The Department of Education has taken action against the Missouri Higher Education Loan Authority (MOHELA), one of the nation’s largest federal student loan servicers, for mishandling hundreds of thousands of applications for repayment plans. It has decided to temporarily halt assigning new accounts to the servicer after it failed to process over 460,000 applications for income-driven repayment plans, according to a published report.
The big picture: MOHELA, which manages accounts for around 8 million federal borrowers, is under scrutiny after a series of complaints from borrowers, advocacy groups, and liberal lawmakers. These groups argue that MOHELA and other servicers have struggled to effectively handle the government’s $1.6 trillion student loan portfolio.
- Conservative lawmakers, on the other hand, claim the Department of Education is using servicers as scapegoats for its own inefficiencies.
What they’re saying: “MOHELA’s continued challenges have resulted in less-than-satisfactory quality of servicing for borrowers,” Education Secretary Miguel Cardona said. Meanwhile, Sen. Elizabeth Warren [D-Mass.] has called for the termination of MOHELA’s contract, stating, “If MOHELA can’t get its act together… the Department must consider firing MOHELA.”
- A spokesman for MOHELA said the company is “dismayed by this development” but intends to “work closely with the department on this matter, as MOHELA has consistently done.”
What’s next: MOHELA has been given 10 business days to submit a plan to the Education Department outlining how it will fix the identified problems. If it fails to comply, the company could face further consequences, including the potential termination of its contract.
- MOHELA has become the football in a battle between Democrats and Republicans over the Education Department, its role in overseeing federal student loans, and how those loans are being serviced and collected.
