A student loan service company contracted by the Biden administration hit 2.5 million borrowers with billing mistakes that caused hundreds of thousands of borrowers to miss their payments.
Department of Education officials admitted on Monday that the Missouri Higher Education Loan Authority, known as MOHELA, failed to send timely billing statements to 2.5 million borrowers over the past month, Politico reported.
Typically, loan servicers are required to send billing statements to borrowers at least 21 days before their due dates. However, the administration said that some borrowers were not notified until just a week before their payments were due, resulting in approximately 800,000 people becoming delinquent on their loans.
The mistake was so serious that officials said the department would withhold $7.2 million of compensation to the agency for the month of October.
The Biden administration awarded MOHELA with a new contract in April after extending its contract in 2021, according to Politico.
In an attempt to right the wrongs, the DOE reportedly “said that it had directed MOHELA to place those roughly 800,000 borrowers in a temporary forbearance and set their interest rates to 0 percent until the billing issues are ‘resolved.'”
“Those benefits will take effect retroactively for Oct. 1,” a department official said. “Any month that the borrowers are in the forbearance will count towards Public Service Loan Forgiveness and forgiveness under income-driven repayment plans.”
Department Secretary Miguel Cardona said that the penalty against MOHELA is supposed to “send a strong message to all student loan servicers that we will not allow borrowers to suffer the consequences of gross servicing failures.”
Head of Federal Student Aid Rich Cordray said that the agency will “not tolerate errors from loan servicers that cause confusion and unwarranted financial instability for borrowers and families.”
This mistake marks yet another screwup in the Biden administration’s efforts to restart student loan payments following the three-and-a-half-year pause over the coronavirus pandemic, with the DOE admitting earlier this month that over 300,000 borrowers were billed incorrect amounts after they enrolled in Biden’s new SAVE income-driven repayment plan.
“Because of the Department’s stringent oversight efforts and ability to quickly catch these errors, servicers are being held accountable and borrowers will not have payments due until these mistakes are fixed,” the agency said in a statement obtained by CBS News.
On Monday, administration officials also reported the discovery of other loan servicing companies making errors, though they did not publicly identify which loan servicers they were referring to. As Politico reported, officials claimed that “a small number of borrowers” received incorrect payment amounts on their bills, and that servicers had started collecting on loans that should have been paused at the time.