In a move aimed at holding student loan servicers accountable, the Biden administration has announced the docking of over $2 million in payments from three major providers—Aidvantage, EdFinancia and Nelnet. The action follows a series of failures by these servicers to send billing statements on time after the conclusion of the coronavirus pandemic payment freeze, affecting more than 750,000 borrowers.
The Education Department, led by Secretary Miguel Cardona, declared on Friday that it would withhold payments from the three companies for their failure to meet contractual obligations. Cardona emphasized the administration’s commitment to “aggressive oversight” and asserted that poor performance by loan servicers would not be overlooked.
This recent measure is part of ongoing efforts to address challenges that emerged when student loan payments resumed in October. Tens of thousands of borrowers faced issues with late or incorrect billing statements as servicers struggled to navigate the unprecedented task of bringing over 22 million borrowers back into the repayment system simultaneously.
This is not the first instance of financial penalties imposed on student loan servicers. Earlier, the Education Department withheld $7.2 million from MOHELA for similar failures in sending statements on time to more than 2.5 million borrowers.
According to media reports, Nelnet, one of the affected servicers, responded by acknowledging the errors but expressing confidence that the reported number of affected borrowers was less than stated. Aidvantage and EdFinancial did not immediately respond to requests for comment.
Borrowers who did not receive statements within the required 21 days before payment will be placed in administrative forbearance while the issues are resolved. During forbearance, payments are temporarily paused, and any accruing interest is removed. Importantly, this period in forbearance will still count toward programs such as Public Service Loan Forgiveness and other cancellation through income-driven repayment plans.
As the Biden administration navigates challenges in the student loan repayment process, it is also working on a new proposal for widespread student loan cancellation. Despite setbacks, the administration remains committed to providing relief for borrowers and ensuring a smoother repayment experience. The upcoming months will reveal the final details of the proposed targeted relief, with potential legal challenges expected.