2.5M student loan borrowers hit with billing mistakes, Education Department says

Education Department officials disclosed on Monday that one of the agency’s contracted loan servicing companies failed to send timely billing statements to 2.5 million borrowers over the past month, resulting in hundreds of thousands of borrowers missing their payments.

The loan servicing errors by the Missouri Higher Education Loan Authority, known as MOHELA, were so serious, officials said, that the department would withhold $7.2 million of compensation due to the company for October.

The department said that MOHELA, which the Biden administration awarded a new contract in April after extending its contract in 2021, had failed to meet a “basic obligation” as a loan servicer.

Servicers are typically required to send billing statements to borrowers at least 21 days before their payments are due. But the Education Department said that in some cases MOHELA sent borrowers a bill only seven days before a payment was due.

Of the 2.5 million borrowers who were sent late billing notices by MOHELA, approximately 800,000 borrowers subsequently became delinquent on their loans, according to the department.

The Education Department said that it had directed MOHELA to place those roughly 800,000 borrowers in a temporary forbearance and set their interest rates to 0 percent until the billing issues are “resolved.” Those benefits will take effect retroactively for Oct. 1, a department official said. Any month that the borrowers are in the forbearance will count towards Public Service Loan Forgiveness and forgiveness under income-driven repayment plans.

MOHELA officials did not immediately respond to a request for comment.

The errors are the latest hiccup for the Biden administration’s efforts to restart student loan payments for tens of millions of Americans this fall after a three-and-a-half-year pandemic pause.

Earlier this month, the Education Department reported that more than 300,000 borrowers were billed incorrect amounts after they enrolled in Biden’s new SAVE income-driven repayment plan.

On Monday, Education Department officials also said they had also identified other loan servicing errors at multiple companies, though they did not name them. Officials said “a small number of borrowers” received incorrect payment amounts on their bills. In addition, the officials said, servicers had erroneously begun collecting on loans that should have been paused because the borrower has a pending borrower defense claim.

Education Secretary Miguel Cardona said that the penalty against MOHELA was meant to “send a strong message to all student loan servicers that we will not allow borrowers to suffer the consequences of gross servicing failures.”

Rich Cordray, the head of Federal Student Aid, said that the agency had detected the mistakes by MOHELA through “vigorous monitoring of borrower accounts.” He said that FSA would “not tolerate errors from loan servicers that cause confusion and unwarranted financial instability for borrowers and families.”

MOHELA was at the center of the Supreme Court case that invalidated the Biden administration’s student debt relief program earlier this year. The conservative majority at the Supreme Court ruled that the Republican attorney general of Missouri had standing to bring his lawsuit challenging debt relief because MOHELA would suffer financial injuries as a result.