As student loan repayment returns, some borrowers have sticker shock

Many warned early on that student loan borrowers could run into a few hiccups as a massive reboot of monthly payments kicked off in October.

And those experts did not disappoint.

About 305,000 student loan borrowers ran into an issue where their loan servicer gave them the wrong amount for their monthly payment, according to data provided to the Detroit Free Press, part of the USA TODAY Network, from the U.S. Department of Education.

While it's a large number of people, the Education Department noted that the glitch hit less than 1% of the 28 million borrowers who benefited from a pandemic-related payment pause that began in March 2020 but now need to resume making student loan payments.

The COVID-19 payment pause has ended. Interest resumed building in September on federal student loans that were covered under the unique pause that began three-and-a-half years ago and kept getting extended.

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Borrowers didn't have to make any payments on their federal student loans that were covered under the pause, freeing up $300 or $400 a month in some cases. The pause temporarily froze most federal student debt with a 0% interest rate.

For many borrowers, the first payment is due in October. Exact payment dates vary. The Education Department has noted previously that borrowers were to get a bill, detailing their payment amount and due date, at least 21 days before their specific due date.

Some told they owe more than they do

In recent weeks, some people who logged into their individual student loan accounts, according to experts, spotted a payment amount that was higher than it should have been. And, as might be imagined, borrowers who faced questionably higher figures weren't too happy.

"Servicers are being held accountable and borrowers will not have payments due until these mistakes are fixed," according to the Education Department.

Borrowers are to be notified by loan servicers of any errors that took place — such as indicating a payment due that's much higher than was quoted for a new SAVE plan. Loan servicers are to put the borrowers into "administrative forbearance until their correct payment amount was calculated, so there would be as little impact as possible on borrowers," the Education Department said.

Borrowers wise to double-check their statements

The department said its stringent oversight efforts contributed to quickly catching these errors.

On Sept. 29, a letter was sent to President Joe Biden and Secretary of Education Miguel Cardona, signed by attorneys general from 19 states, which raised concerns about receiving "consumer complaints from borrowers struggling to get timely and accurate information from servicers."

The letter indicated that one borrower had complained of seeing a monthly bill jump to $444 from $293, following the automatic switch from an old REPAYE plan to the SAVE plan. Something was clearly wrong.

Others complained of seeing incorrect loan balances and interest rates.

The letter noted: "We know from experience that servicing transfers create a high risk of servicing errors. Before the COVID-19 pandemic, borrowers regularly reported issues with servicer transfers, such as lost paperwork, incorrect records and delays in communication."

Given news of some of the bad billing numbers, it does not hurt to review your payment amount to make sure it is correct.

Most issues have been resolved at this point, according to loan servicers, but borrowers are wise to double-check their bills against any information they received when they signed up for the SAVE plan or other income-driven repayment plans.

The Education Department said it is working closely with student loan servicers to "ensure that they are providing borrowers the information they need and holding servicers accountable when they do not. "

In many cases, the glitches involved incorrect calculations by federal student loan servicers for payment amounts under the SAVE plan — the new Saving on a Valuable Education Plan that promotes itself as an option for the lowest payments possible for many people on a federal income-driven repayment.

For some borrowers who have very limited incomes, the SAVE plan can get monthly payments down to $0 a month. The Education Department noted that some who received incorrect information qualify for $0 monthly payments under SAVE.

Nearly 5 million borrowers already are enrolled in the new SAVE plan, which will cut payments in half for many borrowers, according to the Education Department.

SAVE plan switch triggered some mix-ups

Some bad numbers rolled out, though, as accounts for a sizable number of borrowers were automatically converted into the new SAVE plan.

The plan replaces the old Revised Pay As You Earn or the REPAYE Plan, an income-driven repayment plan. Borrowers on the REPAYE Plan automatically are being put on the SAVE Plan and do not need to sign up.

Scott Buchanan, the executive director of Student Loan Servicing Alliance, an industry trade group, said technical issues arose involving data, as servicers tried to convert about 3 million borrowers from an old REPAYE plan into a new one and enroll others in that new payment plan.

When automatically transitioning borrowers from the REPAYE to the SAVE Plan, the Education Department stated, one loan servicer, MOHELA, "inadvertently used the 2022 — instead of 2023 — poverty guidelines tables to calculate payments."

The U.S. Department of Education’s servicer oversight team identified this error and corrected it, according to the Education Department. As of last month, the Department "notified affected borrowers about their correct payment amount, which will be lower than was initially communicated."

Monthly payments under the SAVE plan are based on your discretionary income — the difference between your adjusted gross income and 225% of the poverty line for your family size, up from the 150% guideline used in other repayment plans. The objective is to protect a minimum amount of income to ensure that borrowers can cover basic necessities like food and housing costs.

Using the old poverty guideline would trigger higher monthly payments, even though those payments should be lower under the SAVE plan.

"There is a lot of finger-pointing going on," as to who deserves more of the blame, the U.S. Department of Education or loan servicers, said Mark Kantrowitz, a student loan expert.

The Education Department is blaming the loan servicers, Kantrowitz said, but perhaps the U.S. Department of Education is also partly to blame as they provided the loan servicers with inaccurate data for borrowers involved in income-driven repayment.

Incorrect payment amounts were given for other income-driven repayment plans, too, not just the SAVE plan, according to Kantrowitz, who has heard from upset borrowers.

Some errors can be blamed solely on the loan servicers, he said, "such as using the wrong year's poverty lines and putting some borrowers into a different repayment plan than the one they were signed up for."  

Some borrowers deal with a new servicer

About four out of 10 borrowers have a new student loan servicer and won't be dealing with the same servicer they had before the COVID-19 pandemic pause began in March 2020. And that's created some issues, as expected earlier, Kantrowitz said.

The new servicers, he said, received income, family size and tax filing status information from the U.S. Department of Education, but this information was incorrect for some borrowers.

The Education Department stated that its standard monitoring and review process uncovered some discrepancies in the calculations of payment amounts given by some servicers.

Restarting student loan payments and launching a new, more affordable payment plan at the same time proved, as frankly, one would have expected, to overload the system.

Loan servicers needed to restart the payment process after a hiatus of three-and-a-half years — which had never been done before.

The new SAVE plan was launched in late August by the Biden administration — dubbed the "most affordable student loan repayment plan ever." Many borrowers had to sign up at StudentAid.gov/SAVE first to get lower monthly payments.

It was a short window to sign up, if you wanted a lower monthly payment at the restart in October. But there isn't a deadline for signing up for the SAVE plan, so many borrowers can still make the move if their payments aren't doable given their family size and income.

"So far, the challenges have been the system implementation of things," said Buchanan of the Student Loan Servicing Alliance.

The education department wanted to speed up the introduction of the SAVE plan, Buchanan said, which gave loan servicers a few months to start a program that might normally take eight months.

For most people, he said, such issues were corrected before they even got a billing statement.

If people think there is an error, he said, the borrowers can reach out to their servicer to validate if the payment information has been corrected.

Of course, many borrowers are complaining that it's tough to get a servicer on the phone.

Don't get tricked by a scammer

What borrowers shouldn't do, though, is jump at an unsolicited email or text about their student loans from some outfit that promises to cut through the red tape or cut their monthly bill.

"Scammers often target distressed borrowers or people looking for help to manage their loans," according to a warning from the Consumer Financial Protection Bureau.

Borrowers are encouraged to use self-service options at the websites for their loan servicers, such as updating their contact information, checking their loan balance, and applying for an income-driven repayment plan.

In addition, a previously announced on-ramp program is providing borrowers a transition into repayment where they will not be harmed if they miss a payment during the restart.

As a nod perhaps to the reality that there would be some glitches along the way, a temporary "on-ramp" to repayment was put in place to run from October through Sept. 30, 2024, to protect financially vulnerable borrowers who miss payments. No action will be taken then that could result in declaring a loan in default or otherwise hurt a borrower's credit. 

As I reported earlier, some borrowers are seeing due dates in November, December and even January, particularly if they made some payments toward their federal student loans sometime during the pandemic.

As the payment pause ends, the restart date might reflect when your loan servicer last received a payment from you during the pandemic. In some cases, the last payment might be treated as an extra payment that has now pushed back your upcoming restart of payments.

Contact personal finance columnist Susan Tompor: [email protected]. Follow her on Twitter @tompor.