The United States Department of Education announced the penalization of student loan servicer Missouri Higher Education Loan Authority "MOHELA" over billing statement errors.
The department is now withholding millions of dollars in payment to MOHELA after the mistake that allegedly placed 800,000 borrowers into delinquency status. It added that the lender failed to meet its basic obligation of getting the statements out in a reasonable timeframe.
Penalizing MOHELA
The incident caused 2.5 million borrowers to get late statements and some of these only got their bill days before their payment was due. The department is now withholding $7.2 million in its October payment to MOHELA due to the mistake and told the student loan servicer to put all borrowers affected by the error in forbearance until it is resolved.
Any borrower who is on an income-driven repayment plan will not have the months counted against them. In a statement, Education Secretary Miguel Cardona said that the Biden-Harris Administration is looking out for borrowers at every step throughout their return to repayment, as per The Hill.
He noted that the department's oversight efforts have uncovered errors from loan servicers that they will not tolerate. Cardona added that they made immediate efforts to protect borrowers from the consequences of the error and hold the responsible servicers accountable for their mistake.
The education secretary added that the actions the department has taken send a strong message to all student loan servicers. They are also committed to fixing the United States' broken student loan system, including strengthening oversight and accountability as well as taking every possible step to improve outcomes for borrowers.
The department also discovered a "small number of borrowers" who received billing statements with incorrect payment amounts. The people on the Borrower Defense program were incorrectly placed back on repayments. Those individuals have also been placed on forbearance until the mistake is addressed.
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Billing Statement Errors
The time that the borrowers spend in forbearance will count toward any relief that they have signed up for through Public Service Loan Forgiveness or Income-Driven Repayment plans. Any interest that they accrue will also be adjusted to zero, according to USA Today.
In a statement, the chief operating officer of Federal Student Aid, Rich Cordray, said that the accountability measures will help ensure that future borrowers are not harmed and servicers understand that there are consequences to their actions if they do not meet the terms of their contracts.
The president and director of the Project on Predatory Student Lending, Eileen Connor, said that MOHELA's mistake caused significant stress and financial harm for borrowers. The organization represents borrowers whose loans were forgiven because they were misled by their institutions, their colleges suddenly closed, or they were otherwise defrauded.
A higher education expert, Mark Kantrowitz, said that he believes the incident is the first instance of the government withholding payment for a student loan servicer. He noted that borrowers are penalized for making late payments and that it was only fair for the loan servicer to be penalized for mailing late statements, said CNBC.
