U.S. Department of Education Takes Action Against MOHELA for Student Loan Servicing Failures
In a move to hold student loan servicers accountable for their actions, the U.S. Department of Education has penalized MOHELA, the largest federal student loan servicer, for failing to send on-time billing statements to 2.5 million borrowers. As a result, the department will withhold $7.2 million in payment owed to MOHELA for the month of October.
The department’s decision comes after reports of widespread loan servicing errors and long wait times for borrowers to reach servicer workers who can fix mistakes. More than 800,000 borrowers failed to make an on-time loan payment in October, which marked the first month that payments were due since the pandemic pause began in March 2020.
The department aims to send a message to all student loan servicers that borrowers should not suffer the consequences of servicing failures. In an internal memo, the department identified errors affecting borrowers, including those who did not receive timely billing statements from MOHELA and those who were erroneously returned to repayment after petitioning for loan cancellation.
One borrower, Dan Szyman, shared his experience of an increase in his monthly payment from $99 to $633 due to a “system glitch” and has been unable to resolve the issue. This highlights the struggles that borrowers face when trying to navigate the loan servicing system.
To address the situation, the department has instructed all servicers to place affected borrowers into forbearance, zero out any accrued interest, and count the forbearance time toward Public Service Loan Forgiveness. This move was welcomed by borrowers, who have been facing long wait times and difficulties in reaching servicer workers.
However, Rep. Virginia Foxx, R-N.C., has placed blame on the department for these failures. She argues that Congress also bears responsibility for the mistakes, as it voted to flat-fund the office of Federal Student Aid and its loan servicing contractors.
Scott Buchanan, head of the Student Loan Servicing Alliance, has emphasized the need for more resources to handle the unprecedented number of borrowers returning to the system and the complex questions they have. Borrowers continue to face long wait times and often give up before reaching servicer workers.
MOHELA has not yet responded to requests for comment regarding the penalty and the errors in its loan servicing. The Education Department’s actions against MOHELA serve as a warning to all student loan servicers that they must prioritize the well-being of borrowers and their financial futures. The department aims to ensure that no borrower suffers the consequences of servicing failures in the future.
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