All 4 major student-loan companies have now gotten punished for customer service issues as borrowers struggle with repayment — and it might not be the end

• The Education Department has now withheld pay from all four federal student-loan servicers.
• The department cited servicers' failures to send on-time billing statements to borrowers.

It hasn't been easy for student-loan borrowers since payments restarted a few months ago — and for the companies that manage their debt.

Since interest on federal student-loan payments resumed in September, with bills starting to become due in October, President Joe Biden's Education Department was tasked with transitioning millions of borrowers back into repayment, and for some, into new repayment plans.

It was an unprecedented transition, and as recent events have shown, the four companies the federal government tasked with managing the job were not entirely up to the task. Even in the months before payments resumed, some borrowers told Business Insider they were experiencing hourslong hold times to get help from customer service, which sometimes left them without any information on what their payments would look like come October.

Those problems continued, and worsened, as bills became due, and student-loan company MOHELA was the first to pay the price. In October, the Education Department announced it would withhold over $7 million in pay from MOHELA for failing to send on-time billing statements to 2.5 million borrowers.

The department then released an accountability framework to ensure servicers would meet their obligations in December, and one month later, it announced it would withhold varying amounts of pay from the remaining three servicers.

"As millions of Americans return to repayment, the Department of Education will continue to engage in aggressive oversight of student loan servicers and put the interests of borrowers first," Education Secretary Miguel Cardona said in a statement. "When unacceptable errors are uncovered, servicers should expect to be held accountable and borrowers should count on this administration to hold them harmless."

Still, servicers have argued that they simply do not have the resources they need to effectively facilitate the return to repayment — an issue that ultimately rests with Congress, and whether lawmakers decide to boost Federal Student Aid funding.

The administration has vowed it will keep a close eye on servicers, and take action to hold them accountable, when necessary. And with resources for servicers still strained, the first round of punishments might not be the last.

The errors servicers have made

The Education Department cited one key reason for withholding different amounts of pay from each of the federal servicers: failing to send on-time billing statements. But that's not the only issue borrowers have faced.

One borrower told Business Insider in August that as she was preparing her budget to once again make payments on her student loans, she was shocked to receive a bill with a balance of $49,726.63 due in October — an amount that was clearly incorrect.

"It was obviously unreasonable," she said. "You'd have to be unable to fog a mirror to think that this was reasonable. There's just no way. Absolutely no way."

On top of that, other borrowers have reported challenges navigating the new SAVE income-driven repayment plan, which the Education Department implemented over the summer to make monthly payments more affordable for borrowers.

After her servicer told her that her projected monthly payment under SAVE would be $47, a single mom previously told BI that she was surprised to be billed over $100 more than that estimate — an amount she was unable to afford.

"I do want to pay something, but I'm not able to pay that amount that they're requiring me to pay," she said.

The Education Department is aware of those errors and highlighted them in an internal Federal Student Aid memo in November. While the department has so far only withheld pay as punishment for servicers' mistakes, it said in its accountability framework that it would also consider transferring borrowers to higher-performing servicers; scoring servicers poorly on performance reports, which could lead to a loss in revenue; and requiring servicers to fix their mistakes to make the borrower whole again.

Where servicers stand

The key reason servicers have provided for the challenges they are facing comes down to one thing: a lack of resources.

In the past fiscal year, Congress did not boost funding for Federal Student Aid, which oversees all student-loan operations. And in the current round of budget negotiations, House Republicans have proposed steep cuts for Federal Student Aid. It's unclear if the spending bill will pass in its current form, and Congress has some time to debate the provisions before funding expires in early March.

Still, servicers have been strained as they navigated the return to repayment, with some citing not enough staff to manage the influx of borrowers reentering the system.

One servicer, MOHELA, told Democratic lawmakers in response to queries on repayment preparation that "millions of borrowers resumed repayment simultaneously after a multi-year pause."

"Nevertheless, FSA has allocated only limited funding for servicing during the unprecedented event and throughout the 'on-ramp' period, funding which pales in comparison to the enormity of work associated with assisting millions of borrowers in a condensed time frame," MOHELA wrote, referring to the 12-month on-ramp period during which borrowers who miss payments are not actively reported to credit agencies.

Regardless, it looks like the administration isn't taking lack of funding as an excuse for servicers not fulfilling their obligations to borrowers — and it'll keep a close eye on servicers' behavior as repayment progresses.

"The Biden-Harris Administration has made clear that we will not allow borrowers to pay the price for unacceptable servicing failures," Cardona said in a November statement. "Today's announcement should send a clear message to all our contracted student loan servicers that the Department will use the full scope of our oversight and accountability tools to ensure borrowers get the level of service they deserve."