A major student loan servicer contracted with the U.S. Department of Education to administer federal student loans is facing accusations of widespread misconduct in a new amended complained filed in federal court last week.
The American Federation Teachers, a national teachers union, filed an amended lawsuit against Missouri-based MOHELA on Thursday, alleging that the agency has effectively failed student loan borrowers. The complaint argues that MOHELA gives out incorrect or misleading information to borrowers, miscalculates student loan payments, and engages in practices such as call deflection that make it difficult or impossible for borrowers to resolve problems with their federal student loans.
“When we first sued MOHELA 18 months ago we exposed how it had abandoned its role to help borrowers pay down debt and instead redirected into a Kafkaesque rabbit hole of denial and delay to pad its own profits,” said AFT President Randi Weingarten in a statement last Friday. “Rather than fulfill its responsibilities, MOHELA abdicated and deflected them—and we were determined to hold them to account. But instead of working with us on a solution, they shamefully doubled down, fighting us at every turn to derail any attempt at accountability.”
The AFT had first sued MOHELA in 2024, but the case got bogged down in a dispute over which court had jurisdiction over the case. With the case now seemingly to remain in the U.S. District Court for the District of Columbia, the AFT filed an amended complaint last week that “includes new federal government data” regarding MOHELA’s alleged misconduct.
“Today we are refiling our complaint to reveal MOHELA’s illegal business practices, restate the harm inflicted on student borrowers, and document the time, effort and money that the AFT has spent to expose the misinformation and malfeasance at the company’s core,” said Weingarten. “On behalf of the nation’s 45 million student borrowers, we are fighting for justice and fairness, and to stop illegality and deception.”
MOHELA Accused Of Failing Student Loan Borrowers
The AFT’s complaint lays out broad allegations against MOHELA, suggesting that the student loan servicer is failing borrowers at nearly every level.
“MOHELA traps more than 6.5 million borrowers in a system of its own design, rife with errors, misinformation, and broken promises,” says the amended complaint. “The sheer scale of MOHELA’s wrongdoing is staggering and reaches across the country.”
“MOHELA misleads and misinforms borrowers, fails to process applications for PSLF and income-driven repayment (“IDR”) plans in a timely manner or entirely, fails to provide refunds, miscalculates balances, overcharges borrowers, fails to respond to borrower inquiries, and denies borrowers information to which they are entitled,” continues the Complaint. “Borrowers whose loans are serviced by MOHELA cannot get the savings or forgiveness to which they are entitled, cannot trust the accuracy of MOHELA’s statements of how much they have to pay, and cannot get money back from MOHELA that is rightfully theirs.”
The AFT pointed to newer Education Department data indicating that MOHELA’s overall performance for borrowers with federal student loans is significantly worse than the department’s other contracted loan servicers. For example, the union accused MOHELA of using call deflection systems that make it difficult or impossible for borrowers to reach a MOHELA customer service agent, resulting in call hold times and abandoned call rates that far exceed that of other federal student loan servicers such as Aidvantage, Nelnet, and EdFinancial. And while MOHELA directs some student loan borrowers to its website or to electronic communications, these systems can prove inadequate or they outright fail, as well, says the AFT.
“MOHELA’s call deflection, understaffing, and poor training make it practically impossible for borrowers to speak with a live customer service representative who can give an individualized and accurate explanation of what is occurring,” said the AFT.
MOHELA Rejects Accusations Of Poor Student Loan Servicing
MOHELA has been the subject of broad criticism for years by student loan borrower advocacy groups and Democratic elected officials. During the Biden administration, the Education Department penalized the loan servicer for alleged billing errors when federal student loans returned to repayment after the pandemic-era forbearance. And congressional Democrats have also been critical of the loan servicer’s practices, including so-called call deflection.
MOHELA has not yet filed a formal response to the AFT’s amended complaint. In a Motion to Dismiss that the agency filed in 2024 in response to the AFT’s original complaint, MOHELA’s arguments mostly centered on questions of jurisdiction, standing, and the concept of “sovereign immunity,” which the agency argued should shield it from the AFT’s challenge because as an “instrumentality of the state of Missouri,” the agency cannot be sued under most consumer protection laws.
But MOHELA has previously rigorously defended its student loan servicing practices.
“Any claims that MOHELA does not act in the best interest of the borrowers we serve as a federal contractor is simply not true,” said a MOHELAs spokesperson in 2024 in response to accusations by a student loan borrower advocacy organization that the agency was engaging in unwarranted call deflection tactics and other misconduct. “MOHELA’s priority has always been on helping the student borrowers that we are here to serve while they navigate the often complex and overwhelming federal repayment process, and that is what we remain proudly committed to doing.”
The agency has also argued that its hands are tied to some extent due to its contract with the Education Department’s Office of Federal Student Aid and its need to follow federal guidelines.
“As a federal contractor, MOHELA is required to adhere to FSA guidelines and requirements,” said the agency in a 2024 statement in response to a congressional hearing on student loan servicing. “Federal contractors were directed by FSA to implement ‘call deflection strategies’ and encourage borrowers to use self-service options whenever possible to manage the anticipated high demand.” MOHELA also pointed to successes, including processing historic levels of student loan forgiveness through PSLF during the Biden administration.
In addition to the allegations of misconduct related to its student loan servicing, MOHELA has also played an indirect role in some of the most contentious student loan legal battles during the last several years. The state of Missouri relied on its financial relationship with MOHELA to successfully argue that the state had standing to challenge President Joe Biden’s mass student loan forgiveness initiative, with the U.S. Supreme Court ultimately siding with the state. The state of Missouri and a coalition of other Republican-led states used similar arguments to justify a legal challenge over the SAVE plan, another Biden-era program that appears to be on the cusp of being eliminated. MOHELA never directly participated in these lawsuits, however, and was not a party to the legal challenges.
When Student Loan Borrowers Have Servicing Issues
Student loan borrowers who are experiencing a problem with their loan servicer have fewer options now than they did before. The Education Department engaged in mass staff reductions last year, cutting its workforce effectively in half. As a result, complaint backlogs at the Office of Federal Student Aid have soared. In addition, the Trump administration has significantly curtailed operations at the federal Consumer Financial Protection Bureau, an independent watchdog agency that had provided oversight over the financial services industry, including student loan servicing.
Borrowers with student loan servicing issues may still have options, however. For credit reporting issues, borrowers can file credit disputes directly with national credit bureaus. Many states also have state-level student loan ombudsman units or state attorney general offices that handle disputes. And borrowers with federal student loans can also contact their federal elected officials (i.e., their congressperson or senator) whose offices likely offer constituent and casework services, which can include working with federal agencies to resolve disputes.
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