More Big Student Loan Service Breakers May Be Coming (Yes, Again)

As borrowers try to navigate new federal student loan forgiveness and repayment programs after the end of the Covid-era grace period, loan servicers have struggled.

With understaffed, underfunded and tasked with implementing a wide variety of new Biden administration initiatives, the student loan companies contracted by the Department of Education to manage the government’s massive portfolio of accounts are under unprecedented pressure. Borrowers face long call wait times, processing delays, rampant billing errors and worse.

Millions of borrowers have already experienced historic loan service transfers in the months leading up to going back into repayment. But there could be even more changes coming — and they couldn’t come at a worse time.

Services struggling to administer student loan forgiveness and repayment programs

Nearly 30 million borrowers have already experienced major changes in student loan servicing over the past two years. Some of the biggest transfers include the following:

• FedLoan Servicing, which administered the Public Service Loan Forgiveness program, withdrew from the federal student loan system and transferred accounts to other Department of Education loan servicers. Many of those bills were sent to MOHELA, which now administers PSLF — a key student loan forgiveness program for nonprofits and government employees.
• Similarly, Navient also exited the department’s direct loan servicing system and moved its accounts to Aidvantage.
• Federal student loan borrowers serviced by Great Lakes Higher Education have had their accounts transferred to Nelnet
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  earlier this year.

Student loan servicing transfers have historically caused problems for borrowers, including billing irregularities, lost records, late fees, adverse credit reports and processing issues, according to 2015 Report by the Consumer Financial Protection Bureau, a federal oversight agency. And these issues seem to be reoccurring after the latest round of service changes.

The Biden administration announced last month that nearly three million borrowers experienced repayment-related billing problems, including 2.5 million who received untimely bills, resulting in hundreds of thousands in delinquencies (not normally counted in student loan forgiveness programs).

In addition, according to a memorandum of the department, for over 5 million borrowers trying to enroll in the new SAVE program, “Their new loan servicers did not have the necessary information to complete SAVE conversions because they were never transferred from the borrower’s previous servicer.” This resulted in processing delays or incorrect monthly payment calculations.

Biden administration announces potential punitive student loan service transfers

The Biden administration has stepped up pressure on student loan servicers as borrowers report widespread problems. In October, the administration announced it would withhold millions of dollars in payments to MOHELA due to untimely or incorrect bill calculations. Officials also said borrowers will be put into forbearance while the problems are fixed and will receive credit for student loan forgiveness.

Last week, the Department for Education suggested it could go even further. In one announcement outlining its action plan to hold student loan servicers accountable for ongoing problems, officials suggested borrowers’ accounts could be transferred from one loan servicer to another as a punitive measure.

“If servicers demonstrate that they are unable to perform their duties for the borrowers they serve, the Department may suspend the allocation of additional borrowers or reallocate borrowers to other servicers,” according to a statement.

“The Biden-Harris administration has made clear that we will not allow borrowers to pay the price for unacceptable service failures,” said Education Secretary Miguel Cardona. “Today’s announcement should send a clear message to all student loan servicers that the Department will use our full range of oversight and accountability tools to ensure borrowers get the level of service they deserve.”

Other Student Loan Servicing Changes

Meanwhile, borrowers are facing other major changes in student loan servicing. MOHELA, one of the most important employees of the Ministry of Education and the only one entrusted with the administration of the PSLF program, is currently undergoing a major internal transition to a new loan servicing platform.

Starting this month, MOHELA “will begin migrating borrower accounts to its new loan servicing platform that will better serve borrowers,” according to a department announcement. “Borrowers whose federal student loans are currently serviced by MOHELA will still have MOHELA as their servicer when this transition is complete, but will access their account through a new website.”

During the transition, borrowers may temporarily lose access to their account information. Borrowers will get a new account number after switching and will then have to create a new online account through a different MOHELA website, according to the agency. Specifically, “If you made a federal student loan payment directly to MOHELA that was not posted to your loan prior to the transition, those payments may be delayed by up to 30 business days.”

According to the Department of Education, transfers will continue in the winter and spring. “Borrowers will receive a notice from MOHELA approximately 15 days in advance stating that they are to be switched to the new platform.” says the department. “Borrowers will then be notified by MOHELA when the transition is complete and their loan details have been uploaded to the new system. Borrowers will also receive pre- and post-transition notifications from the US Department of Education (ED).”

Further reading on student loan forgiveness

The deadline for major student loan forgiveness is looming, but it could be extended

8 hardships could qualify for automatic student loan forgiveness under Biden plan

2.9 million borrowers won’t have to pay their student loans under new Biden plan

The Department of Education is revealing important details about the new student loan forgiveness plan