Student Loan Giant Caught Deploying “Call Deflection” Scheme, Jeopardizing Relief for Millions

WASHINGTON, D.C. — Today, the AFT and the Student Borrower Protection Center (SBPC) released the results of a years-long investigation into industry mismanagement of the student loan system—exposing a scheme to deny service to millions of working people with student debt by the student loan company responsible for handling the Public Service Loan Forgiveness (PSLF) program. MOHELA’s scheme imperils the historic progress made by the Biden Administration to repair the scandal-plagued student loan safety net, jeopardizing future debt relief for millions of people.

The Higher Education Loan Authority of the State of Missouri (MOHELA) executed a previously unknown “call deflection” strategy—denying service to borrowers harmed by the firm’s mishandling of millions of student loan accounts. AFT and SBPC estimate that more than four-in-ten student loan borrowers in repayment with loans serviced by MOHELA have experienced a servicing failure since loan payments resumed in September 2023, after a three-and-a-half-year-long pause on bills and interest charges.

View “The MOHELA Papers: the findings of a joint investigation by the Student Borrower Protection Center (SBPC) and the AFT,” here: www.mohelapapers.org

“We had high hopes for MOHELA, but just like Navient, it decided to put profits over borrowers in flagrant disregard of the Biden Administration’s efforts to fix this country’s broken loan forgiveness system,” said AFT President Randi Weingarten. “Time and time again, MOHELA has decided to thwart, rather than support, the President’s plans. This report shines a spotlight on the incompetence, malfeasance, and blatant disregard of a company that should be trying to help borrowers achieve their dreams. It’s a scandal that has hurt millions—and it’s time MOHELA is held to account.”

“For millions of MOHELA’s customers, the dream of a future without student debt has turned into a nightmare of detours, dead-ends, and endless red tape, all so the once-sleepy state agency could grow into a financial services giant,” said Persis Yu, Deputy Executive Director and Managing Counsel of the Student Borrower Protection Center. “Our investigation shows that this was all part of an elaborate plan—MOHELA knew it could never meet its customers’ needs, so it chose to ‘deflect’ them instead.”

One year ago today, the Supreme Court heard arguments in Biden v. Nebraska, the case that would ultimately block President Biden’s first effort to deliver student debt relief to 40 million people. In that case, the Missouri Attorney General was able to exploit MOHELA’s status as a state-chartered financial firm to obtain legal standing– ultimately landing the blow that denied hundreds of billions of dollars in student debt relief to working people across the country.  

About the Report

In the first decade after Congress created PSLF, fewer than 8,000 public service workers received debt relief, as private firms hired by the federal government rejected 98 percent of applicants each year. Under President Biden’s leadership, the Public Service Loan Forgiveness program now works as intended, cancelling debt for nearly 800,000 public service workers since 2021.

The joint investigative report by SBPC and AFT revealed troubling findings related to MOHELA’s servicing of the PSLF portfolio that shows that servicing failures by MOHELA are interfering with the President’s progress, as borrowers pursuing PSLF are being left stranded. Borrowers have struggled with a months-long PSLF backlog (currently consisting of over 800,000 unprocessed PSLF forms), as well as continued denials of promised relief and lack of or misinformation, that causes years-long setbacks, incorrect monthly payments, and missing records or lost payments.

Never-before-seen documents expose a company-wide playbook utilizing a “call deflection” scheme, which ensured that borrowers caught in a byzantine loop of misinformation and false promises were unable to resolve servicing errors. The “call deflection” scheme diverts borrowers away from customer service representatives—often to non-operative parts of the MOHELA website—even though many servicing functions can only be performed by a customer service representative.

MOHELA’s broader servicing failures prevent borrowers from getting critical information and accessing their rights, including the Administration’s new income-driven repayment plan, Saving on a Value Education (SAVE). These problems are interrelated and compound the harm to borrowers. As the results of this investigation reveal, MOHELA’s actions as the federal government brought an end to the three-and-a-half-year COVID payment pause are cause for alarm. Advocates warn that without immediate intervention and action by federal and state regulators, MOHELA’s actions will have long-standing consequences for millions of borrowers.

Background

MOHELA was created in 1981 by the Missouri legislature “to assure that all eligible postsecondary education students have access to student loans” and is considered a “quasi-governmental entity,” as the law empowers MOHELA to act independently of the State. Despite its legal independence, MOHELA is arguably most infamous for its central role in Biden v. Nebraska, in which the Supreme Court determined that the State of Missouri had standing to challenge President Biden’s debt relief plan because of potential harm to MOHELA—leading to the denial of critical debt relief to 40 million federal student loan borrowers. 

But MOHELA’s role in the $1.7 trillion federal student loan market goes beyond depriving borrowers of one-time debt relief. No longer a small Missouri-based company, MOHELA is now one of the largest federal student loan servicers, servicing the accounts of federal student loan borrowers in every state and the sole servicer for borrowers seeking Public Service Loan Forgiveness. During the payment pause, MOHELA more than tripled its portfolio of Department of Education (ED)-held federal loans. In early February, the company expanded once more, taking on the servicing of all of Navient’s private and federal loans—making it now one of the largest servicing companies in the country. 

In January, the Consumer Financial Protection Bureau (CFPB) published an Issue Spotlight on the federal student loan return to repayment. In addition to identifying a number of problems affecting borrowers across all servicers, it warned that “excessively delayed processing student loan program forms” and “failing to provide, for an extended period, an adequate avenue for consumers to timely resolve disputes or inquiries by phone” as unfair and deceptive acts and practices. 

Further Reading

The MOHELA Papers: www.mohelapapers.org

SBPC’s report series: Delivering Distress: How Student Loan Companies Cheat Borrowers Out of Their Rights

SBPC’s press release: U.S. Department of Education Finds Widespread Servicing Failures Across the Student Loan System, Advocates Urge Follow-On Action By Law Enforcement

SBPC and AFT’s cease and desist letter to MOHELA: Missouri-Based Student Loan Giant Accused of Illegal Loan Servicing Practices, Scheme to Block Student Debt Relief for Millions of Borrowers

SBPC’s press release addressing first MOHELA email scandal: “Are we the bad guys?” Never-Before-Seen Emails Reveal the Scramble that Ensued when Missouri Sued to Block Student Debt Relief

SBPC’s blog following test of the student loan servicing system: Dropped Calls, Hours on Hold, and Unanswered Questions: Student Loan Borrower Call-In Day Shows Servicers Are Alarmingly Unprepared to Return to Repayment