Federal Student Loan Servicer MOHELA is Failing to Comply with Borrower Defense Settlement

Borrowers report MOHELA informed them their federal student loans, which were ordered discharged under the Sweet settlement agreement, will go into repayment in October 

BOSTON – Attorneys representing class members in the borrower defense lawsuit Sweet v Cardona today sent a letter to the Missouri Higher Education Loan Authority (MOHELA) demanding that the federal student loan servicer comply with the terms of the Sweet settlement by holding class members’ relevant loans in forbearance pending the effectuation of settlement relief. The letter states that MOHELA has on several occasions wrongly insisted that class members will have to resume repayment in October 2023.  

The settlement, which was approved by the court in November 2022, will cancel at least $6 billion in federal student loans for more than 200,000 borrowers who applied for borrower defense to repayment citing their schools’ misconduct. Under the settlement agreement, borrowers’ loans are to stay in forbearance until their discharge is implemented. Importantly, the settlement agreement states that borrowers may take legal action if there is involuntary collection on their loans. 

“We are sounding an alarm because our clients, who prevailed after years of legal battle, are being wrongly swept into repayment,” said Eileen Connor, President and Director of the Project on Predatory Student Lending. “The law is clear: if MOHELA collects a single cent on a loan that should be in forbearance, there will be consequences. It’s unsettling that borrowers are in the lurch, while the Department of Education and its servicers cannot get on the same page.” 

The letter further details specific borrower experiences and the confusion surrounding the settlement discharges and repayment: 

• Borrower 1 received a notice from the Department on February 28, 2023, stating that his Relevant Loan Debt would be cancelled under the settlement. Yet MOHELA told Borrower 1 that it had no record of a BD case for him and that he would have to start repaying his loans as of October 1, 2023. He has since had many phone calls with MOHELA, the Department’s borrower defense hotline, Federal Student Aid (FSA), and the Department’s Ombudsman. FSA told Borrower 1 that it sent a new notice to MOHELA about his entitlement to remain in forbearance, but in response MOHELA only placed him in forbearance until October 31, 2023, and it still claims to have no record of his borrower defense case or direction from the Department to process a discharge. 

• Borrower 2 received a notice from the Department on February 28, 2023, stating that her Relevant Loan Debt would be cancelled under the settlement in Sweet v. Cardona. Yet MOHELA told Borrower 2 that it had “entered a note in [her] file” stating that FSA told it to remove her borrower defense forbearance. Borrower 2 contacted FSA, who stated that FSA had never made such a request. FSA told Borrower 2 it would send another request for forbearance. Borrower 2 has seen indications in her online account that FSA did send two new requests to MOHELA, one in July 2023 and one in August 2023, but MOHELA has since told her, at various points, that it never received a request, that it was told to cancel the request, and/or that she does have a forbearance but only through September 30, 2023. Borrower 2 has begun to receive harassing emails stating that she is confused and that her payments will begin to be due in October. 

• Borrower 3 received a notice from the Department on February 28, 2023, stating that his Relevant Loan Debt would be cancelled under the settlement in Sweet v. Cardona. He received another email from the Department in August 2023 confirming that no payment would be due while he waited for relief. Yet MOHELA recently placed Borrower 3’s loans into repayment status, and his account shows that he owes over $600. This is despite the fact that, as of April 2023, the MOHELA website had shown a forbearance on his account through 2040. Borrower 3 recently called MOHELA and a representative told him that only FSA can place him in forbearance, and as of August 1, 2023, MOHELA had received notice from FSA to take him out of forbearance status. 

The Department of Education has reported that, as of August 28, 2023, it has “effectuated relief” (that is, instructed servicers to complete discharges) for over 128,000 class members and has issued decisions approving settlement relief or group borrower defense relief for an additional 38,600 class members.  

The letter also calls attention to the Department of Education’s group discharge decisions for federal student loan borrowers with loans from Corinthian Colleges, ITT Technical Institute, and other for-profit colleges, which have purported to affect nearly a million borrowers, stating: 

“Many of these discharges were announced over a year ago—some up to two years ago—yet we understand that the Department has not completed the process of discharging these loans. The majority of these borrowers are not members of the Sweet class (although some are), but nonetheless they should not be forced back into repayment on loans that, according to the Department itself, should no longer exist.”  

For more details on the settlement, visit the FAQ on our website.  

The borrowers are represented by the Project on Predatory Student Lending (PPSL) and Housing and Economic Rights Advocates (HERA). Gupta Wessler PLLC joined PPSL and HERA as counsel of record on the Supreme Court brief. 

About the Project on Predatory Student Lending  

The Project on Predatory Student Lending (PPSL) is the leading legal organization representing student borrowers against predatory for-profit colleges and the policies that enable institutions to exploit and cheat students. PPSL uses bold, strategic litigation and advocacy to demand accountability in the higher education space and influence policy solutions to create a more just and affordable education system. PPSL represents more than one million student borrowers and its work has resulted in cancellation of more than $16 billion of fraudulent student loan debt. 

About HERA  

Housing and Economic Rights Advocates (HERA) is a California statewide, not-for-profit legal service and advocacy organization dedicated to helping Californians — particularly those most vulnerable — build a safe, sound financial future, free of discrimination and economic abuses, in all aspects of household financial concerns. It provides free legal services, consumer workshops, training for professionals and community organizing support, creates innovative solutions and engages in policy work locally, statewide and nationally. 

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