Millions of student-loan borrowers' payments are being 'wildly' mismanaged by a major servicer — and it might be time to terminate its contract, over 50 Democratic lawmakers say

• A group of Democratic lawmakers requested increased oversight over student-loan company MOHELA.
• They said that the Education Department should consider ending MOHELA's contract.
• MOHELA has faced two recent lawsuits accusing it of mismanaging borrowers' accounts.

It might be time for the Education Department to consider firing a major student-loan company, a group of Democratic lawmakers say.

On Monday, Sen. Elizabeth Warren and Rep. Jim Clyburn led over 50 of their Democratic colleagues in sending a letter to Education Secretary Miguel Cardona regarding the performance of student-loan company MOHELA .

The lawmakers said they were concerned MOHELA was failing to meet its contractual obligations regarding delivering accurate and timely information to borrowers regarding their payments. For example, in October last year, the Education Department withheld over $7 million in pay from the servicer over its failure to send on-time billing statements to 2.5 million borrowers.

Since then, two advocacy groups have filed separate lawsuits against MOHELA, accusing the company of overcharging borrowers and denying relief to those who experienced school misconduct. A MOHELA spokesperson previously told Business Insider that "providing support to student loan borrowers is the utmost priority to MOHELA, and any claims to the contrary are false."

However, the lawmakers argued that the servicer is continuing to harm borrowers, and they want the Education Department to provide answers.

Given the lawsuits' accusations of "MOHELA's billing errors, poor customer service record, and decisions to avoid public and private accountability at every turn, we request that ED immediately conduct an evaluation of MOHELA's fulfillment of its contractual obligations as a servicer, share key data with our offices and federal and state regulators, and act quickly to apply corrective measures—including the potential termination of MOHELA's federal contract if such action is justified," the lawmakers said.

They requested a range of information from the department regarding MOHELA by September 22, including the servicer's performance metrics compared to other servicers and the number of complaints the department has received from borrowers regarding MOHELA.

The Education Department released an accountability framework in December to ensure servicers meet their contractual obligations. Cardona said in a statement at the time that "the Department of Education will continue to engage in aggressive oversight of student loan servicers and put the interests of borrowers first."

"When unacceptable errors are uncovered, servicers should expect to be held accountable and borrowers should count on this administration to hold them harmless," Cardona said.

Ongoing lawsuits against MOHELA

In July, the American Federation of Teachers filed a lawsuit against MOHELA accusing the company of illegally overcharging borrowers and providing them with inaccurate information that prevented them from obtaining lower payments and debt relief.

As one of the largest teacher unions in the US, many of AFT's members qualify for Public Service Loan Forgiveness, which forgives student debt for government and nonprofit workers after 10 years of qualifying payments. The lawsuit said that MOHELA did not properly communicate billing changes to borrowers, leading to confusion and delays in relief.

Additionally, a group of student-loan borrowers in California filed a lawsuit on September 5 that accused MOHELA of failing to deliver debt discharges to borrowers who have faced school misconduct. Beginning in 2022, the Education Department approved discharges for a range of for-profit schools, including Corinthian Colleges and ITT Technical Institute. However, the lawsuit said that MOHELA put some of those loans already approved for discharge back in repayment status and has since failed to rectify the situation.

The lawsuits are still pending, and they build on pressure from Democratic lawmakers to increase oversight over MOHELA. In February, Warren joined Sens. Bernie Sanders and Chuck Schumer in calling for an investigation into MOHELA , and Warren later held a hearing in April to examine MOHELA's performance.

"Our respective organizations have filed suit against MOHELA to vindicate borrowers' rights in court and will continue to fight until borrowers get the justice they deserve," advocacy groups the National Consumer Law Center, Project on Predatory Student Lending, and Student Borrower Protection Center said in a joint statement.

"It is long past time for ED to conduct a robust review of MOHELA's failures," they continued. "We are thrilled to see such a broad coalition of policymakers stand in solidarity with the millions of student loan borrowers calling for accountability and urge the Department to act immediately."