Over 1 million student-loan borrowers were put at risk of making 'significantly higher payments than they can afford' because their servicers were too swamped to help, a federal consumer watchdog says
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- The CFPB released a report on issues student-loan borrowers have faced since payments resumed.
- It found over 1 million borrowers had pending applications to lower their payments in October.
- Average hold-times to get help with customer service also surged to 70 minutes.
Student-loan borrowers have had a rough go since federal payments resumed in the fall — and a federal consumer watchdog shed some light on why exactly that's been the case.
On Friday, the Consumer Financial Protection Bureau released a report on challenges student-loan borrowers have experienced since bills started becoming due in October after an over three-year pause.
Some of the report's findings are likely not surprising to borrowers — it highlighted long hold times with customer service, along with delays in paperwork processing. But new data from the report highlighted the scale of those challenges as servicers struggled to manage the unprecedented transition back into repayment.
"While loan servicers may not be household names, their conduct has a significant impact on household finances," CFPB Director Rohit Chopra said in a statement. "Outstanding student loan debt exceeds outstanding auto loan debt and credit card debt. If student loan borrowers are unable to successfully enroll in payment plans or obtain accurate information about their accounts, this can have a domino effect on the rest of their financial lives."
Specifically, the report found significant delays in processing borrowers' SAVE income-driven repayment plan applications, intended to lower their monthly payments to make them affordable based on the income they earn. If borrowers cannot access the SAVE plan, they might be stuck making payments that are higher than what their income can afford.
According to the CFPB, servicers reported over 1.25 million pending income-driven repayment applications as of the end of October, with over 450,000 of the applications pending for over a month without a resolution.
"Processing times vary across servicers, with some servicers taking five times longer than others to process applications," the CFPB's press release on the report said. "These delays put borrowers at risk for making significantly higher payments than they can afford."
The report also said that across all servicers, each employee responsible for processing the applications had an average of 1,335 pending applications. While borrowers are typically placed on administrative forbearance during these delays, during which interest will not accrue, some borrowers are not, leaving them with high interest rates and financial strain as they make payments they might not be able to afford.
Additionally, hold times with customer service surged in October. While the average wait time in August was just 12 minutes, per the report, borrowers were waiting over 70 minutes on average in October to get help. That led to 30% of calls being abandoned, compared to the 10% rate in August.
The Education Department has been tracking these issues, as well — and even enforced punishments over all four federal servicers for errors with borrowers' accounts. On Friday, the department announced that 758,000 borrowers failed to receive on-time billing statements in October from Nelnet, EdFinancial, and Aidvantage, and it withheld over $2 million in combined pay from the servicers as an oversight action.
Borrowers impacted by servicer errors are expected to be placed on administrative forbearance and are not required to make any payments until all issues are resolved. The department also has an accountability framework to monitor servicer performance, which includes withholding their pay and transferring borrowers to better-performing servicers, if necessary.
"The resumption of student loan payments means that borrowers are making billions of dollars of payments each month," Chopra said. "If student loan companies are cutting corners or sidestepping the law, this can pose serious risks to individuals and the economy."