Oct 30, 2023 - Economy & Business

Education Department penalizes student loan servicer after billing issues

Miguel Cardona speaks at a lectern wearing a patterned suit with the American flag in the background

U.S. Education Secretary Miguel Cardona speaks during a ceremony in the Indian Treaty Room in Washington, D.C. on Oct. 26. Photo: Ting Shen/Getty Images

The U.S. Department of Education is withholding a $7.2 million payment to student loan servicer MOHELA after billing issues resulted in hundreds of thousands of borrowers missing payments.

Driving the news: More than 800,000 borrowers were delinquent on student loan payments after MOHELA failed to send timely billing statements to 2.5 million borrowers, per the Education Department.

  • Incorrect payment amounts were also discovered on a small number of borrowers' billing statements, per the department.
  • The department has directed MOHELA to put all affected borrowers' accounts in forbearance until the issue is resolved.

What they're saying: "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," said Education Secretary Miguel Cardona 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."

Between the lines: Attorneys general from 19 states in September wrote a letter to President Biden's administration about concerns with issues in the repayment process.

  • "Unprecedented volumes of borrowers must now navigate a complex system, many for the first time, with new servicers that have little to no experience with such volumes and do not appear to be sufficiently staffed to respond to them," the letter said.

The big picture: Student loan payments returned for more than 40 million Americans in October.

  • When payments resumed, borrowers collectively owed more than $1 trillion in student loans.
  • After the Supreme Court struck down his relief plan in June, the Biden administration said it had forgiven $127 billion in debt for about 3.6 million Americans by early October.

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