Aidvantage added to student loan chaos with late bills, feds say. Now it faces a big fine.

The Biden administration is withholding more than $2 million from three of the nation’s largest student loan servicers after they failed to send timely bills to 758,000 borrowers during the return to repayment last fall.

The move, which is largely centered on a $2 million fine to the servicer Aidvantage, is part of a larger effort by the administration to hold student loan companies accountable and ease the already-messy return to student loan repayments.

The move also means affected borrowers will be placed into administrative forbearance. During this period, those borrowers won’t need to make payments, and any accrued interest they owe will be adjusted to zero.

The penalties are the latest indication of just how error-prone the return to repayment was in October, after a pause that lasted more than three years and the U.S. Supreme Court’s rejection last summer of Biden’s plan for broad student loan forgiveness.

“Today’s actions make clear that the Biden-Harris Administration will not give student loan servicers a free pass for poor performance and missteps that jeopardize borrowers,” said U.S. Secretary of Education Miguel Cardona in a statement. “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. When unacceptable errors are uncovered, servicers should expect to be held accountable and borrowers should count on this administration to hold them harmless.”

Student loan servicers laid the blame squarely on the Education Department. Scott Buchanan, the executive director of the Student Loan Servicing Alliance, said the fines were indicative of problems that servicers had long been warning the department about.

Punishing student loan companies, he said, will only end up hurting borrowers’ customer experience.

“They’ve under-resourced this entire resumption effort,” he said of the Biden administration. “These are all things we’ve been telling the department and the bureau would happen.”

Which servicers are being penalized?

The largest withheld payment – at $2 million, accounting for the bulk of Friday’s actions – is from Aidvantage. The administration is also withholding another $161,000 from EdFinancial and $13,000 from Nelnet.

These amounts are based, according to the department, on the number of borrowers who were affected by the servicers’ lapses.

Nelnet referred USA TODAY’s request for comment to the Education Department. Aidvantage and EdFinancial could not be immediately reached for comment.

Last October, the department took similar steps to penalize MOHELA, which was at the center of the litigation challenging Biden’s mass loan forgiveness plan. In that case, officials withheld $7.2 million after the servicer’s failures to send out on-time billing statements resulted in more than 800,000 borrowers being delinquent on their loans.

What does this mean for affected borrowers?

Borrowers who were affected by the three servicers’ errors will get placed into administrative forbearance. During that period, they won’t owe payments and any accrued interest on their loans will be set to zero.

The time spent in administrative forbearance will also count toward Public Service Loan Forgiveness or forgiveness through an income-driven repayment plan for borrowers who are on those tracks.

The Education Department also recently issued a letter to credit reporting and scoring entities stressing that late or missed payments don’t necessarily mean the borrowers are unable or unwilling to pay off their loans.

“We will not allow servicers to cause harm to borrowers as they resume making their monthly payments,” said Rich Cordray, chief operating officer of Federal Student Aid, in a statement. “We are committed to providing a seamless repayment experience for borrowers. We will continue our strong oversight and efforts to hold servicers to their contractual obligations and make sure borrowers are not harmed by these errors.”

In an effort to make the return to repayment easier for borrowers, the department last October created a 12-month on-ramp that shields them from major penalties for missed or late payments. The period lasts through September of this year.

Government report details chaos as billing resumed

A report from the Consumer Financial Protection Bureau released Friday details just how problematic jumpstarting the student loan system has been for some borrowers.

From extended hold times on the phone to inaccurate billing and disclosure statements, it concludes the challenges may have “serious implications for borrowers as well as for servicers’ compliance with state and federal consumer financial protection law.”

“The CFPB determined that the return to repayment of federally owned student loans presents significant consumer risks,” the report says.

In the last two weeks of October, which was the first month during which payments came due for tens of millions of borrowers after the pause, the average hold time before callers could speak to a live agent was 73 minutes, according to the CFPB.

Buchanan, who represents servicers, said the hiccups were due to a lack of resources and planning on the federal government's end.

Sen. Bill Cassidy, the ranking Republican on the Senate's education committee, agreed.

"The Department of Education missed deadlines and was unable to provide timely and basic information the servicers need to do their job," he said in a statement. "Now they are blaming the crisis they created on the servicers they set up to fail."

Mike Pierce, the executive director of the Student Borrower Protection Center, lauded the Biden administration's move Friday as an important accountability measure, but said it still didn’t go far enough.

“Borrowers didn’t choose to be thrown back into a broken student loan system and they should never be forced to pay the price for student loan companies’ abuses,” he said in a statement.

This article originally appeared on USA TODAY: Amid student loan repayment chaos, Biden fines servicers over errors