Now that the federal student loan machine has been restarted, hundreds of thousands of borrowers are finding that their monthly payments have been miscalculated, often for amounts larger than they actually owed.
The mistakes came to light as more than 28 million federal student loan borrowers returned to repayment this month after a pandemic-related relief program paused their monthly bills for nearly four years.
The miscalculations affected borrowers transferred to the Biden administration’s new income-driven repayment plan, known as SAVE, which bases borrowers’ monthly payment amount based on their income and family size. The program promises to cut many borrowers’ payments by more than half compared to the program it replaced, called REPAYE, but at least one loan servicer ran into trouble when it switched borrowers from the old program to the new one, resulting in a Failure resulted in payment amounts.
The Missouri Higher Education Loan Authority, called MOHELA, used 2022 poverty guidelines instead of 2023 to calculate payments, resulting in about 1 percent, or 280,000 borrowers, receiving “slightly higher” payment amounts than they should have received under the new guidelines SAVE plan. According to the Department of Education, borrowers were informed of the correct payment amount.
The Education Department also said that as part of its standard verification process, it discovered discrepancies in some payment amounts last month, leading it to ask loan servicers to review their files regarding family size, income or marital status calculations. These errors resulted in some borrowers’ payments being overcharged and a “very small number” of borrowers being undercharged.
After noticing the problems, the Department of Education immediately directed loan servicers to notify affected borrowers and place them in administrative forbearance until they were able to calculate the correct payment amounts.
“We take our oversight role very seriously, and when mistakes happen, we work quickly to correct them and ensure that the impact on borrowers is as minimal as possible,” said a spokeswoman for the Department of Education, who estimated that the two problems Less affected are more than 1.5 percent of borrowers who start repayment, i.e. around 420,000 people.
Borrowers who overpaid will be offered a refund.
People who want to ensure the accuracy of their payment amounts can use StudentAid.gov’s loan simulator tool, which should generate an accurate approximation of their debt. However, resolving any discrepancies may require some time and persistence.
“Unfortunately, the bigger problem is that it’s difficult to resolve these issues now if you can’t reach anyone on the phone,” said Persis Yu, deputy executive director of the Student Borrower Protection Center, citing the notoriously long wait times for loan servicer representatives.
Bobby Matson, chief executive of Payitoff, a debt management software company, said the company noticed the errors when it confirmed that his firm’s repayment calculations were accurate, but they did not match the payment amounts that many loan servicers posted to borrowers’ accounts.
“We are seeing mistakes being made by loan servicers because they have been severely underfunded by Congress and do not have enough resources to accommodate this influx of borrowers,” Matson said, adding that he has seen mistakes made by several loan servicers.
Congress kept funding for the Office of Federal Student Aid on hold while many initiatives, including the major resumption of payments and the new SAVE program, got underway. At the same time, the Biden administration is offering targeted debt relief to student loan borrowers through various other programs.
Scott Buchanan, executive director of the Student Loan Servicing Alliance, an industry group, said most current problems have been resolved – and that loan servicers have upgraded their computer systems so they can process more types of requests online.
“If you make big changes in the middle of recovery – including moving people into a new repayment program that is far more complicated than the last one – there will be challenges and groups of borrowers where we will have to do manual work,” Buchanan said .