A major student-loan company just got hit with a lawsuit over claims it harmed the millions of borrowers it services.
On Monday, the American Federal of Teachers filed a lawsuit against servicer MOHELA, accusing it of illegally overcharging borrowers on their monthly payments, failing to process paperwork in a timely manner, and giving borrowers inaccurate billing information that kept them from receiving lower payments and debt cancellation.
The lawsuit claims that MOHELA’s mismanagement has harmed the 8 million borrowers it services and requests that a judgment be entered requiring MOHELA to provide relief to harmed borrowers for violating consumer protection law.
“MOHELA was hired by the federal government to help borrowers pay down debt, but instead it hung them out to dry to line its own pockets,” AFT President Randi Weingarten said in a statement. “Rather than fulfill its responsibilities, MOHELA has abdicated and deflected them—and it’s well past time it’s held to account.”
AFT is one of the largest teacher unions in the US, representing 1.8 million teachers and early childhood educators — many of whom have student debt that qualifies for a major relief program called Public Service Loan Forgiveness.
In October 2023, after student-loan payments resumed for federal borrowers after an over three-year pause, MOHELA was the first servicer to have its pay withheld from the Education Department over its failure to send on-time billing statements to 2.5 million borrowers.
The lawsuit claimed that MOHELA did not properly explain the situation to borrowers, resulting in confusion as to how much they should owe, if at all. Additionally, the lawsuit accused MOHELA of poor customer service that has left borrowers with unresolved questions that have kept many of them from earning relief through income-driven repayment plans or Public Service Loan Forgiveness.
“Individually, any one of MOHELA’s failings would be sufficient to cause financial, mental, and emotional distress,” the lawsuit said. “Collectively, they result in a Kafkaesque experience and make it practically impossible for borrowers to correct account errors, make important decisions to protect their economic well-being, or even confirm basic information about their student loans.”
MOHELA did not immediately respond to a request for comment from Business Insider on the lawsuit’s claims. It previously sent a cease-and-desist letter to the advocacy group Student Borrower Protection Center — one of the groups representing AFT in the lawsuit — following a report from the group on MOHELA’s customer service, saying that “any claims that MOHELA does not act in the best interest of the borrowers we serve as a federal contractor is simply not true.”
“Intentionally spreading false information and narratives about MOHELA’s work on behalf of Federal Student Aid does nothing to improve the experience for students and borrowers navigating the federal student loan program and the repayment of their federally owned loans,” a MOHELA spokesperson said in April.
Democratic lawmakers have also previously targeted MOHELA over failing to fulfill its contractual obligations. In February, Sens. Elizabeth Warren, Chuck Schumer, and Bernie Sanders called for an investigation into the company, and Warren held a hearing in April on how MOHELA has serviced borrowers.
“Every borrower in the country has the right to servicing free from unfair and deceptive conduct,” SBPC Legal Director Winston Berkman-Breen said in a statement. “Each time MOHELA sends an inaccurate bill, gives wrong advice, or catches a borrower in a customer service doom loop, it violates those rights. Today, on behalf of AFT, we’re asking the court to recognize these rights. MOHELA can no longer profit at borrowers’ expense.”
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