Education Department withholding payment to student loan servicer after billing statement errors

The Department of Education announced Monday that it is withholding millions of dollars in payment to the student loan servicer Missouri Higher Education Loan Authority (MOHELA) over billing statement errors it made. 

The department said MOHELA “failed to meet its basic obligation” of getting the statements out in a reasonable timeframe, resulting in 2.5 million borrowers getting late statements. Some of the borrowers only got their bill days before their payment was due. 

As a result, more than 800,000 borrowers got put into delinquency status under MOHELA.

The department is withholding $7.2 million in its October payment to MOHELA due to the error and told the student loan servicer to put all borrowers affected by this issue in forbearance until it is resolved. Any borrower on an income-driven repayment plan won’t have the months counted against them.

“The Biden-Harris Administration is looking out for borrowers at every step throughout their return to repayment.  Our oversight efforts have uncovered errors from loan servicers that will not be tolerated. We took immediate actions to protect borrowers from the fallout of this error and hold the responsible servicers accountable, including by withholding $7.2 million in payment from one servicer,” Education Secretary Miguel Cardona said. 

“The actions we’ve taken send a strong message to all student loan servicers that we will not allow borrowers to suffer the consequences of gross servicing failures. We are committed to fixing our country’s broken student loan system, and that includes strengthening oversight and accountability and taking every step possible to improve outcomes for borrowers,” he added.

Additionally, the department found “a small number of borrowers” received billing statements with incorrect payment amounts, and people on the Borrower Defense program were incorrectly put back on repayments. Those borrowers have also been placed on forbearance until the issue is corrected.