The machinery of federal student loans has roared back to life, but for many borrowers, it has brought an unwelcome surprise.
As more than 28 million federal student loan borrowers returned to repayment after a pandemic-related hiatus of nearly four years, they discovered that their monthly payments had been miscalculated, often to their detriment.
These miscalculations surfaced as borrowers transitioned into the Biden administration’s new income-driven repayment plan, SAVE.
This innovative program determines monthly payments based on income and family size, aiming to reduce the burden on borrowers compared to its predecessor, REPAYE.
However, one loan servicer, the Missouri Higher Education Loan Authority (MOHELA), encountered a hiccup during the transition.
It inadvertently used the 2022 poverty guidelines instead of the 2023 guidelines, leading to a slightly higher payment calculation for approximately 1 percent of borrowers, which amounts to 280,000 people.
Fortunately, the Education Department promptly notified borrowers of the error, which ensured they were informed of the correct payment amount.
Additionally, the Education Department identified discrepancies in payment amounts during its standard review process last month.
These discrepancies were linked to calculations involving family size, income, and marital status. While some borrowers were charged too much, a “minimal number” was too little.
Once these issues came to light, the Education Department acted swiftly. It directed loan servicers to notify affected borrowers and placed them in administrative forbearance until accurate payment amounts were determined.
A spokeswoman for the Education Department emphasized their commitment to addressing such errors and minimizing their impact on borrowers.
It’s estimated that these two problems affected less than 1.5 percent of borrowers starting their repayment journey, or roughly 420,000 individuals. Those who overpaid will be offered refunds.
For borrowers looking to verify the accuracy of their payment amounts, the loan simulator tool at StudentAid.gov can generate an estimate.
However, resolving discrepancies may require time and patience, given the often lengthy wait times for loan servicer representatives.
The Larger Challenge in Student Loan Resolution
According to Persis Yu, deputy executive director at the Student Borrower Protection Center, the larger issue at play is the challenge of resolving problems when contacting loan servicers.
She points out that the servicers dealing with an influx of borrowers have been underfunded and need help managing effectively. Mistakes, she notes, have been observed across several loan servicing agencies.
Congress maintained flat funding for the Office of Federal Student Aid at a time when significant initiatives, such as the resumption of loan payments and the introduction of the new SAVE program, were being rolled out.
In the same period, the Biden administration has offered targeted debt relief to student borrowers through various programs.
Scott Buchanan, the executive director of the Student Loan Servicing Alliance, acknowledged the challenges but noted that most issues had been addressed. Loan servicers have been upgrading their computer systems to handle a broader range of requests online.
Transitioning to a more complex repayment program, especially amid a resumption of loan payments, has led to manual work and challenges for servicers and borrowers.
While returning to federal student loan payments is a significant step, the process has been challenging.
As both borrowers and loan servicers adapt to new repayment programs and systems, it remains crucial to address these issues swiftly to ensure the fairness and accuracy of loan calculations for all parties involved.