Student-Loan Repayment Glitches Upend Borrowers' Budgets, Credit Score

The Trump administration's student-loan repayment overhaul took effect July 1, and since then borrowers have faced a cascade of errors. Glitches at servicers have produced incorrect payment amounts, erroneous delinquency notices, and credit score drops, according to a Business Insider report that detailed accounts from dozens of borrowers.

Daniela Perez, a 28-year-old borrower, received three emails from her servicer MOHELA on August 1. The first said her payment was due soon. The second said her account was over 210 days delinquent. The third said default was approaching. She logged in and found an alleged missed payment balance of $10,635. Perez said she had never missed a payment and never received any delinquency alert. She called MOHELA the next business day; a representative told her the account had defaulted and she needed to speak with a debt resolution specialist. She was transferred repeatedly and never reached one. The next day, her account was back in forbearance status with no past-due alerts. Her credit score did not take a hit, she said.

Other borrowers were not so lucky. Rebecca Pasillas woke up to an email from her servicer saying she was four months past due on payments. She knew her loans were in forbearance with no delinquency notice. A week later, her credit score dropped nearly 200 points, from 756 to 570, according to documents reviewed by Business Insider. Pasillas filed a dispute and contacted her servicer, which said it was reviewing the account. "I've been on time with all of my other payments. I've been responsible with my credit card payments, my car, and everything else," Pasillas said. "Truly, I'm at a loss."

Credit reporting companies typically take a month to fix errors after a consumer files a dispute, according to the Consumer Financial Protection Bureau. An Education Department spokesperson said it does not have records of negative credit reporting for affected borrowers, but "as a measure of caution," the impacted servicer will check accounts to ensure accurate reporting.

The glitches extend beyond payment notices. Carly Marsh, 35, was told in June she could make $50 monthly payments on an income-based repayment plan. She applied, thrilled at the manageable amount compared with the $300 she had on the SAVE plan. Two weeks later, her account showed the $50 payment had been removed. Her actual payment was $525. She said she could not afford it and put her loans on forbearance. The Education Department said in July it would notify affected borrowers of the error and the need to reapply for a repayment plan. Marsh said, "It was a really horrible week."

Some errors have affected progress toward loan forgiveness. The department recently confirmed it is rolling back some borrowers' credits toward the Public Service Loan Forgiveness program due to "code errors" implemented under Biden, according to the Business Insider report.

A recent Government Accountability Office report found that the glitches stem from poor coordination between servicers and the Education Department. Servicers reported a "lack of clear up-front instruction" on coming repayment changes, leading to errors that can take time to remedy, the GAO said.

Perez said she posted about her experience on Reddit after getting the weekend notices. "All of us were a pack of nerves because we did expect it to be a glitch, but there was the worry that they would make us pay," she said. "I'm sure there are others who weren't able to identify that this was a glitch and panicked. A lot of this chaos has been placed on the shoulders of borrowers."