Millions of borrowers will receive student loan forgiveness credit for administrative forbearance periods, according to the Biden administration, as broad loan servicing problems continue.
Forbearances allow borrowers to avoid repayment while staying in good standing on their student loans. They being implemented by the Education Department due to ongoing, widespread loan servicing issues following the return to repayment last fall. The department also announced new financial penalties imposed on loan servicers due to billing mistakes and other problems.
“When unacceptable errors are uncovered, servicers should expect to be held accountable and borrowers should count on this administration to hold them harmless,” said Secretary of Education Miguel Cardona in a statement on Friday.
Here’s the latest.
Student Loan Forgiveness And Repayment Progress Jeopardized By Servicing Problems
Borrowers have been experiencing widespread student loan servicing problems since the Covid-19-related forbearance ended last fall. The so-called student loan pause had suspended payments and interest on most federal student loans since March 2020. The abrupt return to repayment starting in September has not been going well, as many advocates had warned would be the case.
According to a recent bulletin by the Consumer Financial Protection Bureau, a federal agency that oversees the financial services sector, problems have included untimely or late billing statements, miscalculated payments (particularly under income-driven repayment plans like the new SAVE program), long processing times for IDR applications, and overwhelmed call centers resulting in long hold times and dropped calls when borrowers try to reach their loan servicers.
“The resumption of student loan payments means that borrowers are making billions of dollars of payments each month,” said CFPB Director Rohit Chopra in a statement on Friday. “If student loan companies are cutting corners or sidestepping the law, this can pose serious risks to individuals and the economy.”
While borrowers are protected from the worst consequences of missed payments due the transitionary on-ramp period — which prevents default and negative credit reporting through September — missed payments can result in lost progress toward student loan forgiveness under IDR and Public Service Loan Forgiveness, as well as substantial interest accrual.
Biden Administration Imposes Administrative Forbearances, Says Time Will Count Toward Student Loan Forgiveness
In November, the Education Department announced that it had instructed loan servicers to place 2.7 million borrowers into an administrative forbearance to suspend billing while the problems were addressed. The forbearance primarily impacted borrowers with federal student loans serviced by MOHELA, one of the department’s major loan servicing contractors which specifically administers the PSLF program. The Biden administration indicated that borrowers impacted by the forbearance would have those months credited toward student loan forgiveness under the IDR and PSLF programs as if they had been in repayment.
Last week, the administration announced that the problems persist across all four of its contracted loan servicers. “The Department has found that Aidvantage, EdFinancial, and Nelnet all failed to meet contractual obligations to send timely billing statements to a combined total of 758,000 borrowers for the first month of repayment,” said the department in last week’s statement. As a result, these borrowers, too, will be placed in an administrative forbearance, bringing the total number of those impacted to nearly 3.5 million.
As before, the administrative forbearance period should count toward student loan forgiveness, according to the department. “Any months that borrowers spend in administrative forbearance will count as progress toward Public Service Loan Forgiveness or income-driven repayment forgiveness,” said the statement. “The Department’s action will ensure that borrowers are not harmed by these servicer errors and that servicers are held accountable for their actions.
In addition, for borrowers placed in the forbearance, “any accrued interest will be adjusted to zero.”
Advocates And Lawmakers Trade Blame For Student Loan Servicing Problems
The Biden administration has largely blamed loan servicers for the ongoing problems borrowers have been experiencing. In addition to ordering servicers to place borrowers into a forbearance, the administration has also imposed financial penalties on the servicing companies.
“As a result of identifying these errors, the Department is withholding payment of $2 million from Aidvantage, $161,000 from EdFinancial, and $13,000 from Nelnet – amounts based upon the number of borrowers impacted by these errors,” said the department.
Advocates for borrowers had mixed responses. “Withholding payment does not go far enough,” said Natalia Abrams, president of the Student Debt Crisis Center, in a statement. “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.”
Meanwhile, Republican lawmakers blamed the Education Department for the problems, arguing that it was trying to distract from other issues, such as the problematic recent rollout of the new Free Application for Federal Student Aid.
“The Biden administration is attempting to distract from its disastrous roll-out of FAFSA and terrible job preparing for return to repayment,” Senator Bill Cassidy (R-La) in a statement last week. “The Department of Education missed deadlines and was unable to provide timely and basic information the servicers need to do their job. Now they are blaming the crisis they created on the servicers they set up to fail.”
Education Department officials have, in turn, countered that Congress has refused to provide the Office of Federal Student Aid with the level of funding needed for its operations to run more smoothly and efficiently.
Further Student Loan Forgiveness Reading
$132 Billion In Student Loan Forgiveness Approved: Who Qualifies, And What’s Next
6 Student Loan Forgiveness Updates To Watch As 2024 Kicks Off
Student Loan Forgiveness ‘Buyback’ Option Provides New Path To Relief
Student Loan Borrowers Have 90 Days To Get Refunds Of These Payments
