PHOENIX – As over 40 million student loan borrowers prepare to resume payments next month, Attorney General Mayes and a coalition of attorneys general today warned of looming issues that could further burden borrowers, particularly those in low-income groups. Despite the Biden Administration's recent reforms, including the introduction of the SAVE repayment plan, multiple challenges persist. Congress barred any further payment pauses earlier this summer.
Although the Biden Administration has taken significant steps to transform the broken federal student loan repayment system, including creating SAVE—the new, more affordable income-driven repayment (IDR) plan—and restoring borrowers' credit toward the Public Service Loan Forgiveness Program, the coalition of attorneys general cautions that current circumstances are likely to create serious and widespread loan servicing problems, especially as the U.S. Department of Education itself appears to lack capacity to assist borrowers, oversee servicers, and enforce borrower protections during the return to repayment.
"Amid inaccurate account details, incorrect bills, and long customer service wait times, borrowers – particularly those with low incomes – are struggling. The pending government shutdown will likely exacerbate these challenges," said Attorney General Mayes. "The Biden Administration must immediately do more to protect borrowers experiencing issues related to the return to repayment."
As repayment begins, tens of millions of borrowers will simultaneously be required to navigate a complex system, many for the first time, with new servicers that have little to no experience with such volumes and do not appear to be sufficiently staffed to respond to them. Additionally, some servicers appear to be struggling to operationalize implementation of the new SAVE plan. For example, earlier this month, MOHELA, the servicer that manages all accounts on track for Public Service Loan Forgiveness, had to re-issue payment notices for borrowers in SAVE. This became necessary because MOHELA's original notices, issued in August 2023, listed a higher monthly payment than allowable under the SAVE guidelines that took effect in July 2023.
Moreover, the transfer of nearly 30 million borrower accounts to new servicers during the pandemic has created the potential for significant and widespread account and servicing errors, including billing problems, inaccurate account information, and placement in incorrect repayment plans. The coalition's letter reports that borrowers are already filing complaints concerning a lack of timely resolution to such errors, extraordinary call wait times—including hold times over 400 minutes—and delays in receiving assistance from servicers. The letter notes that even some state agencies are having trouble obtaining timely servicer responses through government complaint escalation channels.
In their letter, the states also express concern that many reported account issues affect low-income borrowers. The states go on to explain that although the Administration has opened potential additional avenues toward debt relief, these avenues are of limited use in resolving return to repayment problems and do not address the problem of interest accrual.
While the states appreciate the Administration's steps to protect borrowers who miss monthly payments in the first twelve months of repayment from credit harm and default, they believe further action can and should be taken.
Specifically, the coalition urges the Biden Administration to do more to mitigate harm to borrowers, including instructing its servicers to place borrowers affected by servicing errors liberally or who cannot obtain affordable monthly payments consistent with the Department's guidelines into forbearance. The letter asks that the same forbearance be applied to groups of borrowers who are awaiting loan forgiveness.
In sending the letter, co-led by Massachusetts Attorney General Andrea Joy Campbell and Washington Attorney General Bob Ferguson, Attorney General Mayes was joined by the attorneys general of California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Michigan, Minnesota, Nevada, New York, Oregon, Pennsylvania, Vermont, Wisconsin, and the District of Columbia.
In August, Attorney General Mayes issued a consumer advisory warning borrowers about possible scams related to student loan repayment.