The Biden administration is cracking down on Missouri Higher Education Loan Authority (MOHELA) one of the biggest federal student loan servicers due to mistakes in managing accounts. The Education Department is temporarily stopping the assignment of new borrower accounts to MOHELA which could affect the companyʼs profits.
Education Secretary Miguel Cardona stated that MOHELAʼs ongoing issues have resulted in less-than-satisfactory quality of servicing for borrowers. The company is required to submit a plan to fix the problems within 10 business days of notification.
Since the resumption of student loan payments about a year ago borrowers advocacy groups and liberal lawmakers have complained about the poor performance of companies managing the governments $1.6 trillion portfolio. Servicers argue theyʼre dealing with many directives from the Biden administration‚ stretching their resources. Conservative lawmakers accuse the department of using contractors as scapegoats for their incompetence and to score political points before the election.
The Education Department accuses MOHELA of struggling to keep up with its contract to serve around 8 million federal borrowers. One of the most serious concerns is the companys neglect to process hundreds of thousands of applications for income-driven repayment plans which tie a borrowers monthly bill to their earnings and provide loan forgiveness after 20 or 25 years.
Emotionally‚ this takes a toll
The department also accuses MOHELA of not implementing the SAVE plan on time resulting in billing delays and 280‚000 borrowers being placed in forbearance. Additionally‚ MOHELA is accused of incorrectly capitalizing interest on borrowers accounts causing balances to increase and not transferring files on time.
Advocacy groups are pressuring the Education Department to fire MOHELA amid complaints from borrowers. Senator Elizabeth Warren and other Democrats have urged Secretary Cardona to terminate MOHELAs contract pending a review of its performance.
Republicans say the Education Department is responsible for servicing incidents because the agency has failed to provide clear guidance while adding new initiatives and telling servicers to scale back their operations. Some conservatives accuse the administration of targeting MOHELA because of the servicers ties to ongoing litigation that has halted several of Bidens student loan policies.
The Biden administration has increased oversight of servicers since the end of the covid-related student loan payment pause. In 10/2023‚ the administration withheld $7.2 million from MOHELA for failing to send timely billing statements to 2.5 million borrowers. Similar actions were taken against other federal servicers in 01/2024