MOHELA’s actions caused borrower delinquency; now they face penalties

The US Department of Education is penalizing one of the largest student loan servicers, the Missouri Higher Education Loan Authority (MOHELA), for failing to send billing statements on time to 2.5 million borrowers. The delay in sending these statements resulted in over 800,000 borrowers becoming delinquent on their loans. The Education Department will now withhold a $7.2 million payment to MOHELA and instruct the servicer to place affected borrowers in forbearance. The time spent in forbearance will count towards any relief the borrowers have signed up for, and any accruing interest will be adjusted to zero.

This move comes at a time when tens of millions of borrowers are returning to repayment after a three-year hiatus during the pandemic. The process has been chaotic, with reports of borrowers struggling to reach their servicers and receiving inaccurate information. Additionally, the department identified other mistakes, such as some borrowers receiving incorrect billing amounts and others being marked as back in repayment despite applying for forgiveness through the borrower defense process.

The penalties imposed on MOHELA aim to ensure that future borrowers are not harmed and to hold servicers accountable for their actions. Eileen Connor, president and director of the Project on Predatory Student Lending, expressed that MOHELA’s failure has caused significant stress and financial harm for borrowers who were already forgiven their loans. The Education Secretary, Miguel Cardona, stressed the department’s commitment to fixing the broken student loan system and improving outcomes for borrowers.

However, experts like Michelle Dimino of Third Way, a nonpartisan think tank, believe that the underfunding of the Federal Student Aid office by Congress contributes to the chaotic repayment process. Dimino emphasizes the importance of holding servicers accountable, but also acknowledges the resource issue at play. In a recent report, student loan borrower advocates highlighted the long wait times and misinformation that borrowers face when trying to get help from servicers. The Consumer Financial Protection Bureau is also leading a federal investigation into student loan servicers over their mishandling of repayments.

The penalties imposed on MOHELA are seen as a step towards addressing the illegal servicing practices that borrowers face. However, issues with student loan servicers persist, and further efforts are needed to improve the student loan system and protect borrowers.