Confusion clouds return of student loan payments

Student loan borrowers are facing complications and confusion with the restart of payments as President Biden’s new income-driven repayment (IDR) plan hits snags in its implementation. 

Before payments restarted after a three-year pandemic break, the Biden administration pushed the Saving on Valuable Education (SAVE) plan to help lower monthly payments, but it has been giving incorrect calculations and student loan servicers are struggling to handle the volume of calls placed to fix it. 

Meanwhile, experts say some borrowers are having to take on second jobs or skip Thanksgiving travel to free up the funds to make their payments. 

Borrowers are having a “wide variety of experience” with the payment restart, said Bridget Haile, chief customer officer at Summer, a student loan financing company, adding the “most common things we’re hearing, the biggest one is folks trying to enroll in the new SAVE plan.”

That plan, which the Biden administration calls the “most generous” IDR option ever, currently raises the income exemption from 150 percent to 225 percent above the federal poverty guidelines and ensures unpaid interest will not grow. It makes it so an individual borrower making less than $32,800 or a family of four making less than $67,500 will have $0 monthly payments.

The implementation of the plan has been difficult for some borrowers who are getting confusing totals on their accounts. 

“We’re seeing folks get errors and calculations of monthly payments right from Federal Student Aid, from the loan servicers. They’re quoted one monthly payment and then the bill they actually received is for something much higher,” Haile said. 

“We’re seeing delays in processing. So folks are being placed into administrative forbearance without requesting it while their applications are being processed, which is helpful in one sense, in the sense that they don’t have a payment due. In another sense, though, it means interest is still accruing on their loans. They don’t know when they’re going to get the confirmation of their new monthly payment,” she added.

Bobbie, a student loan borrower with more than $100,000 in student loans who declined to give her last name, has experienced both trouble with her monthly payments and her account going into automatic forbearance since payments resumed. 

“We were optimistic that the SAVE plan was going to benefit us, the payments that were calculated seemed manageable for us at the end of August. But somehow despite me not making much more now than I did before the pandemic, the monthly payment was recalculated in early September, and it has doubled,” Bobbie said.

She told The Hill she had not yet been able to get in touch with MOHELA, her student loan servicer, because “it’s incredibly time-consuming to get into contact with a real person,” and now her account is in administrative forbearance, which she did not request. Bobbie is in fact grateful for the forbearance since her calculated payments unexpectedly doubled, but she has fears about why her loan servicer did that and if it will mess with her Public Service Loan Forgiveness plan. 

And she is just one of the 38 million Americans who have had to navigate their way through all the recent changes in the system. 

Scott Buchanan, executive director for Student Loan Servicing Alliance, said servicers have worked to overcome bugs in the system that are giving people conflicting numbers.

“I think most of the most of the transition we’ve had to do operationally and systemically is gone reasonably well. I think there have been some challenges in terms of sort of conversion of accounts to the SAVE plan,” Buchanan said. 

“I think we fixed most of those issues, almost all of them were addressed before billing statements were out, he added.

It is also possible some borrowers believe their monthly payments should be lower than they are because of the tiered rollout of the SAVE plan: Much of it is getting implemented this year, but a major component, cutting monthly loan payments from 10 percent discretionary income to 5 percent, won’t happen until July. 

“I think folks have expected maybe significantly lower monthly payments that are not necessarily seeing that, at least for the next year, while payments resumed,” Haile said. 

Student loan servicers trying to fix these discrepancies could have also led borrowers to be placed in automatic forbearance when they have not requested it. 

“When the Department identified these issues, it immediately directed servicers to notify affected borrowers and put them into administrative forbearance until they were able to calculate the correct payment amount, so this error would have as little impact as possible on borrowers,” a Department of Education spokesperson said. 

Buchanan said he is hopeful the wait times will be cut down within the next month as people get settled with their bills, pointing out that a lot of the calls are for simple questions that could be answered online. 

“We certainly don’t want to discourage anyone calling, but if you’ve got a pretty mundane question about, ‘Well, what’s my monthly payment?’ or, ‘What’s my payoff information?’ we could do that all online for you pretty easily,” he said. 

Along with troubles with billing statements and reaching loan servicers, some borrowers are now in a financial pinch. 

Bobbie is pregnant and said she and her husband have worked multiple jobs to put themselves in a position to afford their student loans. 

“The biggest frustration comes for when I am doing my part to jump through all the hoops, to make the plans, to do the work, and the system becomes unreliable,” she said. 

Some are hopeful the challenges facing the student loan system right now are due to the unprecedented nature of this mass turn-on of accounts and will work itself out in the near future. 

“I think the shock of seeing those posted payments be very different […] it’s something that was systemwide. You know, something that really was very confusing and now that there’s been remediation in place, I think that’s going to smooth out. It’s just that shock was pretty aggressive,” said Bobby Matson, CEO of Payitoff, a student loan financial tech company.