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 affect more than 1 million borrowers, with the department citing the need for a different servicer to manage these loans and assist borrowers. This decision comes after Mohela faced controversy due to allegations of failing to send timely billing statements to borrowers after the Covid-era payment pause expired.

The Education Department contracts with various companies, including Mohela, Nelnet, and EdFinancial, to service federal student loans. These servicers are paid more than $1 billion annually for their services. In the case of Mohela, the company has been dealing with capacity issues and servicing failures, as highlighted in a joint report by the Student Borrower Protection Center and the American Federation of Teachers.

The U.S. Senate Committee on Banking, Housing, and Urban Affairs Subcommittee on Economic Policy recently held a hearing to discuss Mohela’s performance as a student loan servicer. The committee highlighted the number of servicing failures experienced by borrowers and the need for greater protection of student loan borrowers. As a result, Mohela voluntarily surrendered a portion of its loan servicing business, signaling a recognition of its shortcomings in servicing borrowers.

After the transfers, Mohela is estimated to still service the federal student loans of at least 6 million borrowers. Borrowers who are being transferred to a different servicer will receive alerts from Mohela and their new servicer. They will need to establish an online account with the new servicer and may need to reenroll in automatic payments if they were previously enrolled with Mohela. If borrowers encounter any issues with their servicer, they can submit a complaint to the Department of Education’s Federal Student Aid unit for assistance.

The changes in federal student loan servicers, particularly the transfer of borrowers from Mohela to different servicers, underscore the importance of effective loan servicing and borrower protection. It is essential for servicers to uphold their responsibilities and provide timely and accurate services to student loan borrowers to ensure their financial well-being. The scrutiny faced by Mohela and the subsequent actions taken by the Education Department highlight the need for continuous monitoring and improvement in the student loan servicing industry.


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