• Amy, 59, is not required to make any student loan payments while pursuing her teaching certificate.
  • However, her servicer still withdrew $200 from her bank account.
  • It comes as the Education Department is working to strengthen oversight over servicers.

While federal student-loan payments resumed for most borrowers in October, Amy, 59, knew she was not expected to make any payments.

That's why she was surprised to see that her servicer MOHELA had withdrawn $216 from her bank account through auto-debit on October 24, per documents reviewed by Insider.

Issues with auto-debit are just one of the many challenges borrowers are facing after the over-three year pause on federal student-loan payments ended in October. To ease the transition, President Joe Biden's Education Department implemented a 12-month "on-ramp" period, during which it would not actively report any missed payments to credit agencies during that time but interest would still accrue.

The Education Department also rolled out the new SAVE income-driven repayment plan, which has so far allowed 2.9 million borrowers the ability to make $0 monthly payments. But even with those measures, servicers have struggled to manage the millions of borrowers entering repayment again, and the department identified in a recent memo a range of errors servicers made that required them to place all impacted borrowers on administrative forbearance.

Amy experienced one of those errors firsthand. With just under $30,000 in student debt from her undergraduate education, Amy — who requested to use a pseudonym to protect her privacy but whose full identity is known to Insider — decided to pursue a teaching certificate through online courses partly funded by a private scholarship for veterans.

According to her account, reviewed by Insider, payments on her undergraduate loans were in an in-school deferment status, meaning she would not be required to enter repayment on those loans until she earned her certificate in December 2024. However, prior to beginning her teaching program, Amy's loans were in auto-debit to earn a 0.25 percentage point reduction on interest rates, and MOHELA did not cease auto-debit despite her deferment status.

While Amy was able to successfully dispute the charge with her bank, she's worried the issue might happen again.

"There's no excuse for this," Amy said, adding that she's concerned she'll have to take MOHELA to small claims court someday. "But nobody has the time to take a stand against it, and I wonder how many other borrowers are having money taken out their account wrongly, that are being charged interest wrongly."

With most of Amy's monthly income currently coming from short-term disability checks, she cannot afford to have her student-loan payments withdrawn from her account at this time, and she's worried the past-due status on her balance will impact her credit report.

"If you're applying for credit or a car loan or you go to the passport office, things work pretty darn well when they need to," she said. "But that's not the case with student loans. They can do better with their systems."

While Amy is confident she'll get a full-time job as a teacher once she earns her certificate, she hopes mistakes her servicer made won't get in the way of her education.

'It's ridiculous these companies get contracts'

The Education Department recently enacted its first major oversight action over servicers when it withheld MOHELA's $7 million in October pay over failure to send on-time billing statements to 2.5 million borrowers. Alongside that announcement, the department released a memo that expressed concerns that borrowers might take legal action if issues in their accounts are not resolved.

"Federal and state regulators who are currently conducting supervisory examinations of FSA's loan servicers to monitor return to repayment have already indicated that if FSA does not fully remediate these borrowers, they will likely find violations of their consumer protection laws and require servicers to remediate the problems experienced by borrowers themselves and impose monetary fines against the servicers," the memo said.

Amy and other student-loan borrowers have previously told Insider they mulled legal action due to the ongoing challenges with repayment that had yet to be resolved. "It's ridiculous these companies get contracts for federal student loans," Amy said.

Still, the department has promised continued oversight over servicers. On Thursday, it released new guidance on enforcing accountability over servicers, stating that Federal Student Aid will monitor customer service calls and partner with state and federal regulators to enforce consumer protection laws.

The department also said it might transfer borrowers to other servicers if a servicer shows it's "unable to perform their duties for the borrowers they manage," which would stunt compensation for the targeted company.

"The Biden-Harris Administration has made clear that we will not allow borrowers to pay the price for unacceptable servicing failures," Secretary of Education Miguel Cardona said in a statement. "Today's announcement should send a clear message to all our contracted student loan servicers that the Department will use the full scope of our oversight and accountability tools to ensure borrowers get the level of service they deserve."

Amy said she's looking forward to improvements in the system so other borrowers don't face the same challenges she did. "Just because you have a contract and just because repayment is making things hards, that doesn't make it okay."