The U.S. Department of Education has penalized MOHELA, the largest federal student loan servicer, for failing to send timely billing statements to 2.5 million borrowers. As a result, over 800,000 borrowers missed their loan payments in October. The department will withhold $7.2 million in payment owed to MOHELA. This action comes amidst widespread reports of loan servicing errors, including borrowers being erroneously returned to repayment and experiencing incorrect payment calculations. The Education Department has instructed servicers to place affected borrowers into forbearance and has taken steps to address the mistakes. However, critics argue that the department shares responsibility for these failures and that more resources are needed to handle the influx of borrowers returning to the system.
The Education Department revealed that a contracted loan servicing company, MOHELA, failed to send timely billing statements to 2.5 million borrowers, causing hundreds of thousands to miss their payments. As a result, the department will withhold $7.2 million of compensation due to MOHELA. Approximately 800,000 borrowers became delinquent on their loans due to the late billing notices. The department has directed MOHELA to place these borrowers in temporary forbearance with 0% interest rates until the billing issues are resolved. The errors are the latest in a series of problems faced by the Biden administration in restarting student loan payments.
Six Democratic lawmakers, including Sen. Bob Menendez and Sen. Elizabeth Warren, have expressed concerns about student-loan borrowers being forced into repayment despite qualifying for debt relief. They sent a letter to the education secretary, Miguel Cardona, highlighting issues with the student-loan company MOHELA, including long wait times, problems with credit for qualifying payments, and delays in refunds. The lawmakers urged the Department of Education to address these issues before federal student-loan payments resume on October 1. They also requested information on tools to hold MOHELA accountable and data on call-hold times. MOHELA has previously faced scrutiny for processing delays, and borrowers in the Public Service Loan Forgiveness program rely on the company for proper administration of debt relief.
The Biden administration and a class of student loan borrowers reached a landmark settlement agreement, providing at least $6 billion in student loan forgiveness to over 260,000 borrowers. However, a major loan servicer, MOHELA, is accused of violating the terms of the agreement by notifying borrowers that they have to start repaying their loans in October, contrary to the forbearance status specified in the settlement. The legal organization representing the borrowers, the Project on Predatory Student Lending, has warned of potential legal action if the collections efforts continue. This issue adds to the problems faced by borrowers as student loan payments resume, including long call hold times, misinformation, and processing errors.
Newly released emails obtained by the Student Borrower Protection Center show that employees at student-loan company MOHELA were confused about their involvement in one of the lawsuits blocking President Biden's debt relief plan. MOHELA has denied involvement in the case, and Supreme Court justices were skeptical of its standing. The case is currently before the Supreme Court, and millions of borrowers are waiting for its final decision on the legality of Biden's debt relief.
