Advocates Renew Calls to Ban MOHELA from the Student Loan Industry
October 16, 2024 | WASHINGTON, D.C. — Moments ago, the Washington Post reported that the U.S. Department of Education’s Office of Federal Student Aid (FSA) has taken action against student loan servicing giant Missouri Higher Education Loan Authority (MOHELA) for mishandling hundreds of thousands of borrower accounts and failing to process nearly half a million applications from borrowers seeking lower loan payments.
This announcement comes months after the Student Borrower Protection Center and AFT published the MOHELA Papers and after AFT filed a consumer protection lawsuit against MOHELA for mismanaging the accounts of millions of borrowers and allegedly illegally overcharging and misleading borrowers on their monthly bills.
“MOHELA thought they could get away with highway robbery, but today FSA is showing their luck is running out,” said AFT President Randi Weingarten. “We won’t stop until MOHELA pays back every single borrower whose life they’ve upended. We sued to ensure MOHELA faces the music, and now we need federal and state enforcers to follow Secretary Cardona’s lead and take up the fight to hold MOHELA accountable once and for all.”
FSA is the federal agency tasked with administering the federal government’s $1.5 trillion portfolio of federal student loans. The agency has awarded several contracts with MOHELA, collectively worth billions of dollars.
In 2023, FSA announced a new “framework for student loan servicer accountability,” promising to closely monitor MOHELA and its peers, take immediate action when these large financial firms fail, and protect borrowers from the financial consequences of servicing failures. This is the second action FSA has taken against MOHELA under this framework. In the fall of 2023, FSA withheld $7.2 million from MOHELA for failing to send more than 2.5 million borrowers’ monthly student loan bills.
“After years of treating the student loan program like a piggy bank, the walls are closing in on MOHELA and its executives,” said SBPC executive director Mike Pierce. “Today’s action against MOHELA is a clear signal by the Biden-Harris Administration to the entire student loan industry that failure will not be tolerated and that the Education Department can work in lockstep with regulators, law enforcement officials, and lawmakers to protect borrowers.”
Background
Throughout its brief tenure as a dominant participant in the student loan servicing market, MOHELA has shown it is unable to operate without causing widespread financial harm to millions of people.
- In October 2023, the U.S. Department of Education disclosed that MOHELA failed to send monthly student loan bills to 2.5 million borrowers, resulting in 800,000 borrowers missing a monthly payment.
- In February 2024, AFT and SBPC published The MOHELA Papers, the product of a years-long investigation into the company’s mismanagement of its federal student loan servicing business.
- In March 2024, AFT and SBPC petitioned the Inspector General for the U.S. Department of Education to audit MOHELA’s performance under its federal servicing contract.
- In April 2024, the U.S. Senate Banking Committee held a hearing examining MOHELA’s ‘truly shocking’ track record of borrower harm.
- In July 2024, AFT sued MOHELA for a wide range of unlawful practices, including illegally executing a “call deflection” scheme to deny service to borrowers who need help.
- In September 2024, over 50 Members of Congress, led by Congressman Jim Clyburn and Senator Elizabeth Warren, called on the U.S. Department of Education to probe MOHELA’s servicing practices under its federal contract and take action to protect borrowers “including the potential termination of MOHELA’s federal contract…”
- In October 2024, AFT and SBPC warned federal financial regulators that MOHELA forced its customers to waive their rights to hold the financial firm accountable, potentially violating a range of federal and state laws.
Further Reading
A copy of the lawsuit filed in AFT v. MOHELA is available here: https://protectborrowers.org/mohela-lawsuit/
A fact sheet outlining the specific claims brought by AFT against MOHELA is available here: https://protectborrowers.org/mohela-factsheet/
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About the AFT
The AFT represents 1.8 million pre-K through 12th-grade teachers; paraprofessionals and other school-related personnel; higher education faculty and professional staff; federal, state and local government employees; nurses and healthcare workers; and early childhood educators.
Learn more at aft.org or follow AFT on Twitter @AFTunion.
About Student Borrower Protection Center
Student Borrower Protection Center (SBPC) is a nonprofit organization focused on eliminating the burden of student debt for millions of Americans. We engage in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance racial and economic justice.
Learn more at protectborrowers.org or follow SBPC on Twitter @theSBPC.