Class-action lawsuits allege Missouri student-loan servicer cost borrowers time and money by delaying their applications
BY: ANNELISE HANSHAWMissouri Independent
A quasi-governmental organization based in Missouri that services student loans is facing lawsuits and a scathing report from a pair of education organizations accusing it of gross mismanagement that needlessly resulted in borrowers losing thousands of dollars.
The accusations against the Missouri Higher Education Loan Authority, better known as MOHELA, were laid out in a 47-page report released Wednesday by the American Federation of Teachers and the Student Borrower Protection Center, which alleged four in 10 of MOHELA’s borrowers have been affected by “servicing failures,” such as a backlog of unprocessed loan-forgiveness applications, payment miscalculations and wrongfully denied applications.
The accusations are echoed in a pair of lawsuits. The first, filed in December, names only MOHELA as a defendant, while a second class-action suit filed in January targets both MOHELA and the U.S. Department of Education, citing “delays” from both entities.
Both lawsuits, filed in the United States District Court for the Eastern District of Missouri, claim MOHELA’s “failure to timely process and render decisions for student loan borrowers” impacted people nationwide.
MOHELA’s executive director did not respond to a request for comment.
The problems plaguing MOHELA has been documented in reports to U.S. senators, punitive action by the U.S. Department of Education and borrower complaints.
Many complaints focus on MOHELA’s handling of Public Service Loan Forgiveness, a federal program contracted to MOHELA in 2022 after the previous servicer FedLoan Servicing didn’t renew its contract.
The Public Service Loan Forgiveness program, or PSLF, forgives the student-loan debt of borrowers who work in public service and have made 10 years of payments.
The program had flaws well before MOHELA’s involvement. In 2019, the U.S. Government Accountability Office found that 99% of applications were denied, and wrote that the Department of Education “does not provide enough information on program requirements.”
President Joe Biden’s administration has promised to revamp the program, publicizing “regulatory improvements” and a limited PSLF waiver in 2021 and 2022 that allowed borrowers to receive credit for payments not typically eligible for the program.
In December, the Department of Education announced that 750,000 had their debt relieved through PSLF, writing that “only about 7,000 borrowers had received forgiveness through these programs at the start of the Biden-Harris Administration.” PSLF was created in 2007 under President George W. Bush’s administration.
MOHELA, prior to taking on the federal PSLF contract, had almost 2.5 million borrowers. But after taking the role as the only PSLF servicer, its portfolio ballooned to nearly 7.8 million borrowers.
In an August letter to six Democratic U.S. Senators who were trying to determine if MOHELA was ready to resume payments in September, the loan servicer admitted it would not be able to hire additional staff specifically for the surge of activity it expects, blaming a fixed-rate government contract. It earned $68.7 million in PSLF servicing fees in fiscal year 2023, according to its financial statements.
“While we continue to provide various self-service options and work to ensure as many as possible customer service representatives are ready and able to answer borrowers’ inquiries, we are limited in the funding available,” MOHELA wrote in its Aug. 8 letter. “Unfortunately, we are anticipating extended wait times and servicing delays as a result.”
MOHELA reported an average wait time of less than two minutes to connect with its customer service representatives via telephone in July 2023. Complaints referenced in the class-action lawsuit say wait times reached up to nine hours in 2022.
In October, the U.S. Department of Education withheld $7.2 million in payment from MOHELA after hearing about widespread issues.
“The Department found that MOHELA failed to meet its basic obligation by failing to send billing statements on time to 2.5 million borrowers — some within only seven days of their payment date — and over 800,000 borrowers being delinquent on their loans as a result,” the Department said in a press release.
The Democratic senators wrote to Secretary of Education Miguel Cardona in December with concerns about several student-loan servicers, including MOHELA.
“A Marine Corps veteran shared his experience of repeatedly trying to contact his loan servicer, MOHELA, to inquire about the Public Service Loan Forgiveness program, but was told his estimated wait time was over 140 minutes,” they wrote the secretary. “Another public servant reported that it is ‘virtually impossible’ to reach her servicer to resolve a time-sensitive issue that, if not resolved by the end of 2023, would make her ineligible for PSLF.”
When asked by the senators, MOHELA reported it had received 36,309 complaints in a year, of which almost 4,000 were still marked “unresolved” in its internal system.
The latest PSLF report, dated June 2023, by the Office of Federal Student Aid shows the servicer has a backlog of almost 890,000 applications.
While borrowers wait for an acceptance or denial, they still receive bills. Some may qualify for forbearance, or a pause to payments, but receiving the information requires traversing long wait times and a “call deflection” strategy.
MOHELA’s multi-stage call-deflection plan is outlined in a communications playbook created around the time student loans were set to resume. The strategy diverts callers to the website — where they aren’t able to complete every task.
Complaints compiled by the American Federation of Teachers and the Student Borrower Protection Center question the decision-making process behind PSLF application denials — a problem Politico reported on in 2021 before MOHELA serviced the program.
“Other denials were due to minor paperwork mix-ups, such as ‘improperly formatting the date.’ Another reason MOHELA listed for denial was that the borrower used an expired version of the application form. Other denial codes include: missing borrower date of birth, missing borrower signature, and missing signature date,” the AFT and SBPC’s report says.
A spreadsheet obtained by the organizations show MOHELA denied Public Service Loan Forgiveness to employees of the Missouri Department of Agriculture, Parkway School District, City of Lamar and other employers that should qualify a borrower for the program. MOHELA redacted the column showing the reason for denials.
MOHELA is currently in contract with the Department of Education through the end of 2024.