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MOHELA points finger at federal government in response to criticism of loan program

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MOHELA points finger at federal government in response to criticism of loan program

Mar 01, 2024 | 12:43 pm ET
By Annelise Hanshaw
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MOHELA points finger at federal government in response to criticism of loan program
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Public Service Loan applications are processed by federal agencies before reaching the Higher Education Loan Authority of the State of Missouri, or MOHELA. The loan servicer says the two-step process can "take months" (Getty Images).

A Missouri-based loan servicing organization pushed back Friday on allegations that it mismanaged a federal aid program, arguing the U.S. Department of Education is partially to blame for complaints included in a recent report.

The Higher Education Loan Authority of the State of Missouri, better known as MOHELA, said in an emailed statement to The Independent that the company follows all guidelines laid out by the  U.S. Department of Education’s Office of Federal Student Aid. That, the company said, may cause delays for borrowers.

“MOHELA does not have authority to process loan forgiveness until authorization is provided by FSA, which can take months to occur,” the servicer wrote.

MOHELA is currently the defendant in two class-action lawsuits filed in the U.S. District Court for the Eastern District of Missouri — one of which also cites the Department of Education as a co-defendant. The lawsuits contend MOHELA’s “failure to timely process and render decisions for student loan borrowers” impacted people nationwide.

And on Wednesday, the American Federation of Teachers and the Student Borrower Protection Center published a 47-page report detailing what they referred to as MOHELA’s “servicing failures.”

MOHELA labeled the investigation a “PR campaign.”

MOHELA faces accusations it mismanaged federal student loan forgiveness program

“It is unfortunate and irresponsible that information is being spun to create a false narrative in an attempt to mislead the public. False accusations are being disingenuously branded as an investigative report,” it said.

The organizations behind Wednesday’s report began publishing information on MOHELA after the servicer was brought into a U.S. Supreme Court case that eventually struck down widespread student-loan forgiveness. MOHELA said the investigations make it seem as though it played an “active” role in the case when in fact Missouri Attorney General Andrew Bailey brought MOHELA into the case without its cooperation.

“The campaign claims that MOHELA was an active part of a legal challenge before the Supreme Court that challenged President Biden’s student debt relief proposal. This is false. MOHELA was not an active party in the case,” MOHELA wrote.

The report alleged MOHELA wrongfully denied Public Service Loan Forgiveness (PSLF) applications and padded its pockets doing so, which MOHELA denies.

“All borrowers entitled to PSLF are expected to receive it,” its spokesperson told The Independent. “Loans that are eligible and qualified for PSLF forgiveness are provided to MOHELA by the U.S. Department of Education’s Office of Federal Student Aid for final processing and approval.”

FSA’s latest report on the status of PSLF applications, dated June 2023, says almost 890,000 applications are in “active processing.” A year prior, a month before MOHELA took over servicing of PSLF loans, the backlog was about 316,000 applications.

Borrowers have complained about long waits to receive approvals or denials, and receiving information from MOHELA can be frustrating because of a communication strategy that diverts them to the website.

In 2023, MOHELA fielded 1.3 million calls focused on Public Service Loan Forgiveness, according to its spokesperson. The servicer’s website currently warns of “high call volume.”

Democratic U.S. Senators, in a letter sent to MOHELA in July, said they were concerned that some callers waited up to nine hours to reach a customer-service representative.

In an expected surge of calls when student-loan-payments resumed in September, MOHELA unleashed a series of “call-deflection” messages, as they are called in the servicer’s communications playbook.

MOHELA said “call deflection” was a term used by FSA as it advised servicers to push customers to self-service options.

“MOHELA was directed by FSA to refer borrowers to and encourage the use of self-service options, whenever possible, to help manage the anticipated surge of millions of borrowers returning to payment at a time when all federal loan servicers were mandated by FSA to cut costs and limit customer service hours despite the anticipated high demand,”  it said.

“‘Deflection’ was used by FSA in its overarching Return to Repayment Playbook for servicers,” the statement continued.

MOHELA warned senators in August that rigid funding from the FSA would prohibit it from adding staff specifically for the surge.

It earned $68.7 million in PSLF servicing fees in fiscal year 2023, according to its financial statements.