Education Dept. penalizes student loan servicer Mohela for errors

The U.S. Department of Education in Washington, D.C.

Caroline Brehman | CQ-Roll Call, Inc. | Getty Images

The U.S. Department of Education announced on Monday that it would penalize the student loan servicer MOHELA, or the Missouri Higher Education Loan Authority, for its failure to send timely billing statements to 2.5 million borrowers.

As a result of MOHELA’s errors, more than 800,000 borrowers were delinquent on their loans, the Education Dept. said in a statement.

The department is withholding $7.2 million in payment to MOHELA for October, and has directed the servicer to place all affected borrowers in forbearance until the issue is fully resolved, it said.

“Our top priority is to support borrowers as they return to repayment and fix the broken student loan system, and we will not tolerate errors from loan servicers that cause confusion and unwarranted financial instability for borrowers and families,” said Rich Cordray, the chief operating officer of federal student aid.

MOHELA did not immediately respond to a request for comment.

Higher education expert Mark Kantrowitz said he believed this was one of the first instances of the government withholding payment from a student loan servicer.

“Sending out loan statements in a timely manner is a pretty basic function of a loan servicer,” Kantrowitz said.

This is breaking news. Please check back for updates.

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