From regional student loan servicer to industry titan, MOHELA is now at center of loan forgiveness lawsuit

A couple of years ago, even student loan industry stalwarts had heard of MOHELA in passing. Now, the Missouri Higher Education Lending Authority is on the lips of news organizations across the country and can even be found in briefs before the U.S. Supreme Court. Although now one of the largest student loan servicers in the nation—an industry that oversees the nearly two-trillion-dollar national student loan debt—there’s startlingly little information available about the company.  Just how did this former dark horse catapult to national prominence and secure loan contracts for millions of Americans, including those pursuing the popular, but beleaguered, Public Service Loan Forgiveness program?

Humble Beginnings: Helping Missourians pay for college

The Missouri state legislature created MOHELA in 1981 (RSMo 173.360) for the purpose of “to assure that all eligible postsecondary education students have access to student loans that are guaranteed or insured” and support the financial projects of Missouri colleges and universities. A “public instrument,” and serving an “essential public function,” its leadership is appointed by the governor and state board of education. Expanding upon its original mandate, MOHELA eventually entered the national student loan scene later by picking up private servicing contracts—such as those of SoFi—and those federal student loans in 2011. From there, its portfolio exploded following the announcement that the Pennsylvania Higher Educations Assistance Agency would no longer service federal student loans. 

PHEAA, FedLoan, PSLF, and MOHELA

The student loan world was rocked in June of 2020 when one of the four largest servicing companies, PHEAA—known to many through its subsidiary, FedLoan Servicing—would be giving up its federal contracts later that year. It was a particular shock to those working towards Public Service Loan Forgiveness, as FedLoan Servicing had been the exclusive servicer for all of those borrowers’ loans. While PHEAA claimed it was abandoning the federal loan business because of increasing costs and complexity, some experts deduced that increased public scrutiny and the threat of looming penalties for mismanagement were on the horizon. FedLoan Servicing’s departure, in particular, posed a quandary for the Department of Education as it would have to reassign PSLF pursuants’ loans to a new servicer while retaining their forgiveness progress data. Fortunately, there was already a little-known servicer in Missouri that was already using PHEAA’s proprietary loan tracking software, which could help facilitate a smooth transition for those borrowers. By absorbing many of FedLoan Servicing’s customers, MOHELA suddenly more than doubled that number of federal student loans it was managing, but also positioning it for friction with authorities in Washington.

MOHELA & the Dept. of Ed: biting the hand that feeds it?

Even before he took office, President Biden made it clear that he had student loan reform in his crosshairs and quickly appointed reform-minded officials like Miguel Cordona and Richard Cordray to positions in the Dept. of Ed. In addition to renewing much-needed oversight of servicers, the Department set out to investigate a number of student loan reforms. PSLF has been at the center of many of these efforts, but perhaps garnering the most national attention has been blanket $20k forgiveness for all federal loan borrowers. The process has been slowed by a persistent legal debate around the President’s authority to forgive these debts and now, the end is in sight as the Supreme Court is set to hear arguments in February. The irony, however, is that one of the plaintiffs at the heart of this case is the State of Missouri, whose Attorney General argues that broad loan forgiveness of federal student loans would cause financial harm to none other than MOHELA. 

Although the question of presidential student loan forgiveness has dragged on for nearly two years at this point, we’re confident that we’ll have an answer soon. Stay tuned and we’ll share more information as soon as we have it! In the meantime, if you have questions about your student loans—of all kinds—we’re just a phone call or email away!