A major student loan company has asked to no longer service certain borrowers in its servicing portfolio.
On Monday, Federal Student Aid published a blog post — first reviewed by Business Insider — announcing that starting this week, it would begin moving some student loan borrowers’ accounts from MOHELA to other federal services.
A Department of Education spokesperson told BI it expects this transition to impact more than 1 million borrowers, but that number is likely to change as the transition progresses.
“MOHELA requested these transfers and FSA, as part of its work to ensure borrowers receive the best service and support, has agreed to this route,” the blog states.
According to the FSA, it has already started working with MOHELA and other service providers to effectively manage these transitions. Affected borrowers will receive notice from MOHELA and their new servicer informing them of the actions they need to take to complete the transition. This includes creating an account with their new provider, ensuring they have their contact details and ensuring all payment settings, such as banking information, are up to date.
The transition is expected to be completed “over the coming months”, according to the FSA, and affected borrowers will still be able to benefit from reforms expected to be implemented over the summer, including new provisions in the focused repayment plan on SAVE income to allow lower monthly payments.
Regarding Public Service Loan Forgiveness Program borrowers, the Department of Education has already announced that beginning May 1, the program will be suspended as PSLF borrowers transition from being administered by MOHELA managed by federal student aid. Monday’s announcement will operate in accordance with this change.
“MOHELA continues to serve as one of the Department’s federal student loan servicers and will continue its support of millions of student borrowers,” the blog states. “FSA will work closely with MOHELA and our other federal student loan servicers throughout the transition period to create a smooth process for borrowers.”
The announcement comes as the Department of Education works to overhaul the student loan servicing industry to make it easier for borrowers to use. Since student loan payments resumed in October after a pandemic pause of more than three years, many borrowers have reported wait times of several hours with their agents, as well as inaccurate and delayed billing statements, among a list of other errors.
MOHELA was the first servicer to be sanctioned by the Department of Education in October for failing to send billing statements to 2.5 million borrowers on time, resulting in a withholding of more than 7 million dollars from his salary. The department has since released an accountability framework to strengthen oversight of service providers, pledging to take additional action if it finds a federal contractor is not meeting its contractual obligations.
Some Democratic lawmakers have also pushed for greater oversight of MOHELA. Sen. Elizabeth Warren held a hearing earlier in April to review MOHELA’s performance, and although the company’s CEO declined to attend, MOHELA said in a statement that she was offering briefings instead meetings with legislators to answer their questions.
Warren told BI in a statement that less than three weeks after holding the hearing, “the Department of Education is taking critical steps to protect student loan borrowers.”
“The Department of Education can do more to hold MOHELA accountable, but today’s action is an important first step,” Warren said.
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