Dept of Education Penalizes Federal Student Loan Servicers

Payments Pause

Federal student loan payments for more than 750,000 borrowers will go on pause after the U.S. Consumer Financial Protection Bureau (CFPB) outlined errors by three student loan servicers.

Citing “unacceptable errors” relating to billing notices by Aidvantage, EdFinancial, and Nelnet, the Department of Education said it would withhold more than $2 million in payments, according to U.S. Secretary of Education Miguel Cardona in a statement released on Friday .

“Today’s actions make clear that the Biden-Harris Administration will not give student loan servicers a free pass for poor performance and missteps that jeopardize borrowers,” said Cardona.

What’s the Impact on Federal Student Loan Borrowers?

For the people affected by errors found by the CFPB who are paying off federal student loans serviced by the affected companies named above, it means their loans are going into what’s called “administrative forbearance.” Affected borrowers will not owe payments, and any accrued interest will be adjusted to zero.

Also, any months that borrowers spend in administrative forbearance will count as progress toward Public Service Loan Forgiveness, or income-driven repayment forgiveness such as SAVE.

No timeline for how long administrative forbearance might last was given in Cardona’s statement, only that it would remain in effect “until the issues were resolved.”

Return to Monthly Payments

More than 43 million Americans have federal student loan debt. All payments on federal student loans were halted in March 2020 throughout the duration of the COVID-19 pandemic, before resuming in October 2023.

Secretary Cardona echoed the Department of Education’s disappointment, underscoring that the servicers “failed to meet contractual obligations to send timely billing statements to a combined total of 758,000 borrowers for the first month of repayment”.

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