A major student-loan company says 'extensive servicing delays are a likely outcome' as borrowers transition back into repayment — and it could 'last well into 2024'

• Democratic lawmakers asked federal student-loan companies to provide data on their plans for repayment.
• One company, MOHELA, said it anticipates "extensive servicing delays" due to a lack of resources.

A major student-loan company that services over 7 million borrowers isn't too confident about its preparedness to enter repayment in a few days.

On Thursday, Sen. Elizabeth Warren sent letters to the CEOs of four federal loan servicers regarding their plans to bring borrowers back into repayment beginning in October. Included in those letters were responses from the four companies — MOHELA, EdFinancial, Maximus, and Nelnet — on data they provided to Warren and five of her Democratic colleagues in August on their communications with borrowers at that point.

One of those companies, MOHELA, cautioned the lawmakers that repayment is unlikely to be as smooth as they might have hoped. MOHELA is responsible for managing the Public Service Loan Forgiveness portfolio, and according to data it provided, it expects to service 7,762,516 borrowers by October 1. However, it anticipates it will not be able to help all of those borrowers in a timely manner due to funding and resource constraints.

The company said it currently has 474 customer service representatives, with another 606 in various stages of training, and it has a projected need of 1,177 in October. However, MOHELA said that Federal Student Aid's "demands have been changing rapidly" due to litigation results — like the Supreme Court striking down President Joe Biden's broad student-debt relief plan — and the requirement for a higher level of training for customer service representatives has strained the company's budget, it said.

"We are now facing a return-to-repayment set to bring an unprecedented surge in activity in the near future, one which is expected to last well into 2024," MOHELA said.

"While MOHELA is regularly assessing the situation, were MOHELA to move forward with further expanded staffing at its own expense, especially given the wildly fluctuating demands on our staff, the added personnel would threaten MOHELA's financial stability," it added. "Unfortunately, the immediate of return-to-repayment amid ever-increasing changes to the contract administration requirements and expanded training needs, combined with the lack of sufficient funding from FSA, means extensive servicing delays are a likely outcome."

In Warren's Thursday letter, she pushed back on MOHELA's budget complaints, saying that she's "skeptical of [servicers'] claim that insufficient funding is keeping them from fulfilling their most foundational obligation considering that they were paid on average approximately $2 a month per account amounting to billions of dollars, while payments, interest, and collections were suspended during the public health emergency."

Many borrowers have already been experiencing the customer service issues MOHELA mentioned. Not only have borrowers spent hours on hold with their servicer — some of them have also received inaccurate payment statements, prompting them to file complaints. MOHELA said that from July 1, 2022 to June 30, 2023 it received 36,309 complaints. That's compared to the 3,469 complaints Maximus, another servicer, received, and 3,063 from servicer EdFinancial.

Nelnet — a different federal servicer — however, said in its response to the lawmakers that the "unprecedented situation we currently find ourselves in" has prevented it from delivering data on the habits of student-loan borrowers, and it said "the current environment presents challenges in being aware of the number of borrowers we will be servicing."

"We do not yet have insight into potential relief programs that the government may enact and, therefore, are unsure how they may affect the number of borrowers we service," Nelnet said.

It's clear some servicers are concerned about their abilities to manage this transition back into repayment — and borrowers will likely suffer the consequences.