June 22, 2024

Massachusetts, Nelnet reach $1.8M settlement over student loan servicing

Nelnet, one of the largest student loan servicers, will pay Massachusetts $1.8 million to resolve allegations that it failed to help borrowers renew their enrollment in affordable income-driven repayment plans, the state attorney general’s office said Thursday.

Companies such as Nelnet, Aidvantage and the Missouri Higher Education Loan Authority are paid millions of dollars by the federal government and private lenders to collect student loan payments, answer questions and keep people from defaulting. Yet state and federal authorities say they are not doing enough to help people navigate the complexities of repaying their education debt.

In the case of Nelnet, Massachusetts Attorney General Andrea Campbell (D) said the company neglected to tell borrowers to resubmit their earnings and family size to remain enrolled in an income-driven repayment plan. Those plans, which cap monthly federal student loan payments to a percentage of a borrower’s income, require annual recertification. If borrowers miss the deadline, their monthly payment will increase and unpaid interest can be added to their loan balance.

By law, servicers must provide borrowers with at least 60 days’ notice of the recertification deadline and explain the consequences of missing that date. However, the attorney general’s office found that many of Nelnet’s communications with borrowers between 2013 and 2017 did not comply with those regulations, violating the state’s consumer protection law.

“Student loan servicers play a crucial role in ensuring that borrowers can access more affordable loan payments,” Campbell said in a statement. “As we continue to address issues of affordability, we will prioritize student loan debt and hold service providers accountable when they fail to fulfill their notification and information obligations to Massachusetts borrowers.”

Under the settlement, Nelnet must pay $1.8 million to the state, which may use $800,000 on outreach to encourage borrowers with older bank-based federal loans to consolidate them to take advantage of newer student loan forgiveness programs. The company also agreed to comply with federal notice requirements.

Nelnet neither admitted nor denied wrongdoing. Company spokesperson Ben Kiser said Thursday that Nelnet spent eight years collaborating with the attorney general’s office to review recertifications and clarify the company’s interpretation of IDR requirements.

“Nelnet is pleased to close this chapter with improved IDR communications and servicing to borrowers,” Kiser said in a statement. “Both the State of Massachusetts and Nelnet share the common goal of ensuring student loan borrowers are well-informed and have a clear understanding of their student loan repayment options and obligations.”

More student loan servicers face punishment for delayed borrower notices

Thursday’s settlement arrives less than a week after the Education Department withheld payment from Nelnet, Aidvantage and EdFinancial for failing to send timely billing statements to a total of 758,000 borrowers.

Servicers were supposed to give borrowers at least 21 days notice before their first bill was due, but almost all of the contractors missed that deadline to varying degrees. The department said it will dock Nelnet $13,382 for not sending bills on time to 4,616 people. Nelnet said less than 0.04 percent of 14.5 million borrowers in its portfolio had missing or late statements. That includes some who moved their due date up to better meet their financial situation.

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