servicer workers who can explain and ultimately fix those mistakes. In fact, the department itself cataloged these errors — extensively — in a recent internal memo obtained by NPR and first reported by The Washington Post.

In that memo, dated Oct. 17, the office of Federal Student Aid (FSA) listed multiple large groups of borrowers who have been hurt by servicers’ errors during the return to repayment.

In addition to those 2.5 million borrowers who did not receive timely billing statements from MOHELA, some 16,000 borrowers who had petitioned the department to cancel their loans because they had been defrauded by a for-profit college were erroneously returned to repayment, the memo says. These borrowers should have been placed into a special payment-free forbearance until their claims could be reviewed and, potentially, their loans discharged.

And then there’s what happened to Dan Szyman.

“This is crazy!”

Szyman, a 43-year-old father of three, works as an outpatient mental health nurse in an opioid addiction treatment program near St. Louis.

He was previously enrolled in the REPAYE income-driven repayment plan and was automatically enrolled in the Biden administration’s new, more generous repayment plan, known as SAVE. At summer’s end, Szyman remembers logging in to his student loan account and seeing that his new monthly payment, beginning in October, would be $99.

“That’s so doable,” he remembers thinking. “You know, I’ve got three kids. Any little bit helps.”

But then, in September, Szyman received a notice from his servicer, MOHELA, “saying that my bill was going to be $633. And I was like, ‘This is crazy!’ So I called them right away.”

A MOHELA call center worker told Szyman there had been a “system glitch.” He remembers being told: “‘We’ll get it fixed for you.'”

But it wasn’t fixed. When he called again, a different call center worker told Szyman that his loan would be put into forbearance until the “glitch” could be sorted out. And there it remains.

The internal Education Department memo suggests Szyman is in good company: 78,000 borrowers experienced something similar. All had their accounts transferred from one servicer to another and were shifted from an old income-driven repayment plan to the new SAVE plan.

What was the glitch? According to the memo, “their monthly payments were incorrectly calculated based on incorrect family sizes, family income and spousal loan balances.” It’s unclear which of these factored into Szyman’s six-times-larger payment.

“You know, I can deal with the bureaucracy and, you know, sit on the phone for four hours,” says Szyman, who told NPR his calls to MOHELA lasted between two and four hours. “But there’s so many people out there that can’t … and those people are probably struggling.”

The Education Department announced on Monday that it has instructed servicers to place all borrowers affected by these mistakes into forbearance, for any interest that accrued to be zeroed out and for that forbearance time to count as credit toward Public Service Loan Forgiveness. That’s good news for Szyman, who says he is just 17 payments away from having his debts forgiven under the program.

“You know, that’s what I’ve seen from this administration — that they are really trying hard to help people like me,” says Szyman, who says he is frustrated with his servicer but appreciates the Education Department’s moves to address the mistakes.

Education Secretary Miguel Cardona talks to reporters during the daily news conference in the Brady Press Briefing Room at the White House
Education Secretary Miguel Cardona talks to reporters during the daily news conference in the Brady Press Briefing Room at the White House on June 30, 2023 in Washington, D.C. [Chip Somodevilla | Getty Images]

Sharing the blame

While borrowers welcomed the Education Department’s announcement, Rep. Virginia Foxx, R-N.C., who chairs the House Education Committee, made clear that she believes the department deserves much of the blame for these failures.

“Servicers need to be performing at their best. Period. But this doesn’t mean the Department is off the hook,” Foxx said in a statement. “For more than three years the Department has known it would need to return borrowers to repayment. Yet, the Department failed to provide any evidence that it had an actual plan to do so. Congress, servicers, borrowers, and taxpayers have all been left in the dark. But now the Department is suddenly shocked that there were errors?”

Congress too bears some responsibility for these mistakes, voting to flat-fund the office of Federal Student Aid and its loan servicing contractors this year, as congressional Republicans battled with the White House over Biden’s broader student loan relief plans.

That means FSA and its servicers were given the same amount of money for 2023 as they received in 2022 even though, as the FSA memo makes clear, “28 million borrowers now owe payments for the first time in at least three and a half years, more than 20 times greater than the number of borrowers who would typically enter repayment in a single month.”

“It sure would help if the government would actually provide more resources to get the work done,” says Scott Buchanan, head of the Student Loan Servicing Alliance, an industry trade group. “FSA is backlogged on SAVE applications and servicers are having challenges with all the system changes we had to make in a rushed fashion, but we are all working together to identify those and fix them quickly.”

Not only are an unprecedented number of borrowers returning to the system all at once, but the memo says the questions they’re asking call center workers are unusually complex. That’s because, as Buchanan says, the student loan system has changed dramatically in recent years.

As a result, the time spent on hold for borrowers needing help averages 58 minutes, according to the memo. Call lengths are 70% longer than they were in 2019. It’s little surprise, then, that more than half of borrowers, 52%, who called for help gave up before they ever got through.

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Transcript :


Two and a half million borrowers did not get a bill on time in this, the first month federal student loan payments were due. Now, the U.S. Department of Education is taking the unusual step of fining one of its student loan servicers. NPR’s Cory Turner has been following this massive return to repayment. Hey, there.

CORY TURNER, BYLINE: Hey, Mary Louise.

KELLY: All right, so what’s going on with this fine? What happened to these borrowers?

TURNER: Yeah. So as part of this big return to repayment, loan servicers are supposed to give borrowers at least three weeks’ notice before their first October payment was due. But the department says the servicer known as Mohela didn’t do that for about 2 1/2 million of them. As a result, about 800,000 of those borrowers then failed to make a full, on-time payment. The department has told Mohela to put these borrowers on a kind of protected pause until the problem is fixed. And as a fairly rare punishment, the department said it would withhold $7.2 million from the money that it contractually owes Mohela for its work in October. I should also say, Mary Louise, I reached out to Mohela, but they did not respond to my request for comment.

KELLY: Well, I should say, I’m now curious if this was a one-off. Do we know if these mistakes are limited to this one problem – late bills?

TURNER: They were not limited to this. I just got my hands on an internal memo from the department’s Office of Federal Student Aid, and it actually lists all kinds of mistakes that have been made since the return of repayment began. It mentions those borrowers who didn’t get on-time billing statements. There are also 16,000 borrowers who were returned to repayment when they should not have been. That’s because they had petitioned the department to cancel their loans, saying they had been defrauded by a for-profit college.

And then there is what happened to Dan Szyman. He is a borrower who reached out to me a few weeks ago. He’s 43, a father of three, near St. Louis. Back at the end of summer, he confirmed his monthly payment by calling his servicer, and he was told…

DAN SZYMAN: It’s going to be $99 a month. I said, great. You know, a hundred dollars a month, that’s so doable. You know, I got three kids. Any little bit helps.

TURNER: Szyman told me he had been automatically put in a new, better repayment plan, Mary Louise. And he was thrilled.

KELLY: (Laughter) I think you’re building me up to this is not going to be a happy ending. His bill was not 99 bucks a month?

TURNER: It was not, though I should say, it’s not actually clear what his monthly bill should be.

SZYMAN: Got a letter from them early September saying that my bill was going to be $633. I was like, this is crazy. And so I called them right away, and I talked to someone. They said, well, there was a system glitch.

TURNER: Now, it turns out this glitch comes up in the internal Ed Department memo I got. Servicers were miscalculating payments for a lot of people – about 78,000 Dan Szymans. Overall, the memo says borrowers who called for help averaged roughly an hour wait on hold. And little surprise, more than half of them gave up and hung up before they ever got through.

KELLY: Give us hope, Cory. Is this going to get better?

TURNER: I’m going to try. The problem is this is a Venn diagram of problems. Republicans argue the Ed Department has made a ton of complicated changes to the student loan program, which is true, and that the Ed Department didn’t plan well for the return of repayment. But Congress is also on the hook here. They refuse to give the department any extra money to pay for it all, even though, as this memo points out, about 20 times more borrowers are returning to repayment than the system is used to in a single month.

KELLY: All right.

TURNER: Now, the White House and some in Congress are considering trying to free up more money. But with Congress backlogged and the threat of a government shutdown looming again, it’s just hard to know what’s going to happen.

KELLY: NPR’s Cory Turner. And you can find all of Cory’s latest student loan news at Thanks, Cory.

TURNER: You’re welcome. Transcript provided by NPR, Copyright NPR.