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U.S. Secretary of Education Miguel Cardona and Federal Student Aid (FSA) Chief Operating Officer Rich Cordray issued the following statements on actions taken by the U.S. Department of Education (Department) after student loan servicer errors were found by the Department. Recently, the Department found that MOHELA failed to meet its basic obligation by failing to send billing statements on time to 2.5 million borrowers – some within only seven days of their payment date – and over 800,000 borrowers being delinquent on their loans as a result. In response to identifying this error, the Department is withholding $7.2 million in payment to MOHELA for October, and has directed MOHELA to place all affected borrowers in forbearance until the issue is resolved. Any months these borrowers are in forbearance will count as credit towards loan forgiveness through Public Service Loan Forgiveness and Income Driven Repayment plans.
The Department also identified errors from loan servicers resulting in a small number of borrowers receiving incorrect payment amounts on their billing statements, and borrowers who have pending Borrower Defense claims incorrectly placed back in repayment status. All borrowers affected by these errors will be placed in forbearance by their servicer until the issues are resolved and any months in forbearance will count as credit towards loan forgiveness through Public Service Loan Forgiveness or Income Driven Repayment.
The latest actions will both ensure borrowers are held harmless by these servicer errors and that servicers are held accountable for their actions. The Department will continue to monitor servicer performance and ensure they are meeting their basic contractual obligations to the Department and to borrowers. If a servicer fails to meet these basic obligations, additional action may be warranted by the Department.
U.S. Secretary of Education Miguel Cardona:
“The Biden-Harris Administration is looking out for borrowers at every step throughout their return to repayment. Our oversight efforts have uncovered errors from loan servicers that will not be tolerated. We took immediate actions to protect borrowers from the fallout of this error and hold the responsible servicers accountable, including by withholding $7.2 million in payment from one servicer. The actions we’ve taken send a strong message to all student loan servicers that we will not allow borrowers to suffer the consequences of gross servicing failures. We are committed to fixing our country’s broken student loan system, and that includes strengthening oversight and accountability and taking every step possible to improve outcomes for borrowers.”
FSA Chief Operating Officer Rich Cordray:
“Our top priority is to support borrowers as they return to repayment and fix the broken student loan system, and we will not tolerate errors from loan servicers that cause confusion and unwarranted financial instability for borrowers and families.
“Through vigorous monitoring of borrower accounts, we were able to detect these mistakes and take swift action to remedy them. We are committed to making things right for borrowers and holding our contractors accountable for errors when they do occur.
“The Department has directed servicers to place all affected borrowers into administrative forbearance until the problem is fixed. In the meantime, we will adjust to zero any interest that accrues and credit them with progress toward public service loan forgiveness and income-driven repayment.
“In strengthening our efforts to hold servicers accountable for errors that harm borrowers, the Department will begin to withhold some funds under our monthly contracts to encourage stronger and more reliable service to borrowers. Due to the failure of MOHELA to meet their basic obligation of delivering on-time statements to borrowers – affecting over 2.5 million people – the Department will be withholding $7,209,735.13 in payments to MOHELA from the month of October for this mistake. These accountability measures will help ensure that future borrowers are not harmed and servicers understand that there are consequences to their actions when they do not meet the terms of their contracts.”
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