Embattled Student Loan Servicing Giant MOHELA Hit with Groundbreaking Consumer Protection Lawsuit for Failing 8 Million Student Borrowers

July 22, 2024 — Press Release

Landmark Complaint Outlines Pattern and Practice of Illegal Overcharging, Incompetence, and Ongoing “Call Deflection” Doom Loop 

July 22, 2024 | Washington, D.C. – Today, the AFT filed a groundbreaking consumer protection lawsuit against the Higher Education Loan Authority of the State of Missouri (MOHELA), the giant student loan servicing company under fire for mismanaging student loan accounts for millions of people. The AFT is represented by the Student Borrower Protection Center (SBPC), National Consumer Law Center (NCLC), and Selendy Gay PLLC.

In the lawsuit, the AFT alleges that MOHELA illegally overcharged borrowers on their monthly student loan bills, failed to timely process paperwork, and actively misled borrowers about their student loan accounts. These illegal practices could expose MOHELA to billions of dollars in liability because these practices may violate a range of federal and state laws.

Today’s lawsuit explains that MOHELA makes it practically impossible for all 8 million MOHELA borrowers to obtain assistance with their loans and to correct the account errors and misinformation that MOHELA itself creates. MOHELA unfairly and systematically “deflected” millions of borrowers, including teachers, nurses, and other AFT members who needed help with their student loans, away from call centers and toward websites and other “self-help” options that failed to address these borrowers’ issues. Since 2011, the Department of Education has paid MOHELA more than $1.1 billion dollars to staff call centers and provide help to borrowers with questions—work that MOHELA systemically failed to do.

A copy of the lawsuit filed in AFT v. MOHELA is available here:

https://protectborrowers.org/mohela-lawsuit

A fact sheet outlining the specific claims brought by AFT against MOHELA is available here:

https://protectborrowers.org/mohela-factsheet

“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,” said AFT President Randi Weingarten. “Rather than fulfill its responsibilities, MOHELA has abdicated and deflected them—and it’s well past time it’s held to account.

“MOHELA started promisingly but soon started to mimic the callous practices of its disgraced forerunner Navient: incompetence, malfeasance, and blatant disregard for borrowers’ rights. The law prohibits unfair and deceptive trade practices and our complaint outlines in detail how our members were harmed and their dreams deferred. We have their backs and our partners’ backs as we pursue this complaint to ensure justice and fairness, not illegality, prevails,” continued Weingarten.

This lawsuit builds on the findings in The MOHELA Papers, an investigation published by AFT and SBPC earlier this year that first uncovered MOHELA’s “call deflection” scheme.

“It is old news that MOHELA is bad at its job. Today’s lawsuit shows that when MOHELA fails student loan borrowers, the company is violating consumer protection law,” said SBPC Legal Director Winston Berkman-Breen. “Every borrower in the country has the right to servicing free from unfair and deceptive conduct. 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.”

“MOHELA is paid billions to service federal student loan accounts and help borrowers manage their loans, but since payments resumed last fall it has failed spectacularly—and borrowers have paid the price,” said Alpha Taylor, staff attorney at the National Consumer Law Center. “MOHELA has engaged in unlawful servicing conduct that has caused financial harm to borrowers, delayed their path to loan forgiveness, misguided them about their repayment options, and left borrowers on hold for hours. Borrowers cannot stay on hold any longer. MOHELA must be held accountable for its unlawful practices.”

MOHELA’s servicing failures are not merely nuisances, they are illegal. The lawsuit is brought under the District of Columbia’s Consumer Protection Procedures Act (CPPA), which prohibits unfair or deceptive trade practices, and seeks to stop MOHELA from continuing its harmful servicing practices.

AFT sued MOHELA under the DC CPPA in DC court on behalf of its members and the general public. The lawsuit alleges that, due to MOHELA’s unlawful servicing practices, including its ongoing call deflection scheme, AFT has been forced to provide additional support for AFT members who owe student debt—conducting ‘debt clinics,’ hiring a vendor to provide loan counseling, and investigating and exposing MOHELA’s abuses in partnership with SBPC. 

In response to the lawsuit, AFT, SBPC, NCLC, and Selendy Gay PLLC call on regulators, state Attorneys General, and private litigants to continue to enforce consumer protection laws to protect all student loan borrowers across the country from unfair and illegal student loan servicing.