- The Department of Education is withholding $7.2 million in payments from student loan servicer MOHELA for errors billing borrowers.
- For months, federal student loan borrowers have complained of errors by MOHELA and other servicers as they made the transition to resuming payments on federal loans that had been paused since 2020.
- The student loan system became more complicated during the pause, with the Biden administration creating new rules and payment plans.
One of the largest companies that services federal student loans is being punished by the Biden administration for errors affecting millions of borrowers.
The Department of Education is withholding $7.2 million in payments to the Missouri Higher Education Loan Authority, better known as MOHELA, for failing to send bills on time to 2.5 million borrowers, resulting in 800,000 people being delinquent on their student loans, the department said Monday. A small number of borrowers were also given incorrect repayment amounts, according to the department. All affected borrowers were placed in administrative forbearance so they won’t have to make payments or be charged interest until the mistakes are corrected.
“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,” Secretary of Education Miguel Cardona said in a statement.
MOHELA did not immediately respond to an emailed request for comment.
The action highlights how rocky the transition to student loan repayment has been for many borrowers with federal loans when a pandemic-era pause on interest and required payments came to an end in October.
During the three-and-a-half-year pause, the student loan payment system was significantly overhauled, with the department instituting many new rules and creating the SAVE plan, a new income-driven repayment plan with lower monthly payments for many borrowers, leading millions of borrowers to switch payment plans.
For months, student loan borrowers have complained of errors on the part of loan servicers—the companies that the government contracts to handle billing and customer service for federal loans—as they prepared for repayment amid these complications.
One Reddit user said MOHELA mistakenly sent them a notice that their next payment was $900 when they actually had a $0 payment under the new SAVE repayment plan, and that they had trouble getting it corrected.
“I just waited on hold for over two hours and the person who picked up the phone promptly hung up on me,” they posted. “With how awful these loan servicers are you’d think there would be some kind of recourse or punitive action.”