According to the Biden administration, millions of borrowers will obtain student debt forgiveness credit for administrative forbearance periods even as widespread loan servicing issues persist.
Borrowers can postpone repayment of their student loans and maintain their credit standing thanks to forbearances. The Education Department is putting them into effect because of persistent, pervasive problems with debt servicing after the return to repayment last autumn. The administration also disclosed that loan servicers will now be subject to additional financial penalties for errors in billing and other issues.
“When unacceptable errors are uncovered, servicers should expect to be held accountable and borrowers should count on this administration to hold them harmless,” said Secretary of Education Miguel Cardona in a statement on Friday.
Since the Covid-19-related forbearance ended last autumn, borrowers have been facing numerous issues with student loan servicing. Since March 2020, the majority of federal student loans have been exempt from interest and payment under the so-called student loan moratorium. As many advocates had predicted, the sudden return to repayment that began in September has not gone well.
In a recent bulletin, the Consumer Financial Protection Bureau—a federal agency that regulates the financial services industry—stated that issues have included late or missing billing statements, incorrectly calculated payments (especially in the case of income-driven repayment plans like the recently implemented SAVE program), lengthy processing times for applications for installment debt relief, and overworked call centers that cause borrowers to have to wait on hold or get disconnected when attempting to contact their loan servicers.
“The resumption of student loan payments means that borrowers are making billions of dollars of payments each month,” said CFPB Director Rohit Chopra in a statement on Friday. “If student loan companies are cutting corners or sidestepping the law, this can pose serious risks to individuals and the economy.”
Although the transitionary on-ramp period shields borrowers from default and negative credit reporting until September, missing payments can still result in significant interest accrual and impede progress toward student loan forgiveness under IDR and Public Service Loan Forgiveness.