MOHELA Faces Multi-State Loan Servicing Probes

According to a report by Yahoo Finance, a coalition of state attorneys general and regulators is allegedly investigating student loan servicer MOHELA. The investigations focus on alleged mishandling of borrower accounts, billing errors, and paperwork delays during the restart of federal loan payments last year.

The Higher Education Loan Authority of the State of Missouri, known as MOHELA, services federal loans for nearly seven million borrowers. It has come under heavy scrutiny for repeated administrative problems, including sending late billing statements, inaccurate payment calculations, and backlogs to process applications for programmes such as income-driven repayment plans and Public Service Loan Forgiveness (PSLF).

The surge of investigations comes at a time when state officials are expanding their role in policing student loan companies, stepping in to fill oversight gaps left by federal agencies under the new administration. This comes on the heels of reports that the new administration is rescinding fines for for-profit colleges, leaving many to fear a lack of federal oversight of education. MOHELA Faces Multi-State Loan

State Agencies Step In As Federal Oversight Retreats

Attorneys general from Washington, New York, Pennsylvania, Colorado, Illinois, Massachusetts, and the District of Columbia have allegedly launched investigations and have been seeking records from MOHELA. California and Oregon regulators have also allegedly opened their inquiries. According to the report, the states have formed a working group to coordinate their investigations. MOHELA Faces Multi-State Loan

This coordinated action reflects a growing trend. Recently, states have enacted “student loan borrower bill of rights” laws designed to impose new standards on servicers, including requirements to provide accurate information, process payments correctly, and prevent wrongful denials of repayment benefits. These laws have given states new tools to take action independently of federal regulators.

Massachusetts, Colorado, and Washington, among others, have passed sweeping borrower protection laws. New York created a student loan ombudsman within its Department of Financial Services to investigate complaints. State officials have framed these efforts as necessary to protect borrowers amidst what they perceive as diminishing federal oversight. MOHELA Faces Multi-State Loan

Layoffs at the Department of Education, which eliminated teams tasked with monitoring servicers, and a shift at the Consumer Financial Protection Bureau (CFPB) to deprioritize student loan enforcement have left states to act independently.

States, though, do have their laws, under which they can bring lawsuits and make it painful for loan servicers to operate unlawfully. Over the last few years, several major loan servicers, such as Navient and Fedloan, have stopped servicing student loans due to litigation and settlements. MOHELA Faces Multi-State Loan

Shift In Student Loan Consumer Protection

The increasing emphasis on MOHELA signifies a wider change in the regulation of student loan servicing in the United States. As federal oversight mechanisms have weakened (with the dismantling of the Department of Education and the CFPB), states are seeking to build a parallel enforcement structure to protect borrowers.

The CFPB, once a major player in student loan enforcement, has largely stepped back under new leadership, directing staff to focus less on the actions of student loan servicers. Meanwhile, staffing cuts at the Department of Education have further constrained federal capacity to monitor companies like MOHELA.

Senators Elizabeth Warren, Chuck Schumer, and Bernie Sanders issued a joint statement praising state investigations into MOHELA, describing them as necessary in light of what they called federal abdication of responsibility. MOHELA Faces Multi-State Loan