Navigating MOHELA Student Loan Challenges: A Comprehensive Guide for Borrowers

The Higher Education Loan Authority of the State of Missouri (MOHELA), once a small not-for-profit servicer, has evolved into a significant entity in the student loan landscape, servicing the accounts of federal student borrowers across the nation. However, recent accusations and reports suggest widespread misconduct, leaving borrowers facing numerous challenges. This article aims to provide a comprehensive overview of the problems associated with MOHELA student loan servicing, offering insights and potential solutions for affected borrowers.

Allegations of Misconduct and Servicing Failures

MOHELA, contracted by the Department of Education to administer federal student loans, is facing accusations of widespread misconduct. The American Federation of Teachers (AFT) filed an amended lawsuit against MOHELA, alleging that the agency has effectively failed student loan borrowers. The complaint argues that MOHELA gives out incorrect or misleading information to borrowers, miscalculates student loan payments, and engages in practices such as call deflection that make it difficult or impossible for borrowers to resolve problems with their federal student loans.

The AFT’s complaint lays out broad allegations against MOHELA, suggesting that the student loan servicer is failing borrowers at nearly every level. According to the amended complaint, “MOHELA traps more than 6.5 million borrowers in a system of its own design, rife with errors, misinformation, and broken promises,” and the sheer scale of MOHELA’s wrongdoing is staggering and reaches across the country.

Specifically, the complaint states, “MOHELA misleads and misinforms borrowers, fails to process applications for PSLF and income-driven repayment (“IDR”) plans in a timely manner or entirely, fails to provide refunds, miscalculates balances, overcharges borrowers, fails to respond to borrower inquiries, and denies borrowers information to which they are entitled.” This has led to borrowers being unable to access savings or forgiveness programs, distrusting the accuracy of MOHELA’s statements, and being unable to recover rightfully owed money.

Reports from Federal Watchdog Agencies

Adding to these concerns, reports from federal watchdog agencies highlight systemic failures by MOHELA. The Department of Education’s Federal Student Aid (FSA) Ombudsman’s annual report warned of widespread servicing failures by MOHELA, including abuses that denied borrowers’ access to lower monthly payments. Similarly, the Consumer Financial Protection Bureau (CFPB) Student Loan Ombudsman’s annual report revealed a shocking range of processing errors, including losing borrowers’ account histories, miscalculating monthly bills, and taking the wrong amount of money from borrowers’ bank accounts.

Read also: Managing Your MOHELA Loans

These reports corroborate claims that MOHELA's business model creates roadblocks for borrowers, rather than assisting them.

MOHELA's Defense and Contractual Obligations

In response to accusations, MOHELA has defended its student loan servicing practices. A MOHELA spokesperson stated that any claims that MOHELA does not act in the best interest of the borrowers are untrue. MOHELA claims that its priority has always been on helping student borrowers navigate the complex federal repayment process.

The agency has also argued that its actions are, to some extent, dictated by its contract with the Education Department’s Office of Federal Student Aid and its need to follow federal guidelines. MOHELA stated that as a federal contractor, it is required to adhere to FSA guidelines and requirements and was directed by FSA to implement ‘call deflection strategies’ and encourage borrowers to use self-service options whenever possible to manage the anticipated high demand.

Despite these challenges, MOHELA has also pointed to successes, including processing historic levels of student loan forgiveness through PSLF during the Biden administration.

Specific Issues Faced by Borrowers

Borrowers have reported a range of specific issues with MOHELA, impacting their ability to manage and repay their student loans effectively.

Read also: MOHELA Payment Options

Call Deflection and Customer Service

One of the primary issues raised is MOHELA’s use of call deflection systems, which make it difficult or impossible for borrowers to reach a customer service agent. This results in extended call hold times and high abandoned call rates compared to other federal student loan servicers.

Misleading Information and Miscalculations

Borrowers have also reported receiving incorrect or misleading information from MOHELA, leading to confusion and potential financial harm. Additionally, miscalculations of student loan payments and balances have been cited as significant problems.

Processing Delays and Errors

Delays in processing applications for Public Service Loan Forgiveness (PSLF) and income-driven repayment (IDR) plans have been a recurring issue. Borrowers have experienced failures in receiving timely refunds and denials of information to which they are entitled.

Auto Pay Problems

Several issues can arise with MOHELA's Auto Pay system:

Denial of Application: An Auto Pay application may be denied due to the loan or account status.
Interruption of Service: Auto Pay and the 0.25% interest rate reduction will not occur during periods of deferment or forbearance.
Changes to Bank Account: If a bank account is changed, borrowers need to verify the information is set up accurately.
Manual Payments: Manual payments may be required if an interruption occurs or if not all loan sequences are set up for Auto Pay.
Processing Delays: It may take one to two billing cycles for changes to take effect.

Payment Processing Issues

Payment Application: Payments are applied to past due amounts first, followed by current due amounts. Overpayments are applied to the highest interest rate loan first.
Processing Time: Online, phone, and Auto Pay payments take 2-4 business days from the payment processing date to post.
Payment Address: The payment address may be different based upon the specific account information.
Pending Payments: Before posting, payments will show as Pending in the Recent Payments section of the Account Summary page.
Returned Payments: If a payment is returned, borrowers must contact MOHELA to make other payment arrangements.

Billing Statement Issues

Statement Generation: Monthly billing statements are generated approximately 21 days prior to the due date.
Paperless E-Delivery: Paperless E-Delivery correspondence will be delivered to the message inbox.
Inconsistent Amounts Due: Bills may reflect a lesser amount than normally due, including an amount of $0.00 due, if payments are made ahead.
Repayment Term Adjustments: Payment amounts may change because of an adjustment to repayment terms.
Due Date Changes: Borrowers can choose a more convenient due date, but the change generally takes 1 to 2 billing cycles to take effect.

Addressing Common Borrower Concerns

MOHELA provides information and options to address common borrower concerns:

Deferment and Forbearance: Deferment is an entitlement if you qualify, while forbearance is a temporary postponement of payment and should be requested as a last resort.
Loan Forgiveness: Borrowers can explore options such as Public Service Loan Forgiveness (PSLF) and Income-Driven Repayment Forgiveness.
Overpayments: Payments made over the required amount will be applied to the highest interest rate loan first.
Repayment Plans: Several repayment plans are available, including income-driven repayment (IDR) plans and extended repayment periods.
School Enrollment: If enrolled in school at least half time, borrowers will not receive monthly billing statements.

Options for Borrowers Facing Servicing Issues

Student loan borrowers experiencing problems with MOHELA have several options to explore:

Filing Disputes and Complaints

Credit Bureaus: For credit reporting issues, borrowers can file credit disputes directly with national credit bureaus.
State Ombudsman and Attorney General: Many states have state-level student loan ombudsman units or state attorney general offices that handle disputes.
Federal Elected Officials: Borrowers can contact their federal elected officials (i.e., their congressperson or senator) whose offices likely offer constituent and casework services, which can include working with federal agencies to resolve disputes.
MOHELA’s Customer Advocate Team or Ombudsman Team: If dissatisfied with the initial escalation, borrowers may request a second review or appeal the decision.

Understanding Loan Servicing Transfers

Federal student loans may transfer from one servicer to another. In such cases, the loans will still be owned by the Department of Education (ED). MOHELA will post payments within one business day after receiving them from the previous servicer.

Utilizing Online Account Management

MOHELA’s online portal allows borrowers to manage their accounts, make payments, and access important information. Through the online portal, borrowers can:

Make online payments and set up Auto Pay.
View loan details, including interest rates and balances.
Access statements and correspondence online.
Update contact information.
Explore repayment options and apply for income-driven repayment plans.

Navigating Auto Pay

Borrowers should carefully manage their Auto Pay settings to avoid issues. This includes:

Ensuring that the bank account information is accurate.
Understanding that Auto Pay may be interrupted during periods of deferment or forbearance.
Monitoring the account to ensure payments are processed correctly.
Contacting MOHELA if any issues arise.

Understanding MOHELA's Role in Legal Battles

MOHELA has indirectly played a role in some of the most contentious student loan legal battles. The state of Missouri and a coalition of other Republican-led states used arguments related to MOHELA’s financial interests to justify legal challenges over student loan forgiveness programs, with the Supreme Court ultimately siding with the state in one case. MOHELA never directly participated in these lawsuits and was not a party to the legal challenges.

The Future of MOHELA and Student Loan Servicing

The ongoing scrutiny of MOHELA’s servicing practices underscores the need for greater accountability and oversight in the student loan industry. Borrowers must stay informed about their rights and options, and advocate for improved servicing standards.

The AFT's lawsuit and the reports from federal watchdogs highlight the importance of holding student loan servicers accountable for their actions. As the legal and regulatory landscape continues to evolve, it is crucial for borrowers to remain vigilant and proactive in managing their student loans.

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