Teachers union sues MOHELA for allegedly mismanaging students' loan accounts

July 22 (UPI) -- One of the nation's largest teachers union filed a lawsuit Monday against Missouri's student loan servicing company, accusing it of profiting off of its mismanagement of millions of student loan accounts.

The American Federation of Teachers, which represents 1.8 million pre-K through 12th-grade educators, filed the 50-page lawsuit in the Superior Court of the District of Columbia asking it to declare the Higher Education Loan Authority of Missouri in violation of consumer protection laws.

Known as MOHELA, the company is paid more than $1.1 billion a year by the U.S. Department of Education to aid borrowers with their student loans. The teachers union accuses MOHELA of failing to live up to responsibilities and instead illegally overcharging borrowers while actively misleading them about their accounts.

In the lawsuit, the AFT states that MOHELA misleads and misinforms borrowers, fails to provide refunds, respond to borrower inquiries and process applications in a timely manner or at all, as well as miscalculates balances, overcharges borrowers, denies borrowers information and prevents its borrowers from the savings or forgiveness to which they are entitled.

"The sheer scale of MOHELA's wrongdoing is staggering and reaches across the country," the AFT said in the lawsuit, adding that MOHELA's alleged misconduct is not simply a result of incompetence but is part of its system.

"MOHELA knew exactly the responsibilities it took on as a servicer and willfully disregard those responsibilities, instead gobbling up more and more of the market even as its incapacity and unwillingness to serve existing borrowers was increasingly apparent."

The AFT continued that its members have been harmed by MOHELA's business practices and that it, itself, has been harmed because it is required by its mission to provide its members with information to address "MOHELA's failure to do its job."

Specifically, the union said it has spent "signifiant resources" to help its members through conducting debt clinics and diverting some 2,000 hours of staff time.

"Individually, any of MOHELA's failings would be sufficient to cause financial, mental and emotional distress. Collectively, they result in a Kafkaesque experience and make it practically impossible for borrowers to correct account errors, making important decisions to protect their economic well-being or even confirm basic information about their student loans," the lawsuit said.

The AFT is demanding a jury trial.

UPI has contacted MOHELA, which services 8 million borrowers, for comment.

The lawsuit was filed after the federal Department of Education announced in late October that it was penalizing MOHELA by withholding $7.2 million in payments for sending out late billing statements to 2.5 million borrowers, leading 800,000 of them to become delinquent on their loans.

Following the announcement of the lawsuit, Senate majority leader Chuck Schumer , D-N.Y., along with Senate HELP Committee Chair Bernie Sanders , D-Vt. and Sen. Elizabeth Warren , D-Mass., renewed their calls for action to be taken against MOHELA.

"MOHELA has a long history of prioritizing their own profits over servicing hard-working borrowers, and today's lawsuit from AFT outlines the extent of their greed and malfeasance," the Democratic senators said in a joint statement .

"Given the findings from AFT's lawsuit brought forward today, we urge the Department of Education to take action to hold MOHELA responsible for its harms and to protect borrowers from future abuses."