The U.S. Department of Education has been in the spotlight lately. Issues have arisen with the 2024-2025 FAFSA release and federal student loan servicing. Following the rejection of the Biden-Harris student loan forgiveness opportunity by the U.S. Supreme Court, federal student loans resumed repayment after three years of pandemic relief.
Borrowers continue to grapple with understanding repayment, the new SAVE Plan, and student loan forgiveness opportunities. Amidst this, student loan servicers have come under scrutiny. Federal budget cuts impacted contracts with servicers, reducing resources at the call centers. One servicer facing criticism is the Missouri Higher Education Loan Authority, MOHELA.
Who is MOHELA?
MOHELA is a Direct Loan federal student loan servicer, known as a small, not-for-profit servicer, or NFP. They were the first Direct Loan servicer to be awarded an NFP contract in 2011. Throughout their time working with the U.S. Department of Education, MOHELA has increased their Direct Loan servicing portfolio size from 2.5 million in 2020 to 8.4 million by the fall of 2023.
During the pandemic relief period, the U.S. Department of Education’s specialty servicer for Public Service Loan Forgiveness (PSLF), FedLoan Servicing, announced that they would not renew their servicing contract with the U.S. Department of Education. As FedLoan Servicing transitioned out of Direct Loan servicing, MOHELA became the specialty servicer for PSLF.
While MOHELA services borrowers who are not pursuing PSLF, until future changes are made to the Direct Loan servicing services, they are the servicer who will manage the accounts of any borrower seeking PSLF. Any borrower who submits an Employment Certification Form (ECF) or PSLF application will have their Direct Loans transferred to MOHELA.
Historically, the PSLF specialty servicer faces significant criticism. The PSLF program has had a rocky past. Until certain eligibility criteria of the PSLF program were waived in 2021-2022, only two percent of PSLF application were approved from 2017-2021. FedLoan Servicing also faced a decent amount of scrutiny of their administration of the PSLF program. While FedLoan Servicing stated that they would not be continuing as a federal student loan servicer back in 2021, they did emphasize their decision was to focus on the students in the state of Pennsylvania. FedLoan Servicing was part of the Pennsylvania Higher Education Assistance Agency, PHEAA. They also noted in their statement that the Direct Loan programs “have grown increasingly complex and challenging while the cost to service the programs increased dramatically."
The MOHELA Papers
The Student Borrower Protection Center (SBPC) and the American Federation of Teachers (AFT) authored a paper that alleged improper servicing at MOHELA. That paper has been dubbed, The MOHELA Papers. The papers outline issues borrowers have faced, including:
- Billing Statement Delays: The first month federal Direct Loan re-entered repayment, MOHELA failed to send their billing statements on time to 2.5 million borrowers.
- Customer Service: Numerous complaints have surfaced about extended waiting times and inadequacy in addressing customer queries, raising fundamental concerns about their service delivery.
- Implementing Call Deflection. The papers describe the use of call deflection methods to avoid helping students with repayment issues.
- PSLF Repayment Accuracy: The paper describes the issues regarding the PSLF repayment counts for borrowers. Borrowers feel as though they have been denied or not appropriately qualified for PSLF.
- Loan Forgiveness Errors: The most egregious of all issues is the incorrect forgiveness of student loans, resulting in a debacle that required reinstating forgiven loans and restoring the financial obligations of borrowers.
MOHELA’s Response
MOHELA has issued a cease-and-desist response to the SBPC, refuting their claims as sensationalized, inaccurate, and misleading. They defend their actions as a servicer and highlight alignment with directives from the U.S. Department of Education's Office of Federal Student Aid. In return, the SBPC and AFT see the cease and desist as further evidence of MOHELA's wrongdoings.
The MOHELA Papers and the MOHELA response have caught the attention of Senator Elizabeth Warren of Massachusetts. Leading her to request that Scott Giles, CEO of MOHELA, testify before the U.S. Senate committee on Banking, Housing, and Urban Affairs' Subcommittee on Economic Policy. MOHELA has not yet responded to this request.
Federal Student Loan Servicers and NextGen Servicing
The U.S. Department of Education’s Office of Federal Student Aid is dedicated to enhancing the user experience for federal student loan servicing and borrowers. Through the Unified Servicing and Data Solution (USDS) initiative, slated to launch in stages from spring 2024, improvements aim to streamline borrower services. These enhancements will centralize account management on StudentAid.gov, simplifying the process for borrowers across all loan types.
Upon expiration of current federal student loan servicer contracts, five servicers were awarded contracts to continue managing the servicing of Direct Loans. This consolidation seeks to standardize servicing practices, ensuring a more coherent borrower experience. While a significant undertaking for Federal Student Aid, the launch of NextGen and USDS remains pending, with challenges observed during the repayment transition for FSA and servicers.
The Future of Servicing and MOHELA
MOHELA has been awarded a servicing contract under the USDS initiative. However, they are currently battling the allegations brought against them. It is concerning to see that MOHELA has been pointing back at the U.S. Department of Education, stating that many of the accusations are due to the constraints provided by the contractual requirements with the U.S. Department of Education.
Federal student loan servicing has the potential to be another pain point for the U.S. Department of Education. Borrowers have been struggling to determine the best way to manage their existing debt, and they have been frustrated for a variety of reasons. There are 38.1 million Direct Loan borrowers who will be repaying their loans through the Direct Loan servicers. With changes happening in federal student loan servicing, driven by new efforts, and surrounded by controversies, the future direction for MOHELA and the wider servicing network is crucial in shaping the experiences of millions of borrowers managing their educational debts.