Advocacy Groups Warn MOHELA, Agency That Has Pivotal Role in New Student Loan Forgiveness Initiatives

Editor's note: President Biden's student loan forgiveness plan was ultimately struck down by the Supreme Court in June 2023 via a 6-3 decision in Biden v. Nebraska.

Advocacy organizations are warning MOHELA, a Missouri-based student loan servicer, that recent actions could impact new federal student loan forgiveness initiatives, resulting in legal action against the agency. 

Here’s the latest.

MOHELA’s growing role in student loan forgiveness initiatives

Until recently, MOHELA had played a relatively minor role in the national student loan servicing space. But it has since become a major player. 

Earlier this year, MOHELA replaced FedLoan Servicing as the Education Department’s sole contractor to handle the Public Service Loan Forgiveness (PSLF) program, just as the temporary flexibilities under the Limited PSLF Waiver are set to expire on October 31, 2022. 

Editor’s note: The PSLF Waiver expired on October 31, 2022. However, you may benefit from the provisions under the IDR Adjustment, which offers many of the same perks. The IDR Waiver, or IDR Adjustment, is a one-time account adjustment to give credit for qualifying payments to borrowers on income-driven repayment plans and under PSLF.

Most transfers from FedLoan Servicing to MOHELA have been completed, and the Education Department has been directing borrowers to submit their PSLF Employment Certification forms to MOHELA for processing.

MOHELA also is involved in the Family Federal Education Loan Program, or FFELP, as a guarantor of FFELP loans. The FFEL program is an older federal student loan program where commercial lenders issued federal student loans that were backed or guaranteed by guaranty agencies, which in turn are backed by the federal government. 

In its role within the FFELP system, MOHELA has become involved (directly or indirectly, depending on who is asked) in Republican-led efforts to block President Biden’s new one-time student loan forgiveness initiative that could award $10,000 or more in loan forgiveness to up to 40 million borrowers.

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MOHELA referenced in legal action to block Biden’s one-time student loan forgiveness plan

The Biden administration is facing multiple lawsuits from private individuals, conservative-leaning advocacy organizations and Republican state officials seeking to block the new one-time student loan cancellation program. Under that initiative, federal student loan borrowers who earn income under the applicable guidelines can be eligible for $10,000 in student loan forgiveness or up to $20,000 if they received a Pell Grant.

Related: How to Apply for Biden Student Loan Forgiveness

In one of the more serious legal challenges, a coalition of Republican-led states – including Missouri – filed suit in federal court. The states allege, among other things, that the one-time cancellation initiative would deprive the states and associated FFEL entities, such as MOHELA, of revenue if a large number of FFELP borrowers consolidate their FFELP loans into a Direct loan to qualify for relief. 

Partially in response to these allegations, the Education Department abruptly amended the eligibility rules for the one-time student loan forgiveness initiative in September, blocking commercially-held FFELP loans from relief unless they were included in a Direct loan consolidation application prior to September 29, 2022.

MOHELA is not named as a Plaintiff in the lawsuit, and attorneys for the Biden administration have argued that since MOHELA has a statutory right to sue or be sued in its own name, it is suspicious that it is not directly participating in the litigation.

Nevertheless, last week, the Student Borrower Protection Center (SBPC) and the American Federation of Teachers (AFT) sent a letter to MOHELA, warning that efforts to block Biden’s signature student loan forgiveness plan could violate California state law that protects student loan borrowers, which could make the agency liable for millions of dollars in damages. 

Noting the “allegations made in this lawsuit that MOHELA would be harmed due to increased ‘compliance costs’ and ‘imminent loss of revenue in its role as a servicer’ resulting from this debt relief,” the organizations argued that “MOHELA has taken the legal position that it can veto federal student loan policy in order to protect its profits.” 

Characterizing MOHELA’s actions as “illegal student loan servicing practices,” the organizations warned that “SBPC is prepared to pursue all available legal remedies to protect all student loan borrowers injured by MOHELA’s unlawful conduct, including the pursuit of treble [triple] actual damages under California law.”

This week, Rep. Cori Bush (D-MO) sent a similar letter to MOHELA seeking further information on its potential involvement in the pending lawsuit against the Biden administration. “It is unconscionable that your company… would be involved in overtly political efforts to rob millions of their right to student loan debt relief,” wrote Bush. 

A preliminary court hearing on a potential injunction to block Biden’s student loan forgiveness plan was held last week. A decision on that hearing could come any day. 

MOHELA also manages PSLF as borrowers seek loan forgiveness under waiver

MOHELA has also replaced FedLoan Servicing as the Education Department’s contractor to administer the Public Service Loan Forgiveness (PSLF) program. Plagued by problems for years, the Biden administration established the Limited PSLF Waiver program last year, which temporarily relaxes the rules about what constitutes a “qualifying payment” towards loan forgiveness under the program. 

The Limited PSLF Waiver flexibilities are retroactive and can benefit borrowers as far back as October 2007. But the benefits are also temporary and are set to end on October 31, 2022.

Related: 7 Steps for Borrowers Seeking Student Loan Forgiveness Under Expiring PSLF Waiver

As thousands of borrowers consolidate their loans with MOHELA and submit required PSLF Employment Certification forms, the agency is taking 90 days or longer to process requests. Meanwhile, borrowers are reporting long call hold times of an hour or longer when they try to speak to customer service associates. 

Advocates have urged the Biden administration to extend the Limited PSLF Waiver beyond the October 31 deadline, particularly in light of the high volume of paperwork and phone calls that MOHELA is currently fielding. But there are no indications that officials are considering an extension.

Resources for borrowers applying for student loan forgiveness

Borrowers interested in President Biden’s one-time student loan cancellation initiative should review eligibility criteria here. An online application has officially been launched this week and can be accessed here. Borrowers can apply until April 30, 2024.

Borrowers interested in the Limited PSLF Waiver should carefully review the Education Department’s detailed online guidance regarding eligibility and the application process. The program ends on October 31, 2022.