The Department of Education has paused interest rates for 800,000 student loan borrowers after many individuals never received their bills on time.
Roughly 2.5 million student loan borrowers faced billing mistakes, according to the Education Department’s statement on Monday.
This occurred because one of the agency’s loan servicing companies, Missouri Higher Education Loan Authority (MOHELA), did not send out billing statements on time over the last month, leading to hundreds of thousands of borrowers missing their payments.
As a result of the billing mistakes, the Department of Education will not pay them $7.2 million in payments for the month of October. The department has also said MOHELA failed to meet a “basic obligation” as a loan servicer.
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Loan servicers traditionally are required to send billing statements to borrowers at least 21 days before payments are due, but the Education Department confirmed MOHELA sent many borrowers a bill only seven days before its due date.
This caused around 800,000 borrowers to become delinquent on their loans. All affected borrowers will now be in temporary forbearance, with interest rates set at 0 percent until billing issues are resolved.
All months that borrowers are in forbearance will count toward the Public Service Loan Forgiveness and forgiveness under income-related repayment plans.
Education Secretary Miguel Cardona said the department’s actions against MOHELA are in an effort to “send a strong message to all student loan servicers that we will not allow borrowers to suffer the consequences of gross servicing failures.”
“Our oversight efforts have uncovered errors from loan servicers that will not be tolerated,” Education Secretary Miguel Cardona said in a statement.
“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.”
Rich Cordray, the head of Federal Student Aid, also said the FSA will “not tolerate errors from loan servicers that cause confusion and unwarranted financial instability for borrowers and families.”
The Biden administration faces the loan error after just restarting student loan payments for many Americans after its three-year plus pause.
The Education Department has also reported more than 300,000 borrowers were billed incorrect amounts after enrolling in the new SAVE income-driven repayment plan.
More recent errors at the Department of Education include another “small number of borrowers” receiving incorrect bills when they had a pending borrower defense claim.
Earlier this month, the Education Department reported that more than 300,000 borrowers were billed incorrect amounts after they enrolled in Biden’s new SAVE income-driven repayment plan.
Newsweek reached out to the Department of Education for comment.
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
