U.S. Department of Education Announces Withholding of Payment to Student Loan Servicer as Part of Accountability Measures for Harmed Borrowers
October 30, 2023
U.S. Secretary of Education Miguel Cardona and Federal Student Aid (FSA) Chief Operating Officer Rich Cordray issued the following statements on actions taken by the U.S. Department of Education (Department) after student loan servicer errors were found by the Department. Recently, the Department found that MOHELA failed to meet its basic obligation by failing to send billing statements on time to 2.5 million borrowers – some within only seven days of their payment date – and over 800,000 borrowers being delinquent on their loans as a result. In response to identifying this error, the Department is withholding $7.2 million in payment to MOHELA for October, and has directed MOHELA to place all affected borrowers in forbearance until the issue is resolved. Any months these borrowers are in forbearance will count as credit towards loan forgiveness through Public Service Loan Forgiveness and Income Driven Repayment plans.
The Department also identified errors from loan servicers resulting in a small number of borrowers receiving incorrect payment amounts on their billing statements, and borrowers who have pending Borrower Defense claims incorrectly placed back in repayment status. All borrowers affected by these errors will be placed in forbearance by their servicer until the issues are resolved and any months in forbearance will count as credit towards loan forgiveness through Public Service Loan Forgiveness or Income Driven Repayment.The latest actions will both ensure borrowers are held harmless by these servicer errors and that servicers are held accountable for their actions. The Department will continue to monitor servicer performance and ensure they are meeting their basic contractual obligations to the Department and to borrowers. If a servicer fails to meet these basic obligations, additional action may be warranted by the Department.
