ICYMI: Chairing Economic Policy Subcommittee, Warren Highlighted MOHELA’s Failures During Return to Repayment and Its Impact on Borrowers, Urged Accountability
MOHELA, the exclusive servicer for the PSLF program, failed to deliver timely billing statements to 2.5 million borrowers, sent incorrect billing statements to 280,0000 borrowers, and implemented a “call deflection” scheme after making those errors — harming borrowers who sought help.
Washington, D.C. — Yesterday, chairing a hearing of the Committee on Banking, Housing, and Urban Affairs Subcommittee on Economic Policy, U.S. Senator Elizabeth Warren (D-Mass.) led a hearing on student loan servicer Higher Education Loan Authority of the State of Missouri (MOHELA) and its failures during borrowers’ return to repayment, including MOHELA’s mismanagement of the Public Service Loan Forgiveness (PSLF) program. The hearing follows a new report, released yesterday by Senators Warren, Blumenthal, Markey, and Van Hollen which revealed 3.9 million billing errors by servicers during the return to repayment and a decades-long pattern of student loan servicer incompetence and misconduct that has affected millions of borrowers nationwide.
Ms. Persis Yu, Deputy Executive Director & Managing Counsel for the Student Borrower Protection Center, confirmed MOHELA failed to send on-time billing statements to 2.5 million borrowers following the return to repayment. Ms. Yu also confirmed approximately 280,000 of borrowers received incorrect payment amounts from MOHELA. When borrowers tried to fix these issues with MOHELA, they were oftentimes unable to get the help they needed due to MOHELA’s “call deflection” scheme, long waits, an incomplete website, and round-about answers that prolonged their issues. Ms. Yu concluded by calling for accountability.
Ms. Kathleen White, retired former faculty member of City College of San Francisco, explained to Senator Warren that despite meeting the requirements for the PSLF program, she spent almost two years going back-and-forth with MOHELA attempting to get her debt canceled, eventually making payments on debts that should have been canceled.
Mayor of Kansas City Quinton Lucas explained the importance of debt cancellation, the PSLF program, and their impacts on ensuring there are adequate resources available to address community needs, especially in towns and cities across the country in need of more public servants across all sectors. Mayor Lucas confirmed MOHELA’s role in the lawsuit that blocked President Biden’s first debt cancellation plan.
In response to Senator Warren’s questioning, none of the five witnesses objected to MOHELA having to comply with the same laws and obligations as every other student loan servicer, despite MOHELA’s use of its quasi-public status to evade accountability in court.
The full text of Senator Warren’s opening and closing statements, as well her questioning, can be found below:
Transcript: MOHELA’s Performance as a Student Loan Servicer
U.S. Senate Committee on Banking, Housing, and Urban Affairs Subcommittee on Economic Policy
Wednesday, April 10, 2024
Senator Warren's Opening Remarks
Senator Warren: I'm holding today's hearing because I am concerned that student loan servicers are — once again — failing millions of borrowers.
This is my third hearing on student loan servicer misconduct. My first one was my first hearing as chair of the Banking— this Banking subcommittee. It was in April 2021. And at that hearing, Senator Kennedy and I heard deeply troubling testimony about how student loan servicers were intentionally making misrepresentations to borrowers and preventing them from getting the relief that the law said they were entitled to.
Now, a lot has happened since then. PHEAA and Navient, two of the student loan servicers that testified at our hearing, have left the federal student loan system, as have other servicers.
President Biden has moved to cancel student loan debt for 43 million Americans and an extremist Supreme Court has blocked that relief for borrowers. But, President Biden did not give up. By fixing existing programs, he has already canceled student loan debt for nearly 4 million borrowers — more than any president in history — and he has moved forward with Plan B to expand debt relief to tens-of-millions more.
In total, President Biden's actions, once finalized, will cancel student debt for 30 million Americans. That's 30 million lives that will be changed, and the lives of their families, the lives of their friends. This is important.
So, today, we focus on the servicers — the corporations that have made hundreds of millions of dollars administering the student loan program. Student loan payments were paused during the COVID-19 pandemic. And last year, the pause ended and borrowers returned to payment. Now, despite receiving numerous warnings and federal funding throughout the payment pause to get ready, every single student loan servicer failed to adequately prepare for the transition back to repayment. Every single one of them.
A new report that I released today — Yes, that was smoothly known as “the visual” — reveals that servicers badly misled borrowers during the return to repayment.
These servicers made millions of billing errors and received thousands and thousands of borrower complaints. Servicers subjected borrowers to long phone waits, with some borrowers literally waiting for hours before getting hold of a live person. And that was true, even when the servicer had made a mistake that could only be corrected by reaching a live person.
Servicers had years to prepare for this transition to repayment, and they still screwed up.
MOHELA was one of the worst. MOHELA serves over 8 million borrowers and is the only servicer for the Public Service Loan Forgiveness Program. MOHELA has caused problems for millions of people.
First, MOHELA’s performance during borrowers' return to repayment was shockingly bad.
After payments resumed in October, MOHELA sent the wrong bills to approximately 300,000 borrowers — 300,000 borrowers got the wrong amount in their bills. And, they sent late billing statements to two-and-a-half million borrowers. MOHELA’s failures led the Department of Education to withhold about $7.2 million in payments to MOHELA.
So, last year, I wrote to all of the servicers and to the Department of Education, requesting information about the servicing problems facing borrowers. The data I got back was truly shocking.
The numbers showed that MOHELA had the longest average call wait time of any servicer. Now, as borrowers once again begin to make payments, MOHELA had a call abandonment rate of 35%. Let me say that again: One-in-three MOHELA borrowers were on hold or shuffled around for so long that they just finally gave up on their calls. Evidently, MOHELA figured out that if they made the call system impenetrable, MOHELA wouldn't have to talk with so many people who were experiencing the problems that MOHELA had caused.
Now, maybe it's no surprise that MOHELA received the most complaints of any federal student loan servicer in 2023. MOHELA has failed borrowers of all kinds, but it has been particularly derelict in its duties administering the Public Service Loan Forgiveness Program.
PSLF is how we say 'thank you' to teachers and nurses and service members and firefighters and others who borrow money to go to school then use their educations working in public service.
Under MOHELA’s watch, the backlog of PSLF forms hit a peak of 1 million. This meant that many teachers and nurses and firefighters did not get the relief that they were entitled to until much later. So late that some borrowers continued to make payments on debts that should have already been canceled.
MOHELA knew that it had problems and many of those problems caused borrowers to pick up the phone and call for help.
Last month, a blockbuster report by the Student Borrower Protection Center and the American Federation of Teachers, documented MOHELA’s response to those calls. Instead of just hiring and training more people to help clean up the mess that it had made, MOHELA implemented a “call-deflection” scheme. That meant that a firefighter or a teacher who called in would be diverted away from live agents to dead-end parts of its website. The borrower had no choice except to place the call again, and hope that the second time around — or the third or the fourth or the fifth — they would get a better result.
Finally, MOHELA played a central role in blocking President Biden's boldest attempt to fix this broken student loan system through litigation against the president's first debt cancellation plan.
If it weren't for MOHELA, 43 million borrowers might have gotten the student debt relief that President Biden laid out for them.
Clearly, there are serious problems at MOHELA. Problems that have an impact on millions of borrowers. So, I invited MOHELA CEO, Scott Giles, to testify today at this hearing and to provide Congress and the American people with some answers about what's gone wrong. He refused my invitation — a flat “No.”
I want everybody to pause to think about what that means. His company gets paid hundreds of millions of taxpayer dollars to administer a federal program. And his company's administration of that program is a mess. But, instead of answering for his failures, Giles just goes into hiding.
I do not understand why MOHELA should be let within 10,000 feet of a student loan program. And I think it's long past time that the Department of Education holds MOHELA accountable for its failures.
I can assure you, we are not finished here. We will get answers.
At today's hearing. We will learn more about MOHELA’s failures, our broken student loan system, and the ways that we can fix it. Student loan borrowers deserve better than MOHELA.
And when Ranking Member Kennedy comes in, we will listen to his opening statement.
Round 1: MOHELA’s Scheme
Senator Warren: So, I will now yield to myself for the first round of questions. Oh, this is gonna be fun.
So, as we've been talking about, MOHELA is the largest, one of the country's largest student loan servicers. Since joining the federal student loan system in 2011, MOHELA has voluntarily signed contracts worth billions of dollars with the federal government.
In the past few years, it has tripled in size. And today, one out of every five federal student loan borrowers — that's about 8 million people — has MOHELA as their servicer.
Now, the actual job of student loan servicer is pretty straightforward. MOHELA is responsible for communicating with borrowers about their loans, processing their payments, and advising borrowers on their repayment options. That's it.
And for three years during COVID, during the payment pause, MOHELA had a lot less to do than normal in many ways. Even so, the federal government faithfully paid MOHELA throughout the pause, sending them hundreds of millions of dollars, so that, when the payments came back online, MOHELA would be ready to do its job and process those payments and advise those borrowers accurately.
Ms. Yu, let's start with the sending out bills. That's how borrowers restart their payments. As we approached the restart last October, did MOHELA send billing statements to its borrowers on time?
Persis Yu, Deputy Executive Director & Managing Counsel, Student Borrower Protection Center: No. MOHELA failed to send billing statements to 2.5 million borrowers.
Senator Warren: Okay, so they didn't even get them out the door on time for two-and-a-half million people.
Then, Ms. Yu, for those who did get their bills, did MOHELA send accurate bills?
Ms. Yu: No, MOHELA sent inaccurate bills to approximately 280,000 borrowers.
Senator Warren: Okay, so people were told they owed one amount of money and in fact, they owe a different amount.
So, after years of collecting money during the payment pause, and plenty of time to get ready, and countless warnings from the Department of Education, from advocates, and from members of Congress, MOHELA failed to do its most basic job.
Messing up these loans matter. People struggled with budgeting and other financial commitments and, according to the Department of Education, 800,000 of MOHELA’s borrowers became delinquent on their loans because of the company's mistakes.
Now, when a loan servicer messes up, the borrower picks up the phone and calls to try to get those problems fixed. These are not problems that can just automatically be fixed online.
So how did that work out?
Ms. Yu, your organization, the Student Borrower Protection Center, conducted a years long investigation alongside the American Federation of Teachers into MOHELA’s performance as a student loan servicer.
For people who had billing errors or other problems and tried to correct them on MOHELA’s website, were they at least able to get it worked out?
Ms. Yu: No. Borrowers who needed help with refunds or processing errors had to contact a customer service representative. In fact, MOHELA's own internal documents list 28 different issues where self-servicing on the website isn't sufficient.
To make matters worse, MOHELA 's website was missing key information, and was oftentimes inaccessible to borrowers during the return to repayment.
Senator Warren: Okay. So, they couldn't correct it online. In fact, if they tried to correct it online, they often found inaccurate information. Is that right?
Ms. Yu: That's right.
Senator Warren: All right. So how about the people who actually then got on the phone? Did— were they able to straighten out their problems?
Ms. Yu: There's a good chance that they were then directed back to MOHELA’s website.
Senator Warren: Website. So they were sent to the website that has the mistaken information on it.
Ms. Yu: That's correct. MOHELA set up a call deflection scheme, memorialized in its communications playbook from October 2023, which diverted borrowers away from customer service representatives, and directed them to the website.
MOHELA even tried to prevent borrowers from contacting MOHELA in the first place, by requesting that FSA not include their contact information on key pieces of information.
Senator Warren: Wait, so they actually asked that no one be able to get the information so that they would be able to call them to correct the errors that MOHELA had made?
Ms. Yu: That's correct.
Senator Warren: You know, this is just stunning.
I just want to summarize what we've got here. MOHELA made errors in millions of borrowers’ accounts, then actively worked to prevent borrowers from getting the help they needed by trapping them in these endless loops.
MOHELA even had a name for it, it was called call deflection, and internal email revealed by SBPC and AFT’s report– I found this in your report– it shows that even MOHELA’s General Counsel worried that the public might find this just a little bit shady.
No kidding.
The federal government paid MOHELA millions of dollars so it would be ready to help people make payments once the payment pause ended. MOHELA messed that up for millions of borrowers and then intentionally tried to dodge the calls that it would take to straighten it out. Shame on them.
So, thank you.
Round 2: Borrower’s Story
Senator Warren: I have some questions I want to ask about PSLF. But, I want to make sure, before we move on, I want to pick up on a point that Mr. Buchanan raised in his opening testimony and that Senator Menendez focused on.
So, before we move on, I just want to explore the argument that the federal government's student debt program is just too complicated for servicers to manage properly — that the reason it's such a mess at MOHELA is the fault of the government.
Ms. Yu, I just thought maybe I’d give you a chance to respond to that argument. Do you think that servicers should not be held accountable for their failures because our system is just too hard?
Ms. Yu: Absolutely not.
The servicers knew what they were signing up for. Their job is to help borrowers navigate the complexities of the student loan system. They get paid hundreds of millions of dollars each year to do that job. If they fail to do that job well, they should be held accountable.
Senator Warren: Thank you.
You know, back in 2007, Republicans and Democrats got together to create this Public Service Loan Forgiveness Program, it was signed into law by President George W. Bush. And the idea was, if you had to borrow money to go to school, and then you took that education, instead of going out into the private industry and maximizing the amount of money you made, you actually put it to work in public service, as a teacher, as a nurse, as a firefighter, you work for municipal government, then America would cancel your debt at the end if you hadn't been able to pay it all off. And it was really just a way of saying thank you. Thank you for your many, many years of service.
So, Ms. White, I understand that you took out student loans so that you could become a teacher. And that then you also took out student loans because you're a parent and trying to help your children make it through this process. And I understand that you paid back your loans and your children's loans — it says here for 40 years, is that right?
Ms. White: That's correct. $300,000.
Senator Warren: $300,000, that you paid back?
Ms. White: Correct.
Senator Warren: So back in 2017, Betsy DeVos is the head of the Department of Education, Donald Trump's in the White House, you decided to apply for the Public Service Loan Forgiveness Program. And at that point, how long have you been working in public service?
Ms. White: Well, I worked a total of 26 years full-time. Okay. And at that time I was eligible — I would have been eligible. And I had a balance of $65,000.
Senator Warren: All right, so you had $65,000 still remaining, but you had done enough qualifying payments and they had all been in public service. Okay. So, did the Trump administration approve your PSLF Loan cancellation?
Ms. White: No, they did not.
I was told I had a variety of loan types, and I was not eligible. But I was not given any information about how to respond or follow up or reapply.
Senator Warren: So, what did you do?
Ms. White: Well, I kept paying. I kept paying $300-and-something every month. And I thought that was pretty striking that I would still be paying until my 81st birthday.
I do think it's problematic that seniors who are in public service, who I believe had an entitlement to public service relief, based on my job and my on-time payment history would be in that situation.
Since you did call on me, I do want to say that, you know, I carry around lots of files. But this is only for the last year-and-a-half. These are all the communications and printed emails I received as I tried to achieve public service relief, so it took a year and a half. And I do think that people shouldn't have to be as persistent as I am. I think it should be easier. And a year-and-a-half is just too long.
Senator Warren: So, let me just ask a little bit about that.
So, in 2017, the Trump administration just turns you down. President Biden then gets sworn in and they say we're open for business again, come back on your PSLF loan, right? We want to help people who've been in public service. So you went to MOHELA, right?
Ms. White: I was sent to MOHELA.
Senator Warren: That was now your servicer?
Ms. White: Naviant was my servicer.
Senator Warren: Naviant had been.
Ms. White: They said they didn’t do this.
Senator Warren: They said we're done. Go to MOHELA which now covers all of the Public Service Loan Programs. They said go to MOHELA, MOHELA will take care of this. And how long did it take you to get it straightened out with MOHELA?
Ms. White: A year-and-a-half from my first submission of my employment certification form and my loan consolidation form, it was like one year and a half.
Senator Warren: So a year-and-a-half, after you have been in public service at that point for — how long did you say?
Ms. White: Oh, 26 years.
Senator Warren: 26 years?
Ms. White: Yeah. And I filed many complaints. Everywhere I could complain to, I complained. I think the only advantage I had was that I was persistent. But many public service employees don't have the ability to be this persistent.
Senator Warren: Yeah, I believe in persistent women. But it shouldn't take that level of persistence in order to get your cancellation.
And I just got to wrap up with this section to ask you, Mayor Lucas, can you just say a word about who benefits from this student debt cancellation? Sometimes we hear oh, it's only people who have plenty of money. After all, they're all college graduates.
Can you just talk about this a little bit from what you see right there in Kansas City.
Mayor Lucas: It is the beneficiaries or the working people of our communities who provide vital public services each day. I'll give two very brief vignettes from just this week.
So I have a three year old son — very cute, very fun, but can get into danger, sometimes, as all parents know. Broke his arm. We were at the children's hospital in Kansas City. We were there in the emergency room late at night. Nurses, nurse practitioners, other medical professionals, those are the ones that are doing the work to make sure myself and my community are safe.
That was just one set. The next night, coincidentally, we had an officer in the hospital who had been shot. Once again, I had a chance to talk to the people in the hospital — the officers doing okay, by the way — who are the ones who have taken on these obligations to be particularly in an inner city medical environment.
So much of this program isn't about just people having wonderful opportunities and ways to make more money. But it's allowing us to direct public servants and public service to areas that need them vitally.
So for me, a mayor of a city that has — and every city has challenges — but major inner city hospitals and schools and needs for prosecutors and so many others and social workers, as I mentioned before, this is how we get the health care we need in major American cities and rural communities. This is how we get educators in states like mine, Missouri, home of the MOHELA organization. This is how we get people to go to rural communities. This is how we get care and services.
So, the beneficiaries are frankly, all of us, and the losers when you see programs like this, indeed, are all of us.
When we don't have cancellation, when we don't have accountability. That's why this matters to me. And I think it matters to so many people who are here today.
Senator Warren: Oh, thank you very much, Mr. Mayor, and thank you for your advocacy on behalf of the people of Kansas City. They're lucky to have you.
Round 3: MOHELA’s Status as a State Actor
Senator Warren: In 2022, President Biden announced a historic plan to cancel up to $20,000 in student debt for borrowers making less than $125,000 a year. Now, he used a law that said, in a pandemic, the President could and I'm gonna, quote, “waive or modify student loans.”
Now we all know what happened next. An extremist Supreme Court, the same court that overturned Roe v.Wade, twisted the plain meaning of the law and ripped away debt cancellation from 43 million Americans.
The less told story: MOHELA was at the center of all of it. The Republican states challenging President Biden's plan basically couldn't explain how they were harmed by student debt cancellation. And without an explanation of how they were harmed, they didn't have legal standing to sue. So, their answer was MOHELA.
Mayor Lucas, why was MOHELA so critical to the lawsuit that blocked President Biden's first debt cancellation plan?
Mayor Lucas: Well, Madam Chair, I would never pretend to tell the law to a law professor, but the issue as you have articulated relates to standing.
And the argument was because MOHELA, the Missouri Higher Education Loan Authority, was established by the state of Missouri, they would lose business as a servicer if the debt cancellation were to go through, that then would create harm, not just to MOHELA but to the people of Missouri, which is counterintuitive for any normal person or Missourian. And that was, at least in the eyes of the Court, sufficient to establish that standing that would allow the lawsuit to proceed.
Senator Warren: Yeah, exactly. Nicely— nice explanation for a really twisted argument here. But, it was enough to persuade this Supreme Court.
Now, MOHELA is the only federal student loan servicer that considers itself to be part of a state. In court filings and in public letters, including as recently as two days ago, MOHELA has repeatedly said that it is, quote, “an arm of the state of Missouri.”
This is important because in MOHELA’s view, its public status affords it special privileges, including the privilege of not having to answer to borrowers who have been harmed by MOHELA’s servicing errors.
Ms. Yu, last December, borrowers brought a class-action lawsuit against MOHELA, arguing that MOHELA had failed to process the Public Service Loan Forgiveness applications in a timely way, very much like what happened to Ms. White, and that it cost people money.
Can you help unpack MOHELA's argument here? Why would MOHELA respond by saying “stay away from me, I'm part of the state of Missouri?”
Ms. Yu: Well, under, under the Constitution, state governments can't be sued for violating the law, unless they consent to the suit. So, what MOHELA is trying to argue here is that because they were created by the Missouri State Legislature, it is therefore immune from consumer protection laws.
Senator Warren: So, they just say, I just want to make sure I've got this straight, MOHELA agreed to follow all of the federal, state, and local laws in the contract that it signed, it voluntarily signed this contract, for which it gets paid, this contract with the Department of Education. And it signs a contract.
I just want to be clear here— is the contract that MOHELA signs any different from every other student loan servicers?
Ms. Yu: It is not.
Senator Warren: Nope. So, they make exactly the same representations in the same commitments, and just like every other student loan servicer, MOHELA got paid millions of dollars on these contracts.
But unlike any other student loan servicer, MOHELA now claims it can't be sued, even when it takes the money and fails to do the job.
So, let me just start it this way: Is there anyone testifying here today who thinks that MOHELA shouldn't be required to comply with the same laws and the same obligations as every other student loan servicer?
I see no one. All right.
I just want to say, I am very concerned that MOHELA is trying to hide behind its quasi-public status to evade responsibility for its servicing failures, and to try to duck out on the harm that it has inflicted on public servants.
I had hoped that the MOHELA CEO would be here in person to explain his side of the story, so I am disappointed that he refused to attend. I will continue to press for answers on this.
The Department of Education has created new performance standards for servicers. I understand there are many servicers who've complained about that. But the Department has said you've got to meet higher standards here.
Now, what's critical is the Department of Education needs to enforce those standards to the letter.
MOHELA has repeatedly failed millions of borrowers, and it's time for real action and real accountability.
Senator Warren's Closing:
Senator Warren: I want to thank all of our witnesses for being here today. I very much appreciate your taking your time to come here.
Questions for the record from other senators are due one week from today, that’s Wednesday, April 17. For our witnesses, you will then have 45 days to respond to any questions that have been submitted.
And, with that, this hearing is adjourned.
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