- Four Democrats recently wrote a letter that raised concerns about student-loan repayment challenges.
- They said they're worried servicer errors could hurt borrowers' credit scores.
It's been just over two months since federal student-loan payments resumed and millions of borrowers have already faced a range of difficulties with the transition.
A group of Democratic lawmakers want to know what exactly is going on with the return to repayment.
Last week, Sens. Elizabeth Warren, Bernie Sanders, Richard Blumenthal, and Chris Van Hollen sent a letter to Education Secretary Miguel Cardona expressing concerns about challenges student-loan borrowers have faced over the past few months.
The lawmakers wrote that while the payment restart after an over three-year pause "is unprecedented and creates serious risks for borrowers," actions the Education Department has taken so far to mitigate those risks — like implementing a 12-month "on-ramp" period, during which it won't report missed payments to credit agencies — have been beneficial to borrowers.
However, they said, when the pandemic began and the payment pause was first implemented, wage garnishments — when the government withholds a portion of a person's paycheck until debts are resolved — for borrowers continued despite the department saying they would hold off on consequences for those in default. The lawmakers said more needs to be done to protect borrowers this time around.
"For example, we are concerned that ED's credit reporting processes may expose borrowers' credit scores to unanticipated consequences," the letter said. They noted the department's guidance that stated while it would not actively report missed payments during the on-ramp, it cannot control how credit scoring agencies account for those payments.
Additionally, the lawmakers said that the department's practice of retroactively placing borrowers on forbearance for missed payments could "unintentionally depress borrowers' credit scores during those 90 days before the forbearance is applied if a servicer inaccurately reports a borrower's information."
Potential negative impacts on credit scores aren't the only challenge facing borrowers — since repayment, servicer resources have been constrained, which has led to a range of errors to borrowers' accounts like missed and inaccurate billing statements.
Given the host of challenges the return to repayment has brought, the Democrats asked the Department to provide information no later than December 15 on the number of borrowers who have missed payments since October, a review of how forbearances have been implemented, and details on servicers' performance since payments restarted.
"The chaotic resumption of federal student loan payments has raised questions about the extent of errors and the measures being taken by the Department to address these concerns and provide assistance to affected borrowers," the lawmakers wrote.
The department has previously acknowledged the challenges borrowers have faced — and the mistakes servicers have made — and it's already taken a series of steps to ensure accountability over the industry. It withheld October pay from student-loan company MOHELA, for example, after it failed to send on-time billing statements to 2.5 million borrowers.
The department later released a framework for monitoring servicers' actions as repayment continues, which included: withholding payment from servicers if they don't meet their contractual obligations, transferring borrowers to higher-performing servicers, and scoring servicers poorly in performance reports, which could hurt their future revenue.
Even with those safeguards, the department has said more funding from Congress for Federal Student Aid will help the repayment process — and House Republicans have proposed cutting funding for the agency, which could further complicate things for borrowers.