Mary Ansell thought it was strange when she received two student loan payment statements on the same day last month.
One statement said Ansell’s monthly payment had dropped to $0, a change she expected after taking on a part-time job at a lower salary. Then a second statement from her servicer, the Missouri Higher Education Loan Authority (MOHELA), said she would owe $99 a month.
Confused, Ansell called her servicer. A representative promised the company would reprocess her payment. In the meantime, her loans have been put in forbearance.
President Biden at the White House on Wednesday delivering remarks on his administration’s efforts to support student borrowers. Demetrius Freeman/The Washington Post
“It frustrates me that everything is so disorganized,” said Ansell, 29. “It just feels like everyone involved should have been more prepared.”
As student loan payments resume for many borrowers this month, Ansell is among some who are discovering their expected payments are wrong. The issue is especially frustrating for people enrolled in a much-touted new repayment plan that the Biden administration said could save the typical borrower $1,000 a year. More than 4 million people have enrolled in the Saving on a Valuable Education plan, which bases monthly bills on income and family size.
Interviews with a half dozen people involved in the rollout of the plan, commonly known as SAVE, reveal the Education Department and the student loan servicers it uses to manage its $1.6 trillion portfolio are contending with administrative errors that have produced inaccurate payment amounts. The miscalculations reveal deep-seated problems within the repayment apparatus. They also expose tensions that have emerged as the Biden administration enacts sweeping policies without adequate funding and with a short timeline for implementation.
“We’re seeing people receive payment amounts that are hundreds of dollars more than what it’s supposed to be,” said Abby Shafroth, the director of the National Consumer Law Center’s Student Loan Borrower Assistance Project. “It is creating a lot of confusion, distrust and frankly making people extremely anxious.”
The Education Department says it immediately directed servicers to notify affected borrowers and put them into administrative forbearance until they were able to calculate the correct payment amount. Borrowers will be offered a refund of any recent payments, and any time they were put in forbearance to remedy the error will be credited toward payment counts needed for loan forgiveness programs.
“We take our oversight role very seriously,” the agency said in a statement, “and when mistakes happen, we work swiftly to resolve them and make sure there is as little impact as possible on borrowers.”
The department estimates that 420,000 borrowers have been affected by the miscalculations. Still, it may be difficult to gauge the full extent of the problem, with piles of applications yet to be processed.
President Biden announced the new repayment option in August 2022 alongside his effort – since struck down by the Supreme Court – to forgive up to $20,000 in federal student debt per borrower. But the details of the new plan didn’t emerge until January. Although the plan takes full effect in 2024, the Education Department was keen on opening enrollment and launching some components before student loan payments resumed this fall, after a three-year pause because of the coronavirus pandemic.
Chief among the new features is an increase in the amount of income exempted in calculating a borrower’s payment, to 225% of the federal poverty level instead of 150 percent.
But in August, as servicers began switching people enrolled in an older income-driven plan, known as Revised Pay as You Earn, to the new one, the Education Department said MOHELA inadvertently used 2022, instead of 2023, poverty guidelines. The error was quickly corrected. (MOHELA directed all questions to the Education Department.)
Other problems remained. Some borrowers in the other three income-driven plans also have received incorrect monthly payment information. In cases in which a borrower’s original application for an income-based plan was processed through a different servicer, the Education Department’s Federal Student Aid office provides the current contractor with data needed to recalculate payments under the new SAVE plan. But some of those files had incorrect or missing information about borrowers’ family size, income, or marital tax status, according to people familiar with the matter who were not authorized to speak publicly.
The Consumer Financial Protection Bureau has long warned servicers to be more vigilant in managing data transferred from other servicers, with a 2022 study finding data discrepancies.
“Not only could servicers have been more proactive, they should have been,” said Mike Pierce, who is executive director of the Student Borrower Protection Center and previously worked for the CFPB. “Of course, you want the government to do better, but these are big, sophisticated financial companies that spend millions of dollars making sure that they are following the law. That is part of what it takes to be in the market.”
The rollout of SAVE comes as student loan servicers and the Education Department’s Federal Student Aid office have taken on a laundry list of projects in recent years that are stretching resources. The department and its contractors are processing scores of applications for loan forgiveness from public servants and reviewing millions of records to adjust the count of payments that move borrowers closer to debt cancellation. Congress has refused to give the Federal Student Aid office more money, and the department has told servicers to scale back their operations.
“Anyone blaming servicers for hasty political decisions made without appreciation of operational capacity is being dishonest,” Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for loan servicers, said in a statement. “Most current challenges in the servicing environment were foreseen and preventable, but sadly warnings from servicers about the need for more resources, time, and planning to implement massive new programs were ignored.”
When the department became aware of the transfer problem in September, it asked servicers to audit their files and recalculate hundreds of thousands of accounts. Some services have completed the remediation, but for others, it is ongoing.
Buchanan said that when servicers have gotten incorrect files or bad data from the department resulting in errors, they have worked cooperatively to quickly fix and address those issues and will continue to do so.
“We stand ready to work to best serve borrowers as they navigate the complex federal student loan program, fix issues as they arise, and support the government with the tools and resources they have chosen to provide,” he said.
Shafroth worries that even if errors are corrected, the entire ordeal will make borrowers further distrust the student loan system.
“The administration only has one chance to make a first impression,” she said. “So even if they’re making this correction, in some cases, the damage is already done.”
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