CFPB Student Loan Ombudsman and FSA Ombudsman Both Warn of Widespread Failures by MOHELA Amid Historic Spike in Borrower Complaints
November 19, 2024 | WASHINGTON, D.C. — Yesterday, a second independent federal watchdog released a scathing new report, warning that student loan giant MOHELA is systematically failing borrowers. The U.S. Department of Education’s Federal Student Aid (FSA) Ombudsman’s annual report warned of widespread servicing failures by MOHELA, including abuses that denied borrowers’ access to lower monthly payments. This report came less than 72 hours after the Consumer Financial Protection Bureau (CFPB) Student Loan Ombudsman’s annual report revealed that MOHELA committed a shocking range of processing errors, including losing borrowers’ account histories, miscalculating monthly bills, and taking the wrong amount of money from borrowers’ bank accounts. In both reports, MOHELA received the most complaints of any student loan company in America—a volume of breakdowns that far outpaces the company’s market share.
“MOHELA’S business model is to create roadblocks for borrowers, not help them,” said Mike Pierce, Student Borrower Protection Center (SBPC) executive director. “The company has turned student loan servicing into a game of ‘pass the buck,’ all at the expense of working families trying to make ends meet. This is more than just mismanagement; it’s a betrayal of the public trust.”
Both new reports show that MOHELA’s abuses affect borrowers of all ages, with every type of loan, mishandling a wide range of benefits and protections guaranteed to working people with student debt.
From the reports:
“[Despite] customer service … escalat[ing] my case multiple times over the past year without any response,” a teacher told the CFPB Student Loan Ombudsman, “[MOHELA insisted I had] missed payments when I have proof of being in [forbearance] … MOHELA has continued to drop the ball and I may need to seek legal support after dealing with this for a year.”
“I have made 120 payments on the PSLF program. MOHELA is still sending me bills,” another borrower explained to the FSA Ombudsman. “I have submitted two PSLF forms to them in the last 6 months reminding them that I was ready for discharge of my remaining balance. Why am I still getting billed? When will I be provided with a letter of forgiveness? I am 71 years old, way past retirement, I need to resign my job and move on with my life.”
The CFPB Student Loan Ombudsman also warns that MOHELA may be improperly attempting to escape liability for its abuses by hiding behind its status as a federal government contractor, explaining that “[s]ervicers [like MOHELA] claim that because they are purportedly operating within the four corners of their contracts, they are immune from being held responsible for violations of consumer protection laws. They are not.”
These reports come months after SBPC 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 stands accused of systematically denying borrowers service and executing a “call deflection” scheme to funnel borrowers toward bad information and avoid resolving servicing errors.
The FSA Ombudsman’s Report, contained in the 2024 FSA Annual Report, is available at:
https://www.ed.gov/media/document/2024-fsa-annual-report
The CFPB Student Loan Ombudsman’s annual report is available at:
https://files.consumerfinance.gov/f/documents/cfpb_2024-annual-student-loan-ombudsmans-report_2024-11.pdf
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/
###
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.