Borrowers face billing errors in a rocky return to US student loan payments
October marked the start of a return to federal student loan payments for more than 28 million borrowers after a three-and-a-half-year hiatus during the pandemic. Only two months in, Mohela (the Missouri Higher Education Loan Authority) has stood out among federal loan servicers for administrative errors, including sending late bills and withdrawing incorrect auto-debits, according to complaints and interviews. Facing notoriously long wait times from agents, some borrowers have turned to subreddits and Facebook groups to seek advice about how to resolve issues with their accounts.
When Veronica Newsom checked her balance in October, she was shocked to discover more than $600 had been automatically debited from her bank account for a student loan payment. After applying for an incomebased repayment plan in late summer, the Seattle-based therapist had expected the amount to be less than $200.
The company servicing her federal student loans, Mohela, seemed to have debited her account the monthly amount she was paying before the pandemic, she said. That left her short of cash at the same time a tax payment on her house was due.
“I hadn’t expected that money was going to be gone,” Newsom said. She had to charge part of the tax payment on a credit card in order to not fall behind.
The Department of Education penalized Mohela for its mistakes at the end of October, withholding a $7.2m payment to the company while citing several of these issues. It announced that any affected accounts would be put into administrative forbearance – meaning no interest accrues and no payment is due – until the accounts are corrected.
Newsom was among those who had her loans put into forbearance because of errors. A little over a month later, nothing has been corrected. She applied to cancel the automatic payments, hoping to avoid another $600 debit from her account that she cannot afford. It has not been approved.
Mohela directed questions about its loan servicing to the Department of Education.
A Department of Education spokesperson said: “The department will continue to conduct stringent monitoring of all servicers and has instituted several strategies to detect any errors swiftly and take corrective action to hold servicers accountable for meeting their obligations.”
The return to student loan payments for so many people at the same time was always expected to be a source of problems. During the payment pause, some loan servicing companies left the market and as a result, many borrowers’ loans were transferred to new providers.
Foreseeing many of these problems borrowers like Newsom are experiencing, a group of senators led by Elizabeth Warren wrote to the companies in July inquiring about their plans to ensure a smooth transition for borrowers and prevent mistakes.
The number of loans that Mohela was servicing nearly tripled between the start of the pandemic and this summer. In August, it had more than 7.5 million borrowers, according to a letter in response to lawmakers’ inquiries. Many of the issues seem to have stemmed from the transfer of accounts.
Advocates say that the confluence has created a perfect storm for borrowers.
“The student loan servicing system has been broken for many years. And the return to payment is exposing those problems – and making some of them worse,” said Persis Yu, the deputy executive director of the Student Borrower Protection Center, an advocacy group.
Cathy Banks, a nurse in North Carolina, borrowed loans to finance a bachelor’s in nursing that her employer required after working decades in the field with an associate’s degree in nursing. Later, when her daughter got into college, she took out federal loans to help pay for her education as well.
A year ago, both of her loans were transferred over to Mohela. This fall, she started receiving bills with the different amounts that she owed. She still is not sure if the amount she owes is the total of both bills or if one is incorrect. Banks said she had started checking her account frequently, hoping for more clarity or some resolution.
“I check it every day. It’s like, God, what is it today? And I’ll go back on there and it’s another thing,” said Banks, who called the persistent issues “absolutely ridiculous”.
Banks, who is 60, has turned to a Facebook group to seek answers. She is hoping that the advice she has received to consolidate the two loans will get her total payment down. But while she watches her account balance go up and down, she is nervous about the future.
“Will we ever be able to retire? I don’t think so,” Banks said. “If we have to pay like this, we’ll be here till we’re 80 or 90.”
Others have complained that they are receiving bills from Mohela even though their loans were supposed to be forgiven. John Ferris was part of a classaction lawsuit arguing his student loans should be discharged after attending a graduate program that defrauded him. The loans were discharged in February.
For a while, Ferris said his account showed that there was no payment due, while he waited for Mohela to acknowledge the loan discharge. Just before Thanksgiving, Ferris noticed that his Mohela account changed – showing a payment due in December. Since then, he cannot help but keep checking his account. Trying to get through to Mohela on the phone has been frustrating, he said.
“If you do get through, most of the time customer service dismisses what you say,” said Ferris. “There’s no way to really resolve the issue.”
Yu, the deputy executive director of the Student Borrower Protection Center, said some borrowers end up choosing just to pay the bill hoping to avoid any problems – even if they know it is wrong or they owe nothing at all.
“It puts borrowers in a very precarious spot if they receive a bill that says the government says they owe them money,” she said.
Ferris’s issues were resolved after he uploaded a letter signed by a lawyer, pointing out the error, to his account. Banks is still waiting for a resolution. Newsom has filed complaints with the education department about Mohela. She said her next step was to have her bank turn off the auto-payment if the company does not fulfill her request.
“It’s definitely stressful knowing you’ve done everything you can,” said Newsom. “It just feels hopeless.”