The American Federation of Teachers, one of the largest teachers’ unions in the US, is suing a major federal student loan servicer, alleging it “misleads and misinforms borrowers”.
The lawsuit alleges the Higher Education Loan Authority of the State of Missouri (Mohela) committed a series of abuses including deflecting calls from borrowers and illegally deducting payments from borrowers’ bank accounts without their consent.
It also accuses the non-profit organization, which services federal and private student loans, of failing to send millions of borrowers their bills on time and causing them to fall behind on payments, also sending inaccurately higher bills, misinforming borrowers about key deadlines to remain in affordable payment plans, and denying eligible public service workers student loan relief.
“Since 2011, the US Department of Education has paid Mohela over $1.1bn to do one job: help borrowers navigate their student loan options. Mohela has consistently failed at this job, to borrowers’ detriment,” the complaint, brought in the superior court of the District of Columbia, said.
The lawsuit says that “Americans are drowning in student debt”, where 45 million people owe more than $1.7tn. They can spend decades paying off the cost of college.
The AFT accuses Mohela of breaking the law and quickly growing to service 8 million borrowers by “cutting corners” and carrying out a “shocking series of abuses”, according to the complaint. The union said workers such as healthcare providers and teachers were acutely affected.
The AFT represents nearly 1.8 million public school teachers, healthcare workers and other public service workers across the country.
Kamala Harris, the US vice-president and presumptive Democratic presidential nominee, addressed the AFT in Houston last month after receiving the union’s endorsement for her presidential run in the 2024 election. She asked the crowd to picture “a future where no teacher has to struggle with the burden of student-loan debt”.
On Tuesday, Harris selected the governor of Minnesota, Tim Walz, as her running mate, who began his career as a schoolteacher and was in the classroom for years before entering politics.
Mohela is among a small group of companies that have contracts with the federal government to handle billing and servicing student loan borrowers.
Mohela, one of the largest holders and servicers of student loans in the United States, based in St Louis, Missouri, was also at the center of the supreme court case brought by Republican attorneys general for several states that struck down Biden’s original student loan forgiveness plan for millions of borrowers, which could have seen up to $20,000 of federal student debt wiped per person.
And Mohela, until 1 May of this year, was the sole servicer for those eligible for Public Service Loan Forgiveness (PSLF) such as employees of not-for-profit organizations and government, including public school teachers.
After making 120 qualifying monthly payments over 10 years, PSLF borrowers should get the remaining balance on their federal direct loans forgiven.
But Mohela has in the past come under fire for allegedly misleading public service workers about their right to get credit towards debt cancellation when consolidating their loans, as well as denying eligible public service workers relief.
In an April Senate hearing, Elizabeth Warren, the Massachusetts senator, who sits on the Senate banking subcommittee, said Mohela “failed borrowers of all kinds, but it has been particularly derelict in its duties administering the Public Service Loan Forgiveness program”.
Warren addressed what she called the company’s “call deflection scheme” which she said diverted firefighters or teachers with loans from live agents to “dead-end parts of its website”.
“I don’t understand why Mohela should be let within 10,000ft of a student loan program,” Warren said.
Randi Weingarten, the AFT president, said it was past time that Mohela was held to account.
“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,” she said, in a statement.
Winston Berkman-Breen, legal director at Student Borrower Protection Center, said the company was violating consumer protection law.“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,” he said.
At a press conference on Capitol Hill in May, US congresswoman Ayanna Pressley called on the Biden administration to protect borrowers by firing Mohela, citing “profiteering”.
Mohela representatives did not respond to a request for comment.
