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.
