The U.S. Department of Education in Washington, D.C. has announced that it will penalize student loan servicer Mohela, also known as the Missouri Higher Education Loan Authority, for its failure to send timely billing statements to 2.5 million borrowers. As a result of Mohela’s errors, over 800,000 borrowers were unable to make payments, leading to delinquency on their loans. In response, the Education Department has withheld $7.2 million in payment to Mohela for October and has instructed the servicer to place all affected borrowers in forbearance until the issue is resolved.
Rich Cordray, the chief operating officer of federal student aid, emphasized that supporting borrowers and fixing the broken student loan system are top priorities. He stated that the department will not tolerate errors from loan servicers that cause confusion and financial instability for borrowers and their families.
Higher education expert Mark Kantrowitz noted that this is one of the first instances of the government withholding payment from a student loan servicer. He argued that if borrowers are penalized for making late payments, it is only fair for the loan servicer to face penalties for mailing late statements.
Mohela has not yet responded to requests for comment on the situation.
It is important to note that federal student loan payments resumed this month after being on pause since March 2020 due to the pandemic. The Education Department contracts with various companies, including Mohela, Nelnet, and EdFinancial, to service federal student loans. These servicers receive over $1 billion annually from the government for their services.
In a letter to student loan servicers in September, Senator Elizabeth Warren and other lawmakers expressed concerns about their preparedness for the return to repayment. The servicers admitted to being worried about potential wait times and delays.
Braxton Brewington, press secretary for the Debt Collective, criticized the servicers for not adequately preparing for the transition despite having months to do so. He also pointed out that these companies have a history of mishandling borrowers’ accounts even before the pandemic. Brewington questioned why the Biden administration continues to contract with Mohela and other servicers who have financial incentives to prioritize their own interests over borrowers’ needs.
This news is developing, and updates will be provided as more information becomes available.