On August 1, Daniela Perez received three separate emails from her student-loan servicer, MOHELA. The first read “Your payment is due soon.” Then “Account is over 210 days delinquent.” Finally: “Loan default is approaching.”
She immediately logged in to her account, which said she had missed 15 payments and had a past-due balance of $10,635. Perez has always stayed current on her payments and never received an alert that she was delinquent.
“It was a Saturday, and there was nothing I could do except wait until Monday,” the 28-year-old said. So she posted about it on Reddit, “like a Gen Z person does.”
Within minutes, commenters weighed in about receiving their own past-due notices over the weekend.
“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,” Perez said.
President Donald Trump’s student-loan repayment overhaul took effect on July 1. Since then, borrowers have faced a range of glitches as servicers implement the changes, which include new repayment plans and borrowing caps. Dozens of borrowers told Business Insider that errors from incorrect payment amounts to erroneous account status notices are upending their budgets, and that they can’t get clear information from their servicers.
Perez called MOHELA the second their phone lines opened on Monday. A customer service representative told her that her account had defaulted, Perez said, and that she would have to speak with a debt resolution specialist. Perez tried, but said she kept getting transferred and was never able to reach one.
Online, some borrowers who received mistaken past-due notices reported that their accounts were being corrected. Perez checked her account the next day, and sure enough, it was back in forbearance status, with no past-due alerts. Luckily, she said, her credit score didn’t take a hit.
The Department of Education has said that it is monitoring servicers and fixing repayment issues as they arise, and that it is notifying affected borrowers of errors.
“I’m sure there are others who weren’t able to identify that this was a glitch and panicked,” Perez said. “A lot of this chaos has been placed on the shoulders of borrowers.”
Navigating student-loan repayment confusion
Rebecca Pasillas woke up recently to an email from her student-loan servicer: “You’re four months past due on your payments.”
She knew that couldn’t be right. Her loans had been in forbearance for over a year, with no notice of her account being delinquent. She figured the notice was something her servicer could resolve quickly, without any consequences.
A week later, her credit score dropped almost 200 points, from 756 to 570, according to documents reviewed by Business Insider. Other borrowers reported similar credit score drops on social media.
“It’s insane,” the 33-year-old said. “I’m being a bit more frugal, so that way I’m at least prepared for whatever may come up. But it feels pretty bogus to me.”
An Education Department spokesperson said that it does not have records of negative credit reporting for affected borrowers, but “as a measure of caution,” the impacted servicer will check borrowers’ accounts to ensure they were reported accurately.
Credit reporting companies typically take a month to fix errors on a credit report after a consumer files a dispute, according to the Consumer Financial Protection Bureau. Pasillas filed a dispute, and she contacted her servicer, which said it is reviewing her account. The lack of clear communication about her loan status, though, is taking a toll.
“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.”
A ‘panic spiral’ from an incorrect payment amount
A recent report from the Government Accountability Office found that these glitches and repayment errors are occurring because of poor coordination between servicers and the Education Department. The report said that servicers reported a “lack of clear up-front instruction” on coming repayment changes, leading to errors in borrowers’ accounts that can take time to remedy.
Some of the errors have also affected borrowers’ progress toward loan forgiveness. The department recently confirmed that it’s rolling back some borrowers’ credits toward the Public Service Loan Forgiveness program due to “code errors” implemented under Biden.
Carly Marsh could have benefited from clearer servicer communication. In June, the 35-year-old was among a group of borrowers who were told, incorrectly, they would be able to make $50 monthly payments on an income-based repayment plan. Marsh said she was thrilled and immediately applied; the amount was much more manageable than the $300 payments she had on the SAVE plan.
Two weeks later, Marsh checked her account and was surprised to see that her $50 payment had been removed, with her servicer saying she did not qualify for that amount. Her actual payment was $525.
“I probably had the biggest panic spiral of my life because I went in thinking, ‘Wow, this isn’t as bad as I thought it would be. I can finally start paying these back,'” Marsh said. “It was a really horrible week.”
Marsh said she cannot afford the $525 payment and has put her loans on forbearance. Borrowers who were affected by the $50 glitch previously told Business Insider that miscommunication surrounding monthly payments hindered their ability to fit the bills into their budgets. The Education Department said in July that it would notify affected borrowers of the error and the need to reapply for a repayment plan.
“I just can’t believe that I was hoodwinked by the $50 deal,” Marsh said. “If it sounds too good to be true, it probably is.”
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