If you have been hit with unexpected and incorrect payment amounts on your student loans, you’re not alone. The Education Department recently estimated that 420,000 borrowers have been affected by miscalculations on their student loan payments, though the actual numbers could potentially run into the millions.
In response, student loan servicers are resorting to automatic administrative forbearance to buy themselves time to fix these payment calculations.
The reasons behind incorrect payment amounts from servicers vary. Government officials cite errors, delays, bureaucracy, and illegal actions harmful to borrowers. Servicers blame the government and a lack of funding to properly do their jobs. Additionally, many borrowers have new loan servicers and have transitioned to the new SAVE plan, complicating matters even further.
Being placed in automatic forbearance when you haven’t requested it can be stressful, confusing, and time-consuming. To keep our users informed and protected, our team put together some important information about the ins and outs of being in forbearance and steps you can take to manage your loan effectively.
So, why administrative forbearance and what does this mean for you?
Servicers new to managing accounts pulled in old information to calculate payments, not taking in the new poverty line adjustment into account with calculating SAVE payments. Additionally, many borrowers were incorrectly put into into standard repayment plans, resulting in requests for initial payments that were often hundreds of dollars more than expected.
Servicers are implementing automatic administrative forbearance to give themselves time to fix the calculations. Administrative forbearance is a type of payment status that puts a temporary pause on payments of federally held student loans but doesn't have interest subsidy.
Administrative forbearance is important for those seeking Public Service Loan Forgiveness (PSLF) and Income-Driven Repayment (IDR) forgiveness. New regulations implemented in July 2023 take this period of forbearance into account and ensures the payments count towards PSLF forgiveness. It will likely count towards IDR forgiveness as well under new regulations. However, while we expect this part of the new IDR regulations to be a apart of those benefits that immediate effect, that is not yet confirmed. So, there is a possibility that payments under administrative forebearance will not count towards IDR forgiveness until July 2024.
How the three biggest loan servicers are implementing automatic forbearance.
MOHELA realized the problems right away and were the first to broadly use administrative forbearance in response to a backlog of paperwork and payment miscalculations. Nelnet has also been reported to adopt this process, although they have also asked borrowers to make payments under a standard plan until their paperwork is processed. Aidvantage is implementing the forbearance at scale as well, often with extremely lengthy forbearance timelines.
Most administrative forbearances should last a couple of months while servicers get things in order, and you can expect more updates to come as they sort this out.
At Chipper, we understand how crucial it is to have transparency and accurate payment information. Our members have access to the status of their loans and accurate payment amounts in the Chipper app.