Student-Loan Company Faces Penalties for Blocking Borrowers from Cheaper Payments

A student-loan company, MOHELA, is facing repercussions for hindering over 460,000 borrowers from accessing more affordable monthly payments. The Education Department revealed that MOHELA did not process borrower applications for income-driven repayment plans, leading to this issue. As a result, the department has decided not to assign new accounts to MOHELA until it rectifies its behavior. This is the second instance where MOHELA is being penalized for failing to meet its contractual obligations.

Penalties Imposed on MOHELA

The Education Department informed MOHELA about the penalties on Tuesday, citing the company's failure to fulfill its servicing obligations as per the contract terms. An official document from the Education Department, reviewed by Business Insider, highlighted that MOHELA neglected to process over 460,000 applications from borrowers seeking income-driven repayment plans. This failure prevented these borrowers from benefiting from reduced monthly payments. Additionally, MOHELA was accused of capitalizing interest on accounts, inaccurately marking some borrowers for negative credit reporting, and delaying forgiveness processing for eligible borrowers.

Department's Response and Actions

Education Secretary Miguel Cardona emphasized the Department's commitment to addressing errors that create confusion or challenges for borrowers. Cardona stated that MOHELA's inconsistent service quality led to unsatisfactory experiences for borrowers. The Department has requested MOHELA to submit a corrective action plan within 10 business days. Moreover, MOHELA must engage in weekly meetings with Federal Student Aid to assess its performance.

Impact on Borrower Accounts

Until MOHELA demonstrates improved borrower servicing capabilities, the Department will refrain from assigning new borrower accounts to the company. This decision could affect MOHELA's revenue stream. Despite receiving new borrower accounts recently, MOHELA expressed surprise at the sudden change in the Federal Student Aid's direction and communication.

Previous Scrutiny and Penalties

Following the resumption of student-loan payments in October last year after a three-year hiatus, MOHELA has been under close observation by the Education Department, lawmakers, and advocates. In October 2023, MOHELA faced a penalty where $7.2 million in pay was withheld due to delayed billing statements. This recent penalty marks the second instance this year where MOHELA's pay has been withheld for similar reasons.

Senator Elizabeth Warren has been actively monitoring MOHELA's performance and has urged the Education Department to consider terminating the servicer's contract. The Department's accountability framework outlines enforcement actions against servicers failing to meet obligations, signaling potential further actions against MOHELA if corrective measures are not implemented.

For more details, you can refer to the original article on Business Insider.

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By: asheffey@businessinsider.com (Ayelet Sheffey)
Title: Student-Loan Company Faces Penalties for Blocking Borrowers from Cheaper Payments
Sourced From: www.businessinsider.com/student-loan-company-mohela-punished-processing-idr-applications-borrowers-relief-2024-10
Published Date: Thu, 17 Oct 2024 15:12:41 +0000