The U.S. Department of Education recently announced that it will be transferring some student loan borrowers who are currently serviced by Mohela to different servicers. This move comes after a series of controversies surrounding Mohela’s handling of federal student loans. The Education Department revealed that more than 1 million borrowers may be impacted by this change.
Mohela, also known as the Missouri Higher Education Loan Authority, is one of the companies contracted by the Education Department to service federal student loans. Alongside Nelnet and EdFinancial, Mohela is responsible for managing a large portion of student loan accounts in the United States. However, the company has recently come under fire for its handling of loan servicing, particularly during the Covid-19 pandemic.
In October 2023, Mohela was accused by the government of failing to send timely billing statements to 2.5 million borrowers when the pause on loan payments expired. This led to over 800,000 borrowers becoming delinquent on their loans. As a result of this error, the Education Department withheld $7.2 million in payment to Mohela. Higher education expert Mark Kantrowitz suggested that these issues may have been caused by capacity problems within the company.
In response to these controversies, the Student Borrower Protection Center and the American Federation of Teachers conducted a joint report titled “The Mohela Papers.” The report found that four in 10 student loan borrowers serviced by Mohela experienced a servicing failure since loan payments resumed in September 2023. Additionally, the U.S. Senate Committee on Banking, Housing and Urban Affairs Subcommittee on Economic Policy held a hearing to address Mohela’s performance as a student loan servicer.
Following these developments, the Education Department initiated the transfer of some Mohela borrowers to different servicers. It is estimated that Mohela will continue to service the federal student loans of at least 6 million borrowers after the transfers are completed. Borrowers who are being transferred should receive notifications from both Mohela and their new servicer and will be required to establish an online account with the new servicer.
For borrowers who were enrolled in automatic payments with Mohela, they may need to reenroll with their new servicer to continue receiving discounts on their interest rates. In the event that a borrower encounters issues with their servicer, they have the option to submit a complaint to the Department of Education’s Federal Student Aid unit.
The controversies surrounding Mohela’s student loan servicing highlight the need for stronger oversight and accountability in the education financing industry. The transfer of borrowers to different servicers is a significant step towards improving the student loan experience for millions of individuals. It is essential for the Education Department to continue monitoring servicers and taking action against those that fail to meet the needs of borrowers.