MOHELA Lawsuit Filed Over Alleged Failure to Timely Process Federal Student Loan Forgiveness Applications

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The Higher Education Loan Authority of the State of Missouri (MOHELA) faces a proposed class action over its alleged failure to process and render decisions on applications for the Public Service Loan Forgiveness Program (PSLF) in a timely manner.

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The 81-page MOHELA lawsuit says that in the summer of 2022, MOHELA was awarded a contract with the federal government that made it the sole servicer for the PSLF program. Created when President George W. Bush signed the College Cost Reduction and Access Act into law in 2007, the PSFL program allows federal student loan borrowers who work careers in public service to qualify for loan forgiveness after making 10 years of payments, the case relays.

The proposed class action lawsuit shares that when MOHELA’s contract began, federal student loan payments had been paused since March 2020 as part of the U.S. Department of Education’s COVID-19 relief efforts. According to the filing, this pandemic loan forbearance period ended when payments became due again in October 2023.

However, despite being the PSLF servicer for over a year before student loan payments were resumed, MOHELA has allowed PSLF applications to languish unprocessed, in some cases for more than one year, the suit claims. What’s more, borrowers who have tried to call the defendant for more information say they’ve been forced to spend hours on hold before finally reaching a representative, the case shares.

“When borrowers are eventually connected with a customer service representative, they are often told more information will be available in 60 to 90 days, but no new information becomes available and the application remains unprocessed,” the complaint claims.

Applicants have also reported that MOHELA’s customer service representatives shift the blame for processing delays onto the Department of Education, stating that they need the agency to provide additional information about the borrower before their application can be considered, the filing alleges.

As such, the lawsuit—filed on January 26 in the Eastern District of Missouri—also names as defendants the Department of Education and its secretary, Miguel Cardona.

One of the plaintiffs, a New York resident who’s eligible for student loan forgiveness, says he’s submitted multiple PSLF applications to MOHELA since August 2022, most recently in November 2023, to no effect. The suit claims that because the defendant has yet to review or approve any of the plaintiff’s applications, he has been forced to make monthly loan payments since the fall of last year.

“Had MOHELA timely processed and rendered decisions on his PSLF application, and had the Department of Education and Secretary Cardona properly oversaw and managed MOHELA to ensure it complied with the terms of the PSLF program by timely processing and rendering decisions on forgiveness applications, his loans would have been forgiven and these payments would not be due,” the complaint contends. “Further, if there were any deficiencies in [the plaintiff’s] application, a timely decision would have provided [the plaintiff] sufficient time to cure any purported deficiencies prior to any payments coming due.”

The filing notes that in addition to unprocessed loan forgiveness applications, borrowers have observed a variety of issues with their MOHELA accounts, including incorrect payment plans, incorrect repayment amounts and missing credit toward loan forgiveness, which was supposed to be given throughout the three-year loan forbearance period as if qualifying payments had been made.

In fact, the case says, borrowers have taken to the Consumer Financial Protection Bureau website to lodge hundreds upon hundreds of PSLF-related complaints against MOHELA.

Per the filing, MOHELA came under heavy government scrutiny in the months and weeks leading up to the resumption of federal student loan payments, with several senators expressing in a September 2023 letter to the loan servicer that they had “severe concerns” about the reported processing issues and long wait times.

Then, on October 30, 2023, the Department of Education announced that it was withholding from MOHELA $7.2 million in payment over its failure to meet its “basic obligation” to send timely billing statements, which reportedly caused over 800,000 borrowers to be marked as delinquent on their loans.

The lawsuit looks to represent anyone in the United States who submitted applications for PSLF forgiveness to MOHELA that the loan servicer has not yet processed and/or rendered a decision on.

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