Aidvantage Faces Significant Fine for Contributing to Student Loan Chaos with Late Billing, According to Federal Authorities

The Biden administration has decided to hold back more than $2 million from three of the largest student loan servicers in the country. This comes after the servicers failed to send timely bills to 758,000 borrowers when repayment resumed last fall.

As part of its efforts to hold these student loan companies accountable and make the return to student loan repayments smoother, the administration has imposed a fine of $2 million on Aidvantage, one of the servicers. The affected borrowers will be placed in administrative forbearance, during which they won’t have to make payments, and any accrued interest will be adjusted to zero.

This penalty highlights the extent of the errors that occurred during the return to repayment in October. This return followed a more than three-year pause and the Supreme Court’s rejection of Biden’s plan for broad student loan forgiveness.

U.S. Secretary of Education Miguel Cardona emphasized that student loan servicers will be held accountable for their poor performance and mistakes that put borrowers at risk. The Department of Education will continue to closely monitor the servicers and prioritize the interests of borrowers.

The blame for the servicers’ failures was placed on the Education Department by Scott Buchanan, the executive director of the Student Loan Servicing Alliance. He argued that penalizing the student loan companies would ultimately negatively impact the customer experience for borrowers.

Which servicers are being penalized?

Aidvantage is facing the largest payment withholding of $2 million. Additionally, the administration is withholding $161,000 from EdFinancial and $13,000 from Nelnet. The amounts withheld were determined based on the number of borrowers affected by the servicers’ lapses.

USA TODAY reached out to Nelnet, but they referred the request for comment to the Education Department. Aidvantage and EdFinancial were not immediately available for comment.

Similar measures were taken last October when MOHELA, a servicer involved in litigation challenging Biden’s mass loan forgiveness plan, had $7.2 million withheld due to failures in sending timely billing statements.

What does this mean for affected borrowers?

Borrowers impacted by the errors committed by the three servicers will be placed in administrative forbearance. They will not be required to make payments during this period, and any accrued interest on their loans will be set to zero. The time spent in administrative forbearance will count toward Public Service Loan Forgiveness or forgiveness through an income-driven repayment plan.

The Education Department has also issued a letter to credit reporting and scoring entities, emphasizing that late or missed payments do not necessarily indicate an inability or unwillingness to repay the loans.

Efforts have been made to ease the transition back to repayment for borrowers. The department implemented a 12-month on-ramp in October, protecting borrowers from major penalties for missed or late payments until September of this year.

Government report details chaos as billing resumed

A report by the Consumer Financial Protection Bureau, released on Friday, sheds light on the challenges faced by borrowers as the student loan system resumed. The report highlights extended hold times, inaccurate billing and disclosure statements, and potential violations of consumer financial protection laws.

The CFPB recognizes the significant consumer risks associated with the return to repayment of federally owned student loans.

According to the CFPB, the average hold time before speaking with a live agent was 73 minutes during the last two weeks of October, the first month payments were due after the pause. Scott Buchanan attributes these hiccups to insufficient resources and planning on the federal government’s part. Senator Bill Cassidy also holds the Department of Education accountable, stating that they failed to meet deadlines and provide timely information to the servicers.

The Biden administration’s action is seen as an important step in holding student loan companies accountable, but some, like Mike Pierce, executive director of the Student Borrower Protection Center, feel that more needs to be done to address the broken student loan system and prevent borrowers from bearing the consequences of the companies’ actions.