Student Loan Payment Restart Troubled by Long Hold Times and Wrong Billing Statements

The restart of government student loan repayments was plagued by late bills, incorrect billing statements and long waits for customer service, according to a government watchdog report released on Friday.

In October, as tens of millions of borrowers received their first federal student loan bills in more than three years after a pause during the pandemic, the Education Department’s four loan servicers struggled to resume repayments. The Consumer Financial Protection Bureau found that borrowers trying to reach their loan servicer by phone typically faced a 73-minute wait in late October to speak to a representative, and at least one borrower waited more than nine hours to connect. As hold times peaked, half of callers gave up and disconnected.

The bureau also found that servicers are behind in processing applications for SAVE, a new income-driven payment plan introduced by the Biden administration with far more favorable terms than prior plans. Servicers had 1.25 million pending applications at the end of October, more than 450,000 of which had been lingering for at least a month.

Also on Friday, in coordination with the consumer bureau’s report, the Education Department penalized three of its four loan servicers, saying that they had failed to meet their contractual obligations to send borrowers timely bills. More than 750,000 borrowers received late bills because of the errors, the department said.

The department cut $2 million of its payment to Aidvantage, its second-largest servicer, which handles nine million borrowers’ accounts. The largest servicer, Nelnet, which has nearly 15 million accounts, faced the smallest penalty, $13,000; and the payment to a third service, EdFinancial, was reduced by $161,000. The amounts were based on the number of borrowers affected by delayed bills from each servicer, the department said.

The department previously withheld $7 million from its October payment to its fourth loan servicer, MOHELA, because it sent billing statements late.

The Biden administration “will not give student loan servicers a free pass for poor performance and missteps that jeopardize borrowers,” Education Secretary Miguel Cardona said.

Borrowers who received late bills will have their loans placed on administrative forbearance, Mr. Cardona said, during which they will not owe payments or incur interest. Time in administrative forbearance will count as qualifying months of payments toward the department’s loan forgiveness programs, he added.

In response to the penalty, Nelnet said it would no longer allow borrowers to choose their own billing dates; some of those who did received their bills late, the company said.

“Borrowers have had the ability to set their own due date for over a decade, but in light of today’s actions, Nelnet expects to remove this option going forward,” a spokesman said in a written statement. “We do take seriously our responsibility to borrowers and regret any mistakes made during the extraordinary circumstances of return to repayment.”

Aidvantage said in a written statement that it “took immediate action to rectify” the late billing statements “and prevent any risk of future occurrence.”

An EdFinancial representative referred questions to the Education Department. A MOHELA representative did not immediately respond to a request for comment.

Scott Buchanan, the executive director of the Student Loan Servicing Alliance, a trade group, said his members warned last year that such problems were inevitable.

“This is exactly what we said would happen when the government doesn’t have an operational plan, keeps changing it, does that at the last moment and doesn’t provide enough resources,” he said. “And then everyone is shocked, shocked. It reminds me of ‘Casablanca.’”

The Education Department said last month that roughly 60 percent of the 22 million people who had payments due in October had made them by mid-November.

Consumer advocates said the government’s findings backed what they have been saying for months: The process of restarting student loan billing has been rocky, in ways that harm borrowers.

“Withholding payment does not go far enough. We need to find more ways to hold loan servicers accountable and untangle all of this confusion for millions of borrowers. The easiest way to resolve all of this is to cancel student debt,” said Natalia Abrams, the founder and president of Student Debt Crisis Center, a nonprofit advocacy group.

Mr. Buchanan, the trade group leader, said the government withholding payments to servicers would only compound the problems. The consumer bureau’s report noted that averaged across all servicers, employees who processed income-driven payment applications each had a backlog of 1,335 applications.

“It’s frustrating to blame people, penalize them, take resources away and then expect that things are going to get better,” he said. “It defies any sort of logic.”