Stuck in the System: Federal Watchdog Agency’s Alarming Findings on Student Loan Servicing Issues

A federal agency that oversees the financial services sector issued a warning last week that millions of student loan borrowers are facing increasingly disruptive loan servicing problems. The Student Loan Ombudsman of the Consumer Financial Protection Bureau (CFPB) said in its annual report that “servicing failures and legal challenges have hampered the implementation of critical loan relief efforts.”

“Student borrowers continue to face lengthy delays and costly errors because of servicer failures,” said CFPB Director Rohit Chopra in a statement on Friday accompanying the report’s release.

“Our analysis of over 18,000 consumer complaints shows that servicer errors with billing, customer service failures, and incorrect repayment information are causing severe financial and personal distress to borrowers,” said CFPB Student Loan Ombudsman Julia Barnard. “As the federal loan system undergoes rapid changes, it is crucial that servicers immediately address these persistent issues. Policymakers should ensure that student borrowers can access the loan cancellation and lower monthly payments they are entitled to and implement new accountability measures to fix these long-standing problems.”

Here are the main problems borrowers are experiencing, according to the CFPB.

Student loan issues related to SAVE plan challenges

Millions of borrowers enrolled in the Saving on a Valuable Education (SAVE) plan are stuck in a forbearance due to legal challenges. In August, a federal court issued an injunction blocking the implementation of SAVE, which is the Biden administration’s newest income-driven repayment (IDR) plan designed to reduce payments and eliminate excess interest accrual. 

The injunction has forced borrowers into a non-payment status and derailed progress toward loan forgiveness under IDR and the Public Service Loan Forgiveness (PSLF) program.

But the SAVE plan injunction’s problems aren’t just limited to those who enrolled in the plan or switched over from a different IDR plan. The Education Department’s response to the court order has led to cascading failures across much of the federal student loan system. 

Borrowers who aren’t even directly impacted by the SAVE plan haven’t been able to apply for IDR plans (or switch IDR plans) because IDR processing has been paused across the board. Similarly, borrowers who need to request a recalculation of their IDR payment due to changed financial circumstances have been unable to do so. And many borrowers pursuing loan forgiveness through PSLF have been stuck with few good options. 

“Because of ongoing litigation, enrollment in and implementation of SAVE is on hold,” said the CFPB in its statement. “The eight million borrowers already enrolled in SAVE are no longer able to make payments, enroll in most other income-driven repayment plans, or gain credit towards cancellation while the litigation is ongoing. The hundreds of thousands of additional borrowers waiting to enroll in income-driven repayment plans are similarly left with few options.”

Misinformation and phone call “doom loops” hinder access to student loan forgiveness and reduced payments

Borrowers often turn to their loan servicer during times of uncertainty to get information on their options and guidance on their next steps. But according to the CFPB, many borrowers are simply not able to connect with their loan servicer at all — and when they do, at least some are being given misinformation. 

“Borrowers reported being shuffled between servicers repeatedly without receiving help, waiting months for responses” — in some cases, more than eight months.

“Student borrowers reported encountering customer service problems such as website access issues,” said the CFPB in its statement. “Borrowers reported being shuffled between servicers repeatedly without receiving help, waiting months for responses” — in some cases, more than eight months.

“Borrowers reported that they were unable to reach their servicer and sometimes could not even access their account information online when they had questions or problems,” said the CFPB in the report itself. “Borrowers said that they were unable to enroll in income-driven repayment (IDR) plans, which are critical to helping them afford their payments. Many borrowers were caught in doom loops where, after waiting for an extended duration on the phone, a servicer call center agent would refer them to a webpage that would refer them to the same phone number or to a government agency who would refer them back to the servicer, leaving borrowers unable to find basic account information despite trying for many hours.”

Borrowers also reported “receiving inaccurate or misleading communications, such as miscalculated payment amounts and inaccurate due dates,” said the CFPB. 

Billing issues causing student loan borrowers to pay more

The CFPB also highlighted widespread billing issues that are hindering student loan borrowers’ ability to repay their loans in accordance with their terms.

“Borrowers described problems with billing, including inaccurate or late statements; errors with auto pay, including thousands of dollars incorrectly debited from accounts; and payments that were not properly applied to their balances,” said the CFPB. “They also said servicers failed to give accurate guidance about income-driven repayment plans and imposed costly delays in processing refunds and applications for loan relief.”

One borrower “found that their amount due was roughly $1,000 higher than they expected after IDR enrollment due to a servicer error,” said the CFPB. The servicer had “told the borrower that they are unable to correct the amount without income recertification, five months prior to the deadline.”

Another borrower was erroneously billed for an amount that was six times the expected monthly payment amount under the borrower’s IDR plan, said the CFPB.

What the errors mean for student loan borrowers going forward

“Taken together, the harms outlined in this report suggest that millions of borrowers face an uphill battle to simply make payments on their student loans,” said the CFPB. “Detailed analysis of consumer complaints demonstrates that these harms are likely to cost borrowers thousands of dollars and months spent waiting for redress.”

And the problems may only get worse. 

Under the next Trump administration and a Republican-led Congress, anticipated funding cuts at the Department of Education could impact oversight and accountability efforts in its relationships with its contracted loan servicers. A wholesale dismantling of the department is possible, albeit unlikely (as it would probably require a filibuster-proof majority in the Senate to enact), but that may not be necessary to hobble the department and reduce officials’ abilities to monitor student loan servicing. 

The CFPB itself could also be in danger of funding cuts or political meddling. During the first Trump administration, key CFPB figures were pushed out or replaced with industry-friendly political appointees.

Student loan borrowers may be in for a rough ride. For now, all borrowers can do is make themselves aware of their options, keep good records, and seek out help if they aren’t getting anywhere.