To the surprise of almost nobody, the repayment restart has not gone smoothly for borrowers.
Predictably, hold times at Mohela, Nelnet, and other services have been long. Many borrowers are reporting waits of multiple hours.
The big disappointment has been the mistakes and bad guidance that some borrowers have received. The Department of Education makes it clear that borrowers shouldn’t have to pay for help to manage their student loans, but the companies tasked with helping borrowers haven’t done their job.
What went wrong?
Can it be fixed?
And who is to blame?
Mohela, Nelnet, Aidvantage, and Edfinancial All Deserve Some Blame
In the winter of 2020, the servicer trade organization warned that they would receive more calls in the first month of repayment than what they normally receive in a year.
Making matters worse, these companies all cut staff during the pandemic.
However, they had plenty of notice on the restart date. Even though the date had been a moving target, this time around, there was legislation spelling out when the restart would happen.
To help servicers, the Department of Education started charging interest an entire month before payments were due. This move should have spread out demand for assistance over the course of a couple of months.
Sadly, servicers were still not ready. Long hold times are a clear sign that staffing levels are too low. The processing mistakes and inaccurate guidance indicate that the staff wasn’t properly trained.
Congress Dropped the Ball
Our student loan system is frustratingly complicated at times. Between Perkins Loans, FFEL Loans, Parent PLUS Loans, Spousal Loans, and Direct Loans, we have a long list of loan types, each with different eligibility rules.
Further complicating things is the long list of repayment plans. Each new repayment plan has helped make things more affordable for borrowers, but each weighs down the system. More options mean more complications.
Congress could create one repayment plan and make all loans eligible. Congress could automate the entire process. Congress could offer debt relief. Instead, Congress hasn’t made any comprehensive reforms in years, and borrowers are stuck in this mess.
The Department of Education’s Big Mistake
Over the past few years, the Department of Education has made numerous efforts to help borrowers and correct past issues. For example, the Limited Waiver on PSLF was created to help borrowers who received inaccurate guidance about the Public Service Loan Forgiveness Program.
Unfortunately, the Department of Education repeatedly makes the same fundamental servicer error.
Contracts with loan servicers specify minimum standards of performance. There is almost no incentive for Mohela, Nelnet, or Aidvantage to innovate or improve things. The less money they spend meeting that minimum standard, the more profit they generate.
A Simple Fix to Servicing Nightmares
There should be more servicers to choose from, and borrowers should be able to pick their servicers.
Currently, borrowers are assigned to a servicer and have almost no control over who services their loans.
If borrowers could move to a different servicer, servicers would have an incentive to keep hold times low and to be helpful. Servicers would have to compete to keep borrowers on their books. Servicers would have an incentive to innovate and to provide excellent service.
This change wouldn’t be very expensive, but it could dramatically change the quality of service that borrowers receive.
Two Parties Who Don’t Deserve Any Blame: Borrowers and Customer Service Representatives
I’m intentionally putting borrowers and low-level servicer employees in the same bucket.
Both groups are victims of the same broken system.
From the borrower’s perspective, the hours-long hold times are a recipe for anger and frustration. By the time they talk to an actual human being, they get rushed and, at times, get inaccurate information. It becomes a challenge to keep your composure.
From the customer service representative’s perspective, things are likewise ugly. All day long, you are tasked with helping angry and frustrated borrowers. They ask questions you haven’t been trained to answer and blame you for things you have no control over. Worse yet, it never stops. There is one angry caller after another.
In many ways, we have been pitted against each other.
My advice to both groups is simple. Your anger and frustration are justified, but please direct it to the parties who actually deserve the blame.