The U.S. Department of Education recently announced that it will be transferring some student loan borrowers currently serviced by Mohela to different servicers. This change will impact more than 1 million borrowers under Mohela’s management. The Department of Education contracts with various companies to service federal student loans, including Mohela, Nelnet, and EdFinancial, paying them collectively more than $1 billion a year, according to higher education expert Mark Kantrowitz.
Mohela has been under scrutiny due to its handling of student loan accounts. In October 2023, the government accused the servicer of failing to send timely billing statements to 2.5 million borrowers when the Covid-era payment pause ended, causing over 800,000 borrowers to become delinquent. As a result of this error, the Education Department withheld $7.2 million in payment to Mohela. Furthermore, a joint report by the Student Borrower Protection Center and the American Federation of Teachers revealed that four in 10 student loan borrowers serviced by Mohela experienced servicing failures when loan payments resumed in September 2023.
On April 10, the U.S. Senate Committee on Banking, Housing, and Urban Affairs Subcommittee on Economic Policy held a hearing to address Mohela’s performance as a student loan servicer. The executive director of the Student Borrower Protection Center, Mike Pierce, criticized Mohela’s conduct, stating that the company has acknowledged its shortcomings by surrendering more than 10 percent of its loan servicing business. Pierce called for further action to protect borrowers, urging Education Secretary Miguel Cardona to strip Mohela of its remaining business responsibilities. Mohela has yet to respond to these allegations.
Following the transfers, Mohela will continue to service federal student loans for at least 6 million borrowers. Borrowers who are being moved to a different servicer will receive notifications from Mohela and their new servicer. They must then create an online account with the new servicer to continue managing their loans effectively. Additionally, borrowers who were enrolled in automatic payments with Mohela may need to reenroll with their new servicer to maintain any interest rate discounts. Should borrowers encounter issues with their servicer, they can file a complaint with the Department of Education’s Federal Student Aid unit.