$100,000 monthly student-loan bills, late statements, and erroneous banking fees: here's everything that's gone wrong for borrowers with the return to repayment

  • Student-loan borrowers have faced a range of errors with their servicers since payments resumed.

  • They include incorrect billing statements and delayed customer service.

  • Federal Student Aid outlines the problems it's seeking to fix in a new memo.

Alicia thought her monthly student-loan payment would be around $50, but she was surprised to see a $753 balance due on her account in September. When she called her servicer, they admitted her payment was calculated incorrectly.

Meanwhile, Xiong Chang paid off his remaining $19,000 student-loan balance in the summer, but his servicer has yet to process the payment — and now he has a balance due that he doesn't owe.

And Jess expected to pay around $137 a month in October, but she was billed a $49,000 monthly payment. She was told it was a mistake, as well.

These are just a few examples of issues borrowers have shared with Insider since federal payments resumed, and President Joe Biden's Education Department is well aware of them — and many more.

The department recently released an internal Federal Student Aid memo outlining mistakes servicers have made since bills started to become due, stating that borrowers "reasonably relied on their loan servicers to send them accurate monthly bills and repayment disclosures in a timely manner prior to returning to repayment for the first time in over 3.5 years."

"In some cases, these customers have experienced financial detriment due to the servicers' failure to provide accurate and timely bills and disclosures," the memo said.

The department is seeking to resolve those errors by, among other things, instructing servicers to place all impacted borrowers on administrative forbearance, without any interest accrual, until the problems are solved. It's also ensuring any months spent in forbearance count toward forgiveness progress in income-driven repayment plans and Public Service Loan Forgiveness.

These are the issues the Education Department detected as borrowers entered repayment.

Incorrect monthly bills

When servicers attempted to convert borrowers to the new SAVE income-driven repayment plan, 78,000 borrowers got inaccurate bills. The FSA memo said that servicers did not have necessary information to complete SAVE conversions for over 5 million borrowers, causing servicers to rely on data that might not have been up to date.

Additionally, 21,000 borrowers received monthly statements with "very high and potentially incorrect amounts due," per the memo. Hundreds of borrowers received bills stating they owed over $10,000 a month, with a few borrowers having monthly bills of over $100,000.

In some cases, the incorrect bills caused their servicer to auto-debit far more than what was in the borrower's banking balance, causing them to face a nonsufficient fund fee. Servicers are required to refund those fees to borrowers.

Late or no billing statements

The Education Department announced earlier this week that student-loan company MOHELA failed to send on-time billing statements to 2.5 million borrowers, causing 800,000 of them to fall into delinquency. While the department promised borrowers they would receive billing notices 21 days or more before their payment was due, 499,000 borrowers were sent notices 8-14 days before the due date. 16,000 borrowers received notices 7 days or less before their due date.

Mistakenly taking borrowers out of forbearance

Servicers were supposed to keep borrowers with pending borrower defense to repayment claims in forbearance, but about 16,000 of them were placed back into repayment status. Borrower defense claims are forms borrowers can submit if they believe they were defrauded by the school they attended, and if approved, their loans would be discharged. Some of those borrowers may not have even been aware that they did not need to be in repayment — according to the memo, one of those borrowers was taken out of forbearance on September 23, and she made a payment on October 6.

Failure to send income-driven repayment disclosures

After converting to the new SAVE plan, one unnamed servicer failed to send revised disclosures stating the new monthly payment amount to about 153,000 borrowers. For over 110,000 of those borrowers, the first notice of their new monthly payments was their monthly bill, and the bill "did not state which repayment plan the borrower was on nor did they state the time period which the scheduled monthly payments would apply," the memo said.

Customer service delays

Due to limited funding for Federal Student Aid, borrowers have struggled to get customer service assistance from their servicer. According to the memo, borrowers are spending an average of 58 minutes on hold with their servicer, call lengths are about 70% longer than 2019 because borrowers have more questions. Only half of borrowers who tried to call their servicer in the past week actually got through.

The department also transferred 24 million borrowers to different servicers during the payment pause, a move that has been "historically prone to account errors" because it requires borrowers to create new accounts, get information from new sources, and send payments to a different platform. Similar issues could come up for MOHELA borrowers who are set to transition to a new online platform in the coming months.

Read the original article on Business Insider