Student loan repayment issues surge

Let’s face it: There was zero chance that the resumption of student loan payments last fall after a more than three-year freeze would go off without some serious hitches.

Consumer experts had cautioned there’d be a surge in incorrect billing statements, long hold times on the phone to reach help, processing delays and incorrect advice from customer service representatives, among other issues.

Unfortunately, many of these fears are being realized as more than 22 million borrowers — recent graduates from the class of 2023 included — began making monthly payments to get on track with their finances and their lives.

The Consumer Financial Protection Bureau released a report in early January highlighting the problems borrowers are now facing when dealing with loan servicing companies that oversee the repayment process.

In response to the report, servicing companies said the percentage of customers experiencing problems is low, but in general, they are working to resolve concerns as they become apparent.

In one sense, the report raised no surprises. Yet it provided evidence of the hurdles many borrowers are experiencing when following the government-mandated repayment rules.

The bottleneck seems to be most acute with federal student loans, rather than private loans issued by banks and other financial institutions. Payments on federal student loans are collected by loan servicers such as Nelnet, EdFinancial and Aidvantage.

During the payment pause spurred by COVID-19 in March 2020, many servicers “made a business decision to cut costs and significantly curtail their capacity” to deal with borrower questions, Rohit Chopra, the agency’s director, said in a statement. “If student loan companies are cutting corners or sidestepping the law, this can pose serious risks to individuals and the economy.”

These are some of the concerns highlighted by the federal consumer agency.

Borrowers have been forced to wait on hold for more than one hour when calling their servicer, and many gave up without receiving assistance.

Millions of income-driven repayment plan applications were filed between August and October 2023. As of late October, servicers reported more than 1.25 million applications, including more than 450,000 pending for at least 30 days with no resolution.

Borrowers are receiving faulty and confusing bills from servicers, including premature due dates, and inflated monthly payment amounts due to the services using outdated guidelines.

What can student loan borrowers do?

Of course, borrowers can file a complaint with the CFPB at cfpb.gov or by calling 855-411-2372. However, that won’t provide an immediate fix.

Borrowers could also change their student loan servicer by consolidating multiple loans into one. But that option comes with its own complexities.

Finally, one other approach “is to be your own advocate,” said Ted Rossman, a senior analyst with Bankrate.com.

“It’s really important to be aware of your specific (loan) terms and options. And sometimes the squeaky wheel gets the grease, so be persistent.”