US federal student loan system disruptions

The U.S. federal student loan system is experiencing significant disruptions following the implementation of the One Big, Beautiful Bill Act. Initial reports indicated widespread servicing errors, including incorrect payment estimates and the erasure of Public Service Loan Forgiveness (PSLF) credits. Additionally, technical glitches related to system updates caused delays in loan disbursements, threatening the financial stability of students regarding housing and living expenses.

As the situation progressed, specific servicing errors emerged, such as MOHELA issuing false ‘severely past due’ notices to approximately 6,000 borrowers who were current on their loans. Lawmakers have demanded accountability regarding these errors and potential refunds.

Borrowers are also facing a forced transition from the previous SAVE Plan to new repayment options, such as the Repayment Assistance Plan (RAP) or standard repayment. Borrowers must select a new plan by September 29 to avoid automatic transfers to plans that could significantly increase monthly payments. Consumer advocates have warned that these changes and the high cost of exiting the SAVE plan could increase default risks within the $1.7 trillion student loan portfolio.