The Department of Education said one of its student loan servicing companies in Missouri had failed to send out timely repayment notices to 2.5 million borrowers, leading hundreds of thousands of borrowers to miss their payment deadline.
Education officials said on Monday that the errors were made by the Missouri Higher Education Loan Authority, which had only given some borrowers a one-week notice ahead of the deadline. Servicers are generally required to send out the payment notices at least 21 days before the payments are due.
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As a result of the error, nearly 800,000 borrowers became “delinquent” on their student loans.
The administration said it had withheld $7.2 million in payment to MOHELA for October and directed the loan servicer to place all affected borrowers in forbearance until the problem is resolved.
“The Biden-Harris Administration is looking out for borrowers at every step throughout their return to repayment. Our oversight efforts have uncovered errors from loan servicers that will not be tolerated,” Education Secretary Miguel Cardona said in a statement.
“The actions we’ve taken send a strong message to all student loan servicers that we will not allow borrowers to suffer the consequences of gross servicing failures. We are committed to fixing our country’s broken student loan system, and that includes strengthening oversight and accountability and taking every step possible to improve outcomes for borrowers,” he said.
The department said it has also identified a small number of borrowers who received incorrect payment amounts on their billing statements from several loan servicers and other borrowers who have pending Borrower Defense claims that were incorrectly placed back in repayment status. These borrowers were also placed in forbearance.
The errors come after the department announced just over 300,000 borrowers had been billed an incorrect amount earlier this month after they applied for President Joe Biden’s new income-driven repayment plan.
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“While we regret any error, the Department is working closely with student loan servicers to ensure that they are providing borrowers the information they need and holding servicers accountable when they do not,” an Education Department spokesperson said at the time. “Because of the Department’s stringent oversight efforts and ability to quickly catch these errors, servicers are being held accountable, and borrowers will not have payments due until these mistakes are fixed.”
The troubles come as the department restarts payments on federal student loans for the first time in three and a half years. Repayments were paused due to nationwide economic hardships caused by the COVID-19 pandemic.
