To hold the servicer accountable, the Department of Education is withholding $7.2 million in payments to MOHELA this month.
These revelations come after numerous complaints from borrowers who resumed their student loan payments for the first time in over three years following the pandemic-era payment pause. Many have experienced issues such as extended wait times for customer service calls, receiving incorrect monthly payment quotes, and even receiving bills despite being told by the government that they qualify for debt forgiveness.
Advocates and borrowers have been vocal about their demand for increased accountability from the Department of Education regarding these problems. In a proactive move, the agency publicly stated that it is withholding funds from a servicer for the first time in recent history.
“The actions we’ve taken send a strong message to all student loan servicers that we will not allow borrowers to suffer the consequences of gross servicing failures,” stated Secretary of Education Miguel Cardona in a press release announcing the withholding of funds from MOHELA. “We are committed to fixing our country’s broken student loan system, and that includes strengthening oversight and accountability and taking every step possible to improve outcomes for borrowers.”
The Challenges of Resuming Student Loan Payments
Advocates have long voiced concerns about the potential consequences of turning the student loan system back on for millions of borrowers without implementing significant changes. They argue that loan servicers have not provided borrowers with adequate information to effectively manage their federal student loans. The Biden administration has also expressed in court that resuming payments without broader debt cancellation measures could lead many borrowers into delinquency and default.
Resuming student loan payments presents additional challenges due to the Biden administration’s plan to revamp repayment plans. Earlier this year, officials introduced the SAVE plan, offering historically low monthly payments to a wide range of borrowers. However, both servicers and borrowers are still getting accustomed to the new program, which has resulted in implementation difficulties.
Furthermore, the Department of Education disclosed that approximately 305,000 borrowers received incorrect billing statements. The combination of reduced funding for the Office of Federal Student Aid, which oversees loan servicers, and the subsequent staff and call center reductions have only exacerbated the situation as payments resume.
Moreover, the agency has discovered errors made by various servicers, such as providing incorrect payment information to borrowers and mistakenly placing individuals who were scammed by their schools back into repayment status.
Navigating these challenges will require careful attention and cooperation between servicers, borrowers, and government agencies.
Borrowers Placed in Forbearance, Progress Towards Forgiveness Programs
Borrowers impacted by errors and those affected by the MOHELA billing statement issue will be placed into forbearance, according to the agency. The Department stated that any months spent in forbearance will be counted as progress towards various forgiveness programs.
Challenges for Borrowers in the Public Service Loan Forgiveness Program
While borrowers have reported difficulties with multiple servicers, MOHELA specifically works with borrowers in the Public Service Loan Forgiveness program. This program allows government employees and certain nonprofit workers to have their debt canceled after 10 years of payments and work in these fields.
For years, borrowers who met the requirements of the program have faced obstacles in accessing forgiveness due to technicalities. The Biden administration has made changes to expedite access to the program, resulting in hundreds of thousands of borrowers having their debt canceled in recent years. However, borrowers still encounter challenges in obtaining accurate payment counts and processing their forms.
Impact on MOHELA and Recent Supreme Court Ruling
Over the past several months, MOHELA has garnered attention for another reason. It was at the center of a case that challenged the Biden administration’s mass student debt relief plan. The Supreme Court ultimately struck down the plan, which aimed to provide up to $20,000 in relief for the majority of federal student loan borrowers. One of the arguments against the plan was that it would negatively impact MOHELA’s financial standing.