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Newsweek
7 hours ago
- Business
- Newsweek
Student Loans: Borrowers See Balances Surge Despite Forbearance Promise
Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources. Newsweek AI is in beta. Translations may contain inaccuracies—please refer to the original content. Student loan borrowers enrolled in the federal Saving on a Valuable Education (SAVE) plan reported unexpected increases in their loan balances, despite government assurances that no interest would accrue during their forbearance period. Affected individuals saw debts rise by thousands after receiving notices from the loan servicer Mohela indicating continued interest accrual, CNBC reported Monday. Newsweek has reached out to the Department of Education (ED) for comment via email on Monday. Why It Matters The situation has left borrowers—many of whom had relied on policy assurances of an interest-free reprieve—in financial limbo. The broader significance lies in the destabilizing effect on household budgets and future repayment plans, with the fate of Biden-era relief policies such as SAVE now uncertain and new federal actions ramping up collections on unpaid loans. What To Know The ED and Mohela confirmed their policy that interest should remain at 0 percent for borrowers under SAVE administrative forbearance, contradicting communications sent to some borrowers. "If you recently received an interest notice for your student loan account, please know that this is not a bill, and no action is necessary at this time," Mohela wrote in a notice at the top of its website. The resulting confusion arrived amid ongoing legal battles and staff cutbacks at the ED, complicating responses for those seeking help over their swelling balances. "The Biden Administration put a forbearance in place, promising that borrowers enrolled in the SAVE plan wouldn't accrue interest during the forbearance period. But some are now seeing their balances go up—despite that promise," Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek. On Monday, CNBC reported that Mohela, a federal loan servicer, sent borrowers enrolled in the SAVE plan letters warning, "interest continues to accrue on your loan(s) during the forbearance period." Ellie Bruecker, director of research at The Institute for College Access & Success, told CNBC her student loan balance grew by approximately $3,000 during a year-long reprieve that was supposed to be interest-free. "I saw those numbers and my eyes bugged out of my head," the 34-year-old told CNBC, adding, "With the level of dysfunction at the Education Department right now, I have a real distrust this is going to get resolved for people. Other student loan borrowers also got the same message from Mohela and have gone on social media platforms like Reddit seeking answers, CNBC reported. An ED spokesperson reiterated that the SAVE Plan's forbearance does not accrue interest, a statement supported by Mohela's own website, which sets the interest rate for these borrowers at 0 percent. Nonetheless, servicing backlogs and miscommunications left many borrowers uncertain of their true balances—and with limited recourse. "If you're one of these students, you need to reach out to your loan provider immediately," Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek. "However, in terms of the overall student loan situation, more clarity is needed from both the government and the providers." These complications followed legal challenges that halted the SAVE program in July 2024 after lawsuits brought by Republican-led states. As a result, approximately 8 million borrowers have remained in an administrative forbearance that was intended to be interest-free. The ED faced a severe backlog, with more than 1.98 million income-driven repayment applications pending at the end of April. At current rates, it could take over two years to process the backlog, potentially forcing millions to default or miss repayment opportunities. The Trump administration's moves to limit repayment options and resume collections on defaulted loans have deepened borrower uncertainty. A sign is displayed outside of the Lyndon Baines Johnson Department of Education building on May 18 in Washington, D.C. A sign is displayed outside of the Lyndon Baines Johnson Department of Education building on May 18 in Washington, People Are Saying Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek: "The Department of Education has been anything but stable. With talk of restructuring or even eliminating the department altogether, morale is low, staff have been cut, and there's a massive backlog of applications. Borrowers are falling through the cracks, plain and simple." Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek: "It's yet another sign of real complications in the current student loan system in terms of clarity and consistency. Many borrowers were pleased with the new options meant to lower their payments during the Biden administration. However, with starts and pauses due to legal action, and now a new administration making sweeping changes, many of these same borrowers are growing frustrated, especially when a select few are seeing interest accrue on loans after being promised the plan they were enrolled in would not do so." What Happens Next? Borrowers in the SAVE plan forbearance are expected to remain in limbo until court proceedings resolve the program's future or until the ED updates its policies and systems. In the meantime, affected borrowers have been advised to closely monitor account statements and report discrepancies to their loan servicers. "The burden is falling squarely on the borrowers. This administration isn't interested in what the last one promised—and they may not honor prior forbearance terms," Thompson said. "Bottom line: These loans are expected to be paid back. No wiggle room. Whether your loan came from a predatory, unaccredited school or a legitimate institution, the message is the same—debt is debt—and the government intends to collect."
CNBC
10 hours ago
- Business
- CNBC
Millions of student loan borrowers were promised an interest-free break. This woman's debt is still growing
Earlier this month, Ellie Bruecker received a troubling notice from her student loan servicer, Mohela. "Although no payments are due at this time, interest continues to accrue on your loan(s) during the forbearance period," Mohela wrote to Bruecker in the June 1 letter, which CNBC reviewed. "You have the option to pay the interest during the forbearance." The problem: The U.S. Department of Education had promised borrowers who were enrolled in the so-called SAVE forbearance, including Bruecker, that interest would not accrue on their debt. Millions of borrowers were switched into the payment pause in the summer of 2024 after the Biden administration-era repayment program — called the Saving on a Valuable Education plan — became tied up in legal challenges due to its generous terms. The Trump administration has not said when that forbearance will end, and recently it released information showing that nearly 2 million student loan borrowers were stuck in a backlog of applications to get into other available repayment plans. Despite the government's promises, Bruecker's student debt has grown by around $3,000 during the roughly year-long SAVE reprieve, her loan documents show. "I saw those numbers and my eyes bugged out of my head," said Bruecker, 34. She's not the only SAVE borrower seeing interest accruing: Other people facing the same issue have taken to social media to try and get answers. At one point, around 8 million people were enrolled in the SAVE plan, according to the Education Dept. More from Personal Finance:Social Security gets break from student loan collectionsIs college still worth it? It is for most, but not allWhat to know before you tap your 529 plan Bruecker happens to work as the director of research at The Institute for College Access & Success, a nonprofit that does advocacy work in the higher education space. But she wonders how many student loan borrowers will even know that this wasn't supposed to happen, let alone be able to get it corrected. "Will they resolve this for everyone, or just those who get them on the phone and are loud about it?" she said. It's unclear how widespread the issue is. A spokesperson for the Education Dept. did not answer CNBC's questions about the issue some borrowers are facing, but said that those "enrolled in the SAVE Plan remain in a forbearance that is not accruing interest." Mohela did not immediately respond to a request for comment. But Mohela has a notice at the top of its website that reads: "If you recently received an interest notice for your student loan account, please know that this is not a bill, and no action is necessary at this time." The notice goes on to say that, "For borrowers on the SAVE administrative forbearance, interest is currently set at 0%. Refer to your loan details in your notice." The company does not say that the alerts were sent in error, but they likely were, said higher education expert Mark Kantrowitz. "MOHELA sent out misleading notices to their borrowers who are in the SAVE repayment plan," Kantrowitz said. "Borrowers who are worried about the MOHELA letter should check their loan history to see if the balance has changed," Kantrowitz added. If their debt has grown since July 2024, "they should contact MOHELA," he said. Bruecker said her loan records from both Mohela and the Education Dept. reflect a higher balance after roughly around $3,000 in interest was added to her debt during the forbearance. "Mohela has been allowing interest to accrue the entire time my loans have been in this SAVE forbearance," she said. She tried to contact Mohela to correct the error, but said she was unable to reach a representative despite waiting on the phone for hours. In recent months, the Trump administration has terminated around half of the Education Department's staff, including many of the people who helped assist borrowers when they ran into issues like this one. A federal judge has ordered Trump officials to reinstate the terminated employees, but the administration is now asking the Supreme Court to block that order. "With the level of dysfunction at the Education Department right now, I have a real distrust this is going to get resolved for people," Bruecker said.
