Tens of thousands of federal student loan borrowers will soon have their accounts switched to new servicers, as the Department of Education plans to transfer an unspecified number of loans away from MOHELA by year’s end. The change arrives amid growing criticism of MOHELA’s handling of borrower accounts and customer service.
What’s happening with student loans?
The Education Department manages its massive portfolio of student loans through various contractors, including Nelnet, Aidvantage, EdFinancial, and MOHELA. In a recent letter by Acting Assistant Secretary for Legislation and Congressional Affairs Sarah Ursprung to Senator Elizabeth Warren (D-Mass.), the agency plans to transfer part of MOHELA’s portfolio “later this year” in an effort to improve service to borrowers.
MOHELA previously serviced the Public Service Loan Forgiveness (PSLF) programme before the operation was transferred to StudentAid.gov. Currently, because borrowers no longer need to stick with a specific servicer in order to be eligible for PSLF, their loans may be transferred without affecting forgiveness eligibility.
Why MOHELA is under fire
MOHELA has been accused of sending out false billing reports, providing false notices of interest accrual, and making it impossible for customers to reach customer service. Grievances by advocacy groups — among them the Student Borrower Protection Centre and the American Federation of Teachers — allege MOHELA used “call deflection” tactics that kept borrowers stuck in endless loops of automated systems unable to help them.
Senator Warren has been particularly vocal, calling MOHELA’s service “atrocious” compared to other loan servicers. She noted that, in late 2024, MOHELA answered calls seven times more slowly than even the most inept servicer.
Warren asked Education Secretary Linda McMahon to disclose more information about the plan to transfer and how the department is going to hold MOHELA accountable.
MOHELA, however, maintains that it does not do anything untoward. “Any recommendations that MOHELA doesn’t operate in the best interest of the borrowers we serve … is simply not true,” said Krista Clapp, a company spokeswoman, indicating that the company is dedicated to helping borrowers repay their loans. The Department of Education also reported that MOHELA’s performance was improving as it prepares to transfer some of its accounts.
Can switching servicers be an issue?
While angry borrowers worldwide may welcome the change, loan transfers have not always gone as smoothly as they should. Servicer transitions in the past have caused lost records, incorrect statements, and delayed processing of payments or forgiveness status.
The Consumer Financial Protection Bureau (CFPB) warned in 2022 that the transferring of servicing frequently results in borrowers losing payment records or fixing new errors occurring during transfer. It adds complexity and extra inconvenience for borrowers who are already dealing with the complexity of repayment.
The Education Department says it will attempt to avoid those issues. “This work will be done responsibly and in a thoughtful way that avoids harming borrowers,” Ursprung said.
Read this later:
What is the difference between total and partial student loan forgiveness?
What are the eligibility criteria for Public Service Loan Forgiveness (PSLF)?
What is the monthly payment on a $140,000 Student Loan?
Who do you contact if you’ve already accepted more loan money than you need?
How borrowers can prepare
Borrowers must take steps in advance to protect themselves during the transition; the CFPB recommends:
- Update your contact information with your current servicer and on StudentAid.gov.
- Open all emails and mail from your loan servicer and the Department of Education to prevent missing critical notices.
- Download and save payment history and correspondence to maintain your record.
- Verify auto-pay settings after the transfer is final to ensure payments are made without interruption.
