The MOHELA Woes: Student Loan Servicer to Appear before Senate

Senate Banking Committee to grill MOHELA on failures as student loan servicer

It’s been a busy few years for student loan servicing giant MOHELA—following their meteoric rise from small-time regional servicer to one of the largest in the nation, they gained the national spotlight first as, not a plaintiff, but an interested party in the Supreme Court case blocking Biden’s student debt forgiveness. Now the Senate Banking Committee’s Subcommittee on Economic Policy has asked them to appear in April, at the invitation of Senator Elizabeth Warren, no less, to respond to their repeated failure to adequately serve student loan borrowers.

The MOHELA Papers: Revealing a pattern of misleading student loan borrowers

This isn’t the first time that MOHELA has been scrutinized for its shady student loan servicing record, but this is the first time it’s been called on to testify. In the Supreme Court case, MOHELA stayed at arm’s length and opted not to get officially involved, but rather let the Missouri Attorney General fight on its behalf. Other organizations, however, have been keeping tabs on its practices and recently shared a damning report on what they called MOHELA’s “byzantine loop of misinformation and false promises.”

In February, our friends at the Student Borrower Protection Center released a report called “THE MOHELA PAPERS: The Rise of a Student Loan Servicing Giant and the Fall of the Student Loan System,” created in partnership with the American Federation of Teachers. It documents a litany of failures, misdirection, and incompetence, which has created so much confusion and frustration that MOHELA receives more complaints to the Consumer Financial Protection Bureau than any other servicer. 

The document is staggering, outlining a host of abuses, including consistent exploitation of borrowers pursuing Public Service Loan Forgiveness. When MOHELA inherited servicing PSLF from FedLoan, there was a backlog of some 250,000 applications, which has now ballooned to 800,000. Further, the report alleges that MOHELA may actually be fraudulently rejecting some borrowers in a double-dipping scheme so that it can be paid twice for processing the same application.

Perhaps the most incendiary revelation of the document is a “call deflection” strategy, corroborated by internal communications, that were designed to direct borrowers away from representatives, even if they had needs that could only be met by speaking to customer service. Call centers were instructed to tell borrowers that they should try MOHELA’s or Federal Student Aid’s websites, regardless of whether the websites had the relevant information, even at times when MOHELA’s website was unavailable due to login issues or was in the process of updating. 

Since we deal with MOHELA on a regular basis, none of this is really surprising to us. We’ve been right there with clients who’ve been on hold for hours, listening to their dreadful hold music, navigating obtuse phone trees, and explaining policy to service representatives that are either uninformed or intentionally misdirecting. The Dept. of Ed. previously withheld a $7.2 million payment from MOHELA because of failures to live up to its contractual obligations to American student loan borrowers. We thought that was a start. While we don’t know what may or may not come out of this hearing, we are encouraged to hear that Congress is starting to take MOHELA’s offenses seriously, and we look forward to sharing more with you as they (hopefully!) continue to scrutinize their history of unacceptable service.

If you have Federal Student Loans, schedule your free 15-minute Discovery Session to find out if your loans can be forgiven after 25 years.