Department of Education Withholds Payments to Three Student Loan Servicers

US Department of Education

The U.S. Department of Education has turned up the heat on student loan servicers, withholding payments from three providers for failing to meet their contractual obligations. The move is part of a broader drive by the department to ensure greater protections for student loan borrowers and to hold service providers accountable for their actions.

Aidvantage, EdFinancial, and Nelnet have all been found wanting in their duty to send timely billing statements to a combined total of 758,000 borrowers for the first month of repayment. In response, the Department of Education is withholding payment of $2 million from Aidvantage, $161,000 from EdFinancial, and $13,000 from Nelnet. The amounts are calculated based on the number of borrowers impacted by these errors.

U.S. Secretary of Education Miguel Cardona was unequivocal in his message to servicers. “Today’s actions make clear that the Biden-Harris Administration will not give student loan servicers a free pass for poor performance and missteps that jeopardize borrowers,” he said.

To mitigate the impact of these errors on borrowers, the department directed each servicer to place affected borrowers into administrative forbearance until the issues were resolved. This means that borrowers won’t owe payments during this period, and any accrued interest would be adjusted to zero. Furthermore, any months spent in administrative forbearance will count as progress toward Public Service Loan Forgiveness or income-driven repayment forgiveness.

This is not the first time the department has taken such steps. It previously withheld $7.2 million from MOHELA for similar shortcomings, affecting 2.5 million borrowers.

Federal Student Aid Chief Operating Officer Rich Cordray reaffirmed the department’s commitment to providing a seamless repayment experience for borrowers. He emphasized the department’s strong oversight and efforts to hold servicers to their contractual obligations.

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The Department of Education has pledged to continue its stringent oversight of servicers through its accountability framework. These actions show that the oversight has been effective in discovering mistakes when they happen, allowing the department to take corrective action where needed.

In a further move to protect borrowers, the department recently sent a letter to credit reporting agencies and credit scoring companies. The letter reminded these organizations that borrowers’ current payment behavior is not necessarily indicative of an inability or unwillingness to make payments, particularly during the transition to repayment.

These developments serve as a stark reminder to student loan servicers that their obligations to borrowers are paramount. With the Department of Education keenly watching, any failure to meet these obligations could result in significant consequences.

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