By Katie Lobosco, CNN
Washington (CNN) — Many federal student loan borrowers faced long hold times on the phone, experienced significant delays in application processing and received inaccurate bills when payments resumed in October, according to a report released Friday by the Consumer Financial Protection Bureau.
When the three-plus-year pandemic pause ended, many borrowers needed help from a live agent at their student loan servicers – the companies contracted by the government to collect payments – to do things like switch repayment plans or answer questions about bills they believed to be incorrect.
But borrowers who called in October waited an average of more than 70 minutes to speak to a live agent, according to what servicers reported to the CFPB, a federal agency.
Roughly half of the borrowers who called during the last two weeks of October hung up before connecting with a representative.
Bringing roughly 28 million student loan borrowers back into payment after a yearslong pause was expected to be a challenge. The report includes some of the first data about how student loan servicers performed.
When borrowers cannot reach their student loan servicers, it could put them at risk of missing payments.
The Department of Education said previously that roughly 40% of the borrowers who had bills due in October did not make payments by mid-November. But thanks to an on-ramp period created by the government, borrowers who miss a payment through September 2024 won’t be reported as delinquent or in default to the three national credit bureaus.
Loan servicers penalized for sending bills late
Also Friday, the Department of Education said it is withholding payments to three student loan servicers for failing to “send timely billing statements” to a total of 758,000 people for the first month of repayment.
The department is withholding payment of $2 million from Aidvantage, $161,000 from EdFinancial Services and $13,000 from Nelnet. The amounts are based upon the number of borrowers impacted by the errors.
The Biden administration directed the servicers to place affected borrowers into administrative forbearance – during which payments are not due and interest does not accrue – until the issues were resolved.
“When unacceptable errors are uncovered, servicers should expect to be held accountable and borrowers should count on this administration to hold them harmless,” said Education Secretary Miguel Cardona in a statement Friday.
In late October, the Department of Education also penalized another student loan servicer, MOHELA (Missouri Higher Education Loan Authority), for failing to send billing statements on time to 2.5 million borrowers. The department withheld $7.2 million as a result.
Many borrowers received inaccurate bills, some with premature due dates or inflated payment amounts, the CFPB found. The Department of Education previously disclosed that an estimated 305,000 people initially received federal student loan bills with the wrong amount.
Delayed processing of income-driven repayment plan applications
Last year, the Department of Education launched a new repayment plan that lowers borrowers’ monthly payment amounts by tying payments to income and family size. Known as Saving on a Valuable Education (SAVE), the plan was meant to ease the transition back into repayment for many borrowers this past fall.
While millions of people were automatically moved into SAVE, depending on what repayment plan they were previously enrolled in, other borrowers are required to submit an income-driven repayment application to their student loan servicer to switch into the new plan.
Many borrowers experienced delays in getting these applications processed.
By the end of October, more than 450,000 income-driven repayment applications had been pending with a servicer for more than 30 days, according to the CFPB report. In total, more than 1.2 million applications were pending at the end of the month.
For some borrowers, interest is accruing while their applications are being processed that potentially would not be if they were already enrolled in SAVE.
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