Repeat Offenders: The Student Loan Servicers Who Keep Getting Paid to Fail Borrowers

Bonnie Latreille and Chris Hicks • June 11, 2026

American families owe more household debt today than at any point in history—more than $18 trillion is owed across mortgages, car loans, student loans, credit cards, and risky new financial products engineered by companies from Wall Street to Silicon Valley.¹ And these debts are going bad. Families now owe more past-due credit card debt, car loan debt, and student debt than at any point in nearly two decades—the highest it has been since the Great Recession.

As more and more households struggle to keep up with these rising costs, an unprecedented wave of student loan defaults is hitting more than 10 million American households as they rapidly fall behind on their student loan payments, with a borrower defaulting every nine seconds in 2025.

The financial distress caused by student debt was not preordained. It was predictable, and it was preventable. Recent policy choices by the Trump Administration and conservative majority in Congress have made student debt one of the primary drivers of the mounting affordability crisis. The One Big Beautiful Bill Act eliminated the most affordable repayment plans for existing student loan borrowers in the coming years, and new borrowers immediately, causing more than 10 million student loan borrowers to see their student debt burden cost them thousands of dollars more every year. And while millions of student loan borrowers struggle amidst the worsening affordability crisis—as the rising costs of groceries, utilities, and healthcare continue to bury families in debt—billionaire Education Secretary Linda McMahon chose to strike a backroom deal with the Missouri and other state Attorneys General to vacate the Biden Administration’s critical student loan repayment plan—the Saving on a Valuable Education (SAVE) plan.

But these policy changes are not the only way that student debt imposes costs on families. The federal government pays student loan servicers more than a billion dollars each year to conduct a range of activities to support borrowers. Part of their management responsibilities include helping borrowers navigate student loan repayment. Unfortunately for borrowers, history shows these companies have provided borrowers with the wrong information, taken illegal fees, and wrongly rejected applications for borrowers trying to get in an affordable repayment plan. The list of wrongdoing is long, but the list here offers a sampling:

Illegally denying regulators access to data about a company’s customers, hindering a government effort to alert these borrowers about their rights to student debt relief.
Illegally denying or failing to approve applications for affordable loan payments under Income-Driven Repayment (IDR), forcing borrowers to pay more than they owe and increasing interest charges.
Harvesting late fees from borrowers by engaging in a scheme to maximize the number of payments counted as late payments.
Deceiving borrowers who have made extra payments on their loans about how interest would be charged.
Covering up improper loan deferments and illegally failing to address the increased interest charges these errors imposed on people with student debt.
Engineering a scheme to deceive borrowers and maximize interest charges when borrowers used multiple deferments or forbearances over extended periods of time.
Steering financially strapped borrowers into loan forbearance that cost borrowers billions of dollars in unnecessary interest charges when they were eligible for IDR payments as low as zero dollars per month.

These illegal acts and practices have affected every type of borrower, with every type of loan, at every stage of repayment. When these companies fail to properly do their jobs, borrowers suffer the consequences: they pay more on their loans, are trapped in debt for longer, and millions of them end up in default. Despite this crucial role servicers play, borrowers have no say in which company they will have to work with to manage their loans. Instead, borrower accounts are assigned at random to servicers by the U.S. Department of Education (hereafter “the Department”). When things go wrong—and they often do—borrowers can only hope that their situation will improve.

Now, as more than 7 million borrowers who were previously enrolled in the SAVE plan must transition to a new repayment plan and the Department implements changes from the One Big Beautiful Bill Act that includes sunsetting affordable IDR plans for an additional 3 million borrowers, a new Government Accountability Office (GAO) report has discovered that due to the Trump Administration’s efforts to gut the Department, the agency is no longer monitoring student loan servicers at all. This means that history is doomed to repeat itself: borrowers may be directed to even more costly repayment plans, unnecessarily adding thousands of dollars to how much they repay on their student loans.

Signs of strain are already starting to appear. The most recent reporting about IDR applications shows that servicers have a backlog of 530,295 IDR applications. At the current rate of repayment plan application processing, it is estimated that it could take more than two years to successfully transition these borrowers to new IDR plans. Further sowing confusion and concern among borrowers, the Department announced in March 2026 that it will begin the transfer of administering the entire federal student loan and financial assistance programs to the U.S. Department of the Treasury amid all of these other changes.

Without addressing the role that these student loan servicers play in driving up the costs on families struggling to repay their student loans—and the student loan default crisis that arises as a result—the burden imposed by student debt will continue to only make it harder for families to stay afloat.

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