New student loan repayment program coming for millions of Americans
Millions of Americans with student loans will soon be able to enroll in a new repayment plan that offers some of the most lenient terms ever. (July 12) (AP Video: Nathan Ellgren)
The federal Education Department is penalizing one of the country’s largest student loan servicers for failing to send 2.5 million borrowers their billing statements on time.
The move against the Missouri Higher Education Loan Authority, or MOHELA, comes amid an unprecedented shift in federal student loans, with tens of millions of borrowers returning to repayment after a more than three-year hiatus during the pandemic. The process has been messy, with widespread reports of borrowers struggling to reach their servicer – which in many cases changed during the hiatus – or receiving misleading information.
Because of MOHELA’s delays in getting borrowers their billing statements, according to the department, more than 800,000 borrowers were delinquent on their loans. The servicer could not immediately be reached for comment.
Now, the Education Department will be withholding a $7.2 million October payment to MOHELA. The servicer is also being instructed to place all the borrowers affected by the lapses in forbearance pending a solution. The time those individuals spend in forbearance will count toward any relief they’ve signed up for through Public Service Loan Forgiveness or Income-Driven Repayment plans. Any interest that accrues will be adjusted to zero.
“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,” said Rich Cordray, the chief operating officer of Federal Student Aid, in a statement.
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Other mistakes the department identified: Some borrowers received inaccurate billing amounts, while some who applied for forgiveness through a process called borrower defense were marked as back in repayment. Borrowers pursuing that forgiveness believe they were defrauded by their schools.
“Our oversight efforts have uncovered errors from loan servicers that will not be tolerated,” said Education Secretary Miguel Cardona 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.”