The U.S. Department of Education recently announced that Mohela, a federal student loan servicer, will be transferring some student loan borrowers to different servicers. This change will affect more than 1 million borrowers as part of a shift in loan management. The Education Department has contracts with various companies to service federal student loans, including Mohela, Nelnet, and EdFinancial.

Mohela has faced recent controversies, with the government accusing the servicer of failing to send timely billing statements to 2.5 million borrowers when the Covid-era pause on payments expired. This resulted in over 800,000 borrowers becoming delinquent, leading to the Education Department withholding $7.2 million in payment to Mohela for its error. Capacity issues were cited as a possible cause of the servicing disruption.

On April 10, the U.S. Senate Committee on Banking, Housing, and Urban Affairs Subcommittee on Economic Policy held a hearing regarding Mohela’s performance as a student loan servicer. The Student Borrower Protection Center and the American Federation of Teachers published a report titled “The Mohela Papers,” which revealed that four in 10 student loan borrowers serviced by Mohela experienced a servicing failure since loan payments resumed in September 2023. Mike Pierce, the executive director of the Student Borrower Protection Center, criticized Mohela’s leadership position in the student loan industry.

Following the transfers, Mohela will continue to service federal student loans for at least 6 million borrowers. Borrowers who are being transferred to a different servicer will receive alerts from Mohela and their new servicer. They will need to establish an online account with the new servicer. If a borrower was enrolled in automatic payments with Mohela, they may need to reenroll with the new servicer. In case of any issues, borrowers can submit a complaint to the Education Department’s Federal Student Aid unit.

The transfer of student loan borrowers from Mohela to different servicers marks a significant change in the management of federal student loans. While this move aims to address issues and improve borrower experience, it also highlights the challenges within the student loan servicing industry. As borrowers navigate this transition, staying informed about the process and being proactive in resolving any concerns will be crucial for a smooth experience.

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