October ushered in the resumption of federal student loan payments for over 28 million borrowers, concluding a three-and-a-half-year hiatus enforced during the pandemic. A mere two months into this reinstatement, Mohela (the Missouri Higher Education Loan Authority) has emerged as a standout among federal loan servicers due to administrative oversights, such as dispatching belated bills and executing erroneous auto-debits, as per grievances and interviews. Faced with interminable wait times from representatives, specific borrowers have sought counsel on subreddits and Facebook groups to navigate challenges with their accounts.
In October, Veronica Newsom, a Seattle-based therapist, experienced an alarming revelation when she discovered an automatic debit of over $600 from her bank account for a student loan payment.
Having applied for an income-based repayment plan in late summer, Newsom anticipated a sum less than $200. Mohela, the company servicing her federal student loans, appeared to debit her account the pre-pandemic monthly amount, leaving her financially strained, coinciding with a property tax payment deadline. The Department of Education penalized Mohela at the end of October, withholding a $7.2 million payment and instituting administrative forbearance for affected accounts.
Despite applying to halt automatic payments, Newsom’s request remains pending over a month later. Mohela defers inquiries about loan servicing to the Department of Education, which assures stringent monitoring and corrective actions. The return to student loan payments for a substantial cohort simultaneously predicted challenges, exacerbated by loan servicing company exits during the payment pause. This led to the transfer of numerous borrowers’ loans to new providers.
A coalition of senators, led by Elizabeth Warren, foresaw challenges faced by borrowers like Newsom and questioned loan servicing companies in July about ensuring a seamless transition and averting errors.
Mohela’s loan servicing load nearly tripled from the onset of the pandemic to this summer, with over 7.5 million borrowers in August, according to a letter responding to lawmakers’ inquiries. The transfer of accounts appears to be a primary source of many issues.
Advocates assert that this convergence of factors creates a perfect storm for borrowers, exposing and exacerbating systemic issues within the student loan servicing system. Cathy Banks, a nurse in North Carolina navigating discrepancies in bills after her loans’ transfer to Mohela, expresses frustration and uncertainty about her future financial stability.
Other borrowers, like John Ferris, find themselves receiving bills from Mohela despite their loans being eligible for forgiveness. Ferris, who participated in a class-action lawsuit resulting in loan discharge, grapples with persistent issues and frustrating customer service interactions.
Deputy Executive Director of the Student Borrower Protection Center, Persis Yu, notes that some borrowers reluctantly pay erroneous bills to avoid potential complications, highlighting their precarious situation. Ferris managed to resolve his issues by providing legal documentation, but Banks and Newsom are still awaiting resolutions, with Newsom contemplating turning off auto-payments through her bank.
The labyrinthine challenges borrowers like Newsom, Banks, and Ferris face underscore the profoundly entrenched issues within the student loan servicing system. As the Department of Education strives to address and rectify these concerns, borrowers navigate a landscape fraught with uncertainties, hoping for a more streamlined and error-free future in managing their student loans.
