“Sorry to get heated, this is very frustrating,” Kate Nordstrom, a 31-year-old borrower, said in the middle of a conversation about navigating the return to student-loan payments after a more than three-year pause.
For months, Nordstrom has been heeding the advice of the government and the student-loan servicers that manage borrowers’ accounts, to prepare for the end of the COVID-era payment freeze. The problem: It doesn’t feel like the government or the servicers were prepared themselves, Nordstrom said.
Nordstrom applied for SAVE, the new, more generous repayment program the Biden administration recently launched, through a beta site in July.
On the government’s website, it says Nordstrom will owe about $191 a month. But at one point, her servicer, Nelnet,
NNI,
was telling her she’d have to pay about $750. Now, after filing complaints with the Department of Education, the Consumer Financial Protection Bureau and her state, she sees that her application is being reviewed.
“I’m doing what I’m supposed to be doing and it doesn’t matter,” Nordstrom, who works as a consultant for a software company. “I’m at the whim of whatever unfortunate individual has to process my stuff.” In the meantime, her account has been put in an administrative hold while the company sorts out her payment amount. She doesn’t have to make a payment until either November or December, depending on which communication from Nelnet she’s looking at.
Over the past few weeks, MarketWatch spoke with nearly a dozen borrowers trying to ensure they’d be prepared for their monthly bills when student-loan payments, interest and collections resume in this month, and, like Nordstrom, they were all hitting logistical challenges. They described the return to repayment as a “bureaucratic nightmare,” “a disaster,” and “a joke.”
Experts say the long call wait times at servicers’ customer service lines and the confusion over payment amounts will dissipate in a few months. In addition, borrowers are protected from the worst consequences of falling behind on student loan payments — like having their Social Security checks garnished — until fall 2024. But to borrowers unable to get clarity from the servicers and the government on the payment amount they’ll have to fit into their budget just weeks before they need to pay their bill, the situation is “disrespectful” and like “a slap in the face,” they said.
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Just turning on the student loan repayment system for 28 million borrowers would be an unprecedented challenge. But a few factors are putting even more strain on the student loan system. The Biden administration’s launch of SAVE this summer; the new repayment plan is likely to benefit huge swaths of borrowers, but understanding how it applies to each individual can be complicated for borrowers and is new for servicers.
In addition, Congress didn’t fulfill the Department of Education’s full funding request for the Office of Federal Student Aid, leaving the agency and its servicers operating with less money than ideal during this time. A large share of borrowers also have a different servicer than before the pandemic. Finally, a prolonged government shutdown, which is still on the table, would strain the Department’s resources and exacerbate any of these challenges.
Like Nordstrom, the other borrowers MarketWatch spoke with aren’t trying to avoid making student-loan payments. Instead, they say they’re doing what the government has been telling them to do for months: Researching their options and taking steps to get on the best repayment plan. Still, they say confusion around SAVE and overwhelmed servicers are stymying them at every turn.
The long wait times and misinformation don’t appear to be confined to one servicer. Borrowers working with different firms reported similar challenges.
“You can’t pay your bill if you don’t know how much you need to pay,” said Persis Yu, managing counsel and deputy executive director at the Student Borrower Protection Center. “The first step really is getting to talk to a human being and borrowers are struggling in actually reaching a human being right now. In some ways, the servicers are just overwhelmed and unprepared. There is just chaos in every single direction.”
A group of four Democratic lawmakers, including Senator Elizabeth Warren, a Massachusetts Democrat, wrote to four student-loan servicers in September saying “troubling reports from individual borrowers” left them “deeply worried,” about servicers’ “preparedness for this unprecedented return to repayment.”
Many borrowers have a different servicer
Like Nordstrom, Chris Demitraszek has worked to sort out conflicting information about his student loans over the past several weeks.
The repayment calculator on the government’s website showed that Demitraszek, 31, should be eligible for a $0 monthly payment. But for a while the information he was getting from his servicer, MOHELA, was that he owed $95. That was a change from a couple of weeks prior when his account showed a $94 payment.
“‘I’m doing what I’m supposed to be doing and it doesn’t matter. I’m at the whim of whatever unfortunate individual has to process my stuff.’”
On Saturday, just one day before the restart of student loan payments, Demitraszek said he received a phone call from MOHELA saying they fixed an error that will result in him paying $0 come November. Demitraszek said the representative told him that for October, he’ll need to pay the $95 because the change was coming too close to when his payment would be due. MarketWatch reached out to MOHELA about Demitraszek’s situation on September 27, but never heard back.
Demitrasvek can stomach the $95 payment, but he said it’s distressing that his servicer couldn’t provide a rationale for the $1 change or explain why his monthly payment didn’t match what he’d calculated, he said. Over the course of the past few weeks, he’s used his days off to spend hours on hold to try and get an answer. One time, Demitrasvek tried to call during a slower period at work, but it took so long to connect that he had to hang up.
“I’ve never spent so much time on the phone I don’t think ever in my life,” he said.
Demitraszek is one of the many borrowers whose servicer changed over the course of the pause. Roughly 40% of borrowers now have a different servicer than they did at the start of the pandemic, according to the Consumer Financial Protection Bureau.
“The loan transfers are actually one of the causes of some of these problems,” Yu said.
“There are a lot of folks where it looks like they are in the wrong repayment plan and they are paying the wrong amount and that is a classic servicer transfer problem.”
Scott Buchanan, the executive director of the Student Loan Servicing Alliance, a trade group, said transfers have the potential to create issues, but servicers have been working through those and they should be ironed out by the time borrowers are expected to make their first payment.
For Demitraszek’s part, he said he doesn’t quite understand why the return to repayment has been so “messy,” given that through the entirety of the pause the government and servicers have known payments would resume eventually.
Demitrasvek said he believes he’s been doing what it takes to prepare like running his income and family size against payment calculators for various plans and getting a sense of how any payment will fit into his budget.
“I feel like I’ve been taking a proactive approach, just reading about the plans and some of the information that’s out there rather than waiting until the last moment to be surprised by any changes,” he said. Nonetheless, “somewhere along the process many things are getting done probably incorrectly,” he said before receiving the call from his servicer.
‘It’s a little scary’
Nick Stack also got a new servicer during the pandemic and has seen discrepancies in his payment amounts. At one point, he was tossed into the standard repayment plan in which borrowers pay off their loans in 10 years. Under that plan he would have paid more than $3,000 according to his servicer, MOHELA. Before the pandemic, Stack was paying $39.90 a month and he wasn’t due to recertify his income for the purpose of determining his payments until March 2024.
After multiple calls to his servicer about the discrepancy, Stack’s payment was showing up as $1,254 a month under SAVE, the new income-driven payment plan. Before the pandemic, Stack was in a different income driven repayment plan, which theoretically has less generous payment terms then SAVE, so to see the payment rise so much didn’t make sense.
A couple of weeks later, Stack’s payment showed up as $0 a month after one successful phone call and one aborted attempt to reach MOHELA after waiting for almost a half hour on hold. Still, Stack’s payment was showing due in September, even though payments weren’t supposed to resume in October. In addition, his application for income-driven repayment was shown as “processing.”
Then Stack’s servicer placed his account into an administrative forbearance while the organization evaluated his application. His account showed the forbearance lasting for two months. Stack is pursuing Public Service Loan Forgiveness. Under that program borrowers working for the government and certain nonprofits can have their debt forgiven after 120 qualifying payments. Despite asking, he didn’t get any clarity from MOHELA about whether the months spent in administrative forbearance would count towards those qualifying payments.
Finally, on September 29, just a few days before the official restart of student loan bills — and two months after Stack had contacted MOHELA about his loan payment amount — his account was showing a $0 payment with an October due date. MarketWatch reached out to MOHELA about Stack’s situation on September 27, but never heard back. As far as Stack can surmise, MOHELA was overwhelmed and behind on processing documents. That would have been fine, he said, except that their “inadequate communication” about the situation caused stress as borrowers tried to figure out how loan payments would fit into their budget.
“It’s a little scary to see a number, it’s also a little scary when you ask them to explain where the number comes from and they tell you that they don’t know,” he said. “If you’re going to tell someone that a payment is due in the wrong month, if you’re going to give someone an amount and you can’t tell them how it was calculated — there are some basics that they’re missing.”
To advocates, the outcome was predictable
To advocates the challenges of the payment restart were predictable. Every time the government threatened to resume payments over the past three-and-a-half years, advocates warned of the possibility of elevated levels of delinquency and default.
Part of the rationale for mass debt cancellation cited both by advocates and the Biden administration itself was that it would clear a large share of the student-loan portfolio off the government’s books, making collecting on what remained easier. Roughly a month before the Supreme Court knocked down President Joe Biden’s plan to cancel up to $20,000 in student debt for a wide swath of borrowers, Congress and Biden set student-loan payments to resume in October as part of a deal to raise the nation’s debt limit.
“For the people in Congress who voted to restart student loan payments who are not a place who are willing to fight for cancellation…the takeaway here is you can only make this work if you cancel the debt first and they didn’t cancel the debt so now there’s no hope,” said Thomas Gokey, an organizer with the Debt Collective. Gokey and the Debt Collective have been advocating for more than a decade to cancel student debt, arguing the system is unjust.
Advocates and regulators have said for years that servicers don’t always provide borrowers with enough or the right information during times of typical call volume activity. Now, they’re likely even more strained and not just because of the crush of calls. Servicers cut staff and call center hours after Congress didn’t provide the Office of Federal Student Aid, which oversees the student loan portfolio, with the Department of Education’s full funding request.
Buchanan, of the servicer alliance, said that even if Congress had provided unlimited funding, “it was still going to be a tough time,” given how many people are returning to repayment at once.
In addition to the sheer volume of borrowers returning to repayment, the launch of SAVE has created some confusion for borrowers, Buchanan said. Borrowers may be seeing differences in payment amounts on the government’s website and their servicer’s website because the government is providing an estimate, while servicers have all of a borrower’s information to reflect a true payment amount, he added.
Buchanan encouraged borrowers to first go online as they prepare for repayment, saying that many of the questions borrowers have can be answered on frequently asked questions websites. Borrowers interested in switching repayment plans can apply online, he added.
“If you do have additional questions, do call us, try to call at non-peak hours,” Buchanan said. For example, Thursdays tend to be less busy than Fridays, he said. “If you have a really long call hold time try and call back later,” he said. “We’ll get you the answers you need, it’s just going to take some time.”
Advocates have been calling for increased oversight
The widespread challenges borrowers have been experiencing over the past several weeks may bring about tougher oversight on servicers, which advocates have been asking for, for years. The Consumer Financial Protection Bureau, which oversees federal student loan servicers, is hearing complaints from consumers about long wait times and delays in processing important documents, the Bureau said.
“We are watching these loan servicers closely and collecting data on how long it is taking borrowers to get a hold of a representative and important operational metrics,” the Bureau said.
The Department of Education is in the process of revamping servicing with the goal of better customer service for borrowers. Still, the agency doesn’t expect those changes to be implemented until 2024.
“We have heard some of those reports, we’re following that very closely,” James Kvaal, the undersecretary of education, told reporters recently of borrowers’ complaints of long wait times and confusion.
“We have asked for additional resources from Congress that would allow us to give students the service that we want to provide for them,” he said. “We are working hard as well to hold servicers accountable.”
Even once the new servicing system is in place, it won’t do anything to make borrowers whole if a servicer mistake proves costly, Yu said. The government generally penalizes servicers for poor customer service by giving them less account volume going forward.
“One can say ‘well that incentivizes servicer behavior in certain ways,’ I’m sure that it has a role, but it still does nothing for the borrowers who were harmed,” she said.
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