The Student Loan Servicing Crisis Worsens: What Borrowers Can Do

Student loan borrowers are contending with a deepening loan servicing crisis that may impact every aspect of the federal student aid system. This includes student loan repayment, student loan forgiveness, and implementation of a wide array of student loan debt relief initiatives enacted by the Biden administration.

The problems have arisen largely because Congress flat-funded the Education Department’s Office of Federal Student Aid (FSA), which oversees the government’s sprawling federal student loan portfolio and its network of loan servicers. In short, FSA and its partners have a lot of work to do, but no new funding to do it. That means they can’t hire new staff, upgrade computer systems or expand capacity.

And the funding crunch couldn’t come at a worse time for borrowers. The student loan pause – which has suspended monthly payments and frozen interest on most federal student loans for over three years now – is set to end this summer. The Biden administration is still struggling to implement signature initiatives, like the Limited PSLF Waiver and the IDR Account Adjustment. And if the Supreme Court rules in favor of Biden’s administration's sweeping one-time student debt relief plan, officials will also have to implement that program, with millions potentially eligible for student loan forgiveness.

Here's the latest. 

Student loan servicing struggles

Last month, Nelnet – one of the government’s major contracted student loan servicers – announced changes to its contract with the Education Department that will result in layoffs and reduced customer service capacity, according to Insider. 

This will have a direct impact on borrowers’ ability to reach customer service agents. Nelnet’s call center hours had been 8 a.m. to 11 p.m. on Mondays, and 8 a.m. to 8 p.m. Tuesday through Friday; they were even open for a few hours every Saturday. But with the contract changes and reduced staff, Nelnet will trim its hours during the week, including eliminating Saturday call center hours entirely. 

Nelnet’s struggles just tell one part of the story. Borrowers seeking student loan forgiveness through the PSLF program – including through the Limited PSLF Waiver, which expired last fall – have complained about extremely long call hold times and PSLF forms taking months to be processed, on MOHELA's part. Based on anecdotal reports, MOHELA’s call center seems to have improved its availability this spring, but borrowers are still contending with long processing times of often six months or longer for PSLF applications.

Delays in student loan servicing guidance and other initiatives

The FSA funding crunch is causing the Biden administration to delay a number of initiatives. 

Last month, the Biden administration quietly postponed implementation of the IDR Account Adjustment, a sweeping one-time plan that will allow millions of federal student loan borrowers to receive retroactive credit toward their IDR repayment terms, even if they are not currently on an income-driven plan. This will accelerate many borrowers’ progress toward eventual student loan forgiveness. The plan was originally intended to be implemented by the beginning of this year, but that was pushed back to this summer. Now, following the latest change, implementation is not expected until some time in 2024.

In addition, the Education Department announced a postponement of implementation of broad third-party student loan servicer guidance. This new notice, “…updates guidance to institutions that contract with a third-party servicer (TPS) to administer any aspect of the institution’s participation in the student assistance programs authorized under Title IV of the Higher Education Act of 1965, as amended (HEA).” That guidance was supposed to be effective as of this fall, but the department is pushing out implementation, while declining to provide a specific date.

Related: Republican Effort To Repeal Student Loan Forgiveness and Payment Pause Could “Wreak Havoc” On Borrowers, Warns Group

What student loan borrowers can do

Borrowers have limited tools at their disposal to address the cascading problems associated with FSA’s funding crunch, and ultimately, this is a problem that Congress will have to solve by providing adequate funding. But in the meantime, borrowers who need to contact their student loan servicer can try the following strategies to increase their chances of getting the help they need:

• If you have a non-urgent issue, try contacting your student loan servicer via email or direct message, if that option is available.
• If a phone call is best, call your student loan servicer as soon as the servicer’s call center opens in the morning (and pay attention to the time zone). This may allow you to get ahead of the call queue and increase your chances of actually reaching someone.
• Have a specific request or question if you’re going to call your student loan servicer, and try to do as much research on your issue as you can prior to the call, so that you can make the most use of your time with the customer service agent. 
• It might also be helpful for you to be logged in to your student loan account on your computer during the call, so that you can access or review relevant information as needed.
• If you don’t receive adequate assistance from the first person that you speak to, politely but firmly ask to speak to a supervisor, who may be better equipped to help.
• If you believe your loan servicer has made a mistake or has not given you the correct information, you can file a complaint or dispute with the Department of Education’s FSA Feedback division.

The complex web of Biden administration student loan debt relief initiatives, coupled with the increasingly worsening state of student loan servicing, creates an environment ripe for bad actors to take advantage of confused or overwhelmed borrowers. The Education Department is warning people to be careful of student loan scams.

“Borrowers have reported receiving phone calls, emails, letters, and/or texts offering them relief from their federal student loans or warning them that student loan forgiveness programs would end soon,” the Education Department stated. “Usually, the so-called student loan debt relief companies offering these types of services don’t offer any relief at all. Often they’re just fraudsters who are after your money.”

The department advises borrowers to be wary of any communications that does not come directly from the government or the borrower’s student loan servicer. And watch for pressure tactics (such as encouraging borrowers to “act immediately”), assurances of student loan forgiveness eligibility, or notifications that a borrower’s account has been “flagged” for debt relief.