Student-loan servicers face fines as repayments are still sloppy 3 months in
Hold please… Restarting student-loan repayments for tens of millions of borrowers after a more than three-year pause is easier said than done. Since October, the payment restart has been plagued by 3M+ billing mistakes and customer-service wait times up to nine hours (yikes), a new gov’t-watchdog report said. Now the Biden admin is withholding payments from its loan servicers as a fine for their failures.
Yellow card: The Education Department withheld $2M in payments to Aidvantage, the second-largest servicer, and smaller sums from both Nelnet and EdFinancial. In October, the department fined Mohela $7M over similar billing errors.
Stat sheet: Borrowers are getting a little too familiar with their servicers’ hold music, as August’s 12-minute average wait time jumped to 73 minutes by the end of October. The # of borrowers who’d hung up before reaching anyone hit 47%, up from August’s 17%.
Part of the problem: Navient, once the industry’s largest loan servicer, left the student-debt biz in 2021. Other servicers laid off hundreds of employees during the payment pause, leading to understaffing.
Cancellation’s still on the table… but it’ll probably be a smaller plate than many had hoped. After a SCOTUS ruling shut down President Biden’s plan to provide student-debt relief for 40M Americans, the admin has continued to cancel debt on more constricted grounds (for example: borrowers who’ve been in repayment for ~20 years). About 3.6M borrowers have had $132B in federal student debt flagged for cancellation. The admin is expected to propose its student-debt relief plan B in May, targeting between 4M and 10M borrowers. Meantime, borrowers will likely stay on hold as the repayment woes drag on.
Restarting an old engine can backfire… This fall, the Education Department’s remaining servicers faced a flood of 28M borrowers resuming payments — 5x the # who enter repayment in a typical year. That influx, combined with confused, inflation-battered borrowers facing unfamiliar payment portals, has led to a logistical nightmare. And it shows: about 9M borrowers missed their first payment.
🌡️ Snacks Temp Check: If you have US student-loan debt, take our one-question poll about your experience with repayments. We’ll share the anonymized results next week so that you can see how your answer compares to your peers’.