Student loan payment restart has been marred by errors, from late notices to incorrect bills

The first month of repayments since the end of a three-year pandemic pause on federal student loans has been filled with mishaps, including incorrect billing amounts and late notices for bills coming due, according to government officials.

Among the issues: 830,000 people missed their first payment since the pause was lifted after a loan servicer failed to send out timely notices to 2.5 million borrowers, the U.S. Department of Education said on Monday.

Some people received their bills just seven days before payment was due, despite the Education Department requiring at least 21 days' notice. MOHELA, one of the nation's largest student loan servicers, was responsible for the delayed billing notices and the Department of Education withheld $7.3 million in revenue to MOHELA as a consequence, the department said. (MOHELA did not respond to a request for comment.)

An internal memo to high-level officials at the Department of Education also reported that an additional 21,000 people have received incorrect student loan bills since the restart began, a department spokesperson told ABC News, and 16,000 borrowers received bills despite falling under a category of borrowers whose debts are supposed to be canceled because their colleges had been deemed fraudulent by the department.

Those issues come as the Education Department has already frozen interest and payments for 420,000 people who enrolled in a new repayment program rolled out this summer and then were quoted the wrong amount on their recent bills, the department spokesperson confirmed. The SAVE Plan, which is a new income-driven repayment plan, was intended to lower monthly payments for the majority of borrowers but some people actually saw their bills increase.

In total, the publicly reported errors add up to more than 1.3 million people who have been embroiled in billing snafus -- though the true number is likely higher.

Variations of these mistakes were documented in an October report by the Consumer Financial Protection Bureau, which reviewed more than 9,000 complaints submitted by borrowers over roughly the last year -- indicating some of the problems started before repayments resumed on Oct. 1. (During the pause, borrowers could elect to still make payments if they chose.)

The complaints, which were higher in volume than in previous years, "reveal significant servicer errors including inaccurate payment histories and delayed refunds that are owed to borrowers," the report found.

When borrowers attempted to correct the mistakes on their accounts by calling their loan servicers, they were often met with high wait times and faulty information from customer service representatives, according to the report.

"Complaints suggest that hold times for reaching customer service representatives at federal student loan servicers are long enough that many borrowers simply give up," the report found.

These problems were not unexpected, and have been the subject of intense scrutiny by both Democrats and Republicans who anticipated a rough restart. During the yearslong payment pause, more than 20 million loans were transferred between servicers -- a process that the Consumer Finance Protection Center found can often lead to mistakes in account information and billing amounts.

At the same time, the Office of Federal Student Aid, tasked with both restarting the federal student loan repayment system after it had largely gone dormant and simultaneously rolling out a new repayment plan ahead of the restart, has not received requested budget increases that it says could go toward staffing and operations.

The Biden administration, aware of the difficulties that borrowers may face adjusting to the additional bills again, issued a yearlong grace period until next October. During that time, people will not be sent into default if they miss a payment.

And for borrowers who have been impacted by problems created by the system restart or loan servicers, the Department of Education has automatically shifted them into forbearance until the issues are sorted out -- meaning they won't have to pay their bills and interest on their loans won't accrue.

"We are committed to making things right for borrowers and holding our contractors accountable for errors when they do occur," the top official at the Federal Student Aid office, Rich Cordray, said in a statement on Monday.

Cordray indicated, too, that MOHELA could be one of many student loan servicers to see a financial consequence for mistakes.

"In strengthening our efforts to hold servicers accountable for errors that harm borrowers, the Department will begin to withhold some funds under our monthly contracts to encourage stronger and more reliable service to borrowers," he said.

"These accountability measures will help ensure that future borrowers are not harmed and servicers understand that there are consequences to their actions when they do not meet the terms of their contracts," he said.

Still, the Consumer Finance Protection Bureau continues to track concerns about long wait times and servicer-borrower communications, delays in receiving debt relief as part of programs like Public Service Loan Forgiveness and difficulty accessing new payment plans, a spokesperson said.

"We are looking carefully at how the servicers are handling the return to repayment. We are looking closely at loan servicers' practices, borrower outcomes, information from fellow regulators, and issues raised through consumer complaints," the spokesperson said.