A major student-loan company failed to send on-time billing statements to 2.5 million borrowers. Biden's Education Department is punishing it.
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- The Education Department announced it's withholding $7.2 million in pay from student-loan company MOHELA.
- It's a result of MOHELA failing to deliver on-time billing statements to 2.5 million borrowers.
- All impacted borrowers will be placed on forbearance until the errors are resolved.
President Joe Biden's Education Department just enacted its first punishment on a student-loan company for its repayment mistakes.
On Monday, the Education Department announced it would be withholding $7.2 million in pay for October from student-loan company MOHELA for failing to meet its "basic obligation" by not sending billing statements on time to 2.5 million borrowers, leading to over 800,000 of them being marked as delinquent on their loans.
According to the press release, MOHELA has been directed to place all impacted borrowers on forbearance until the issue is resolved. Those months in forebearance will count toward forgiveness through Public Service Loan Forgiveness and income-driven repayment plans.
The department also said that borrowers who have received incorrect billing statements from any servicers, as well as those with pending borrower defense claims who were incorrectly placed back in repayment status, will be put onto forbearance, as well.
"Our oversight efforts have uncovered errors from loan servicers that will not be tolerated," Education Secretary Miguel Cardona said in a statement.
"The actions we've taken send a strong message to all student loan servicers that we will not allow borrowers to suffer the consequences of gross servicing failures," he added. "We are committed to fixing our country's broken student loan system, and that includes strengthening oversight and accountability and taking every step possible to improve outcomes for borrowers."
Federal Student Aid Director Richard Cordray also said in the press release that until MOHELA corrects the errors, borrowers' interest rates will be set to zero as part of the administrative forbearance.
"In strengthening our efforts to hold servicers accountable for errors that harm borrowers, the Department will begin to withhold some funds under our monthly contracts to encourage stronger and more reliable service to borrowers," Cordray said.
Since federal student-loan payments resumed in October after an over three-year pause, many borrowers have reported a range of issues with their servicer — not only MOHELA. Strained resources at servicers were leaving borrowers on hold on the phone for hours on end, sometimes to no avail, and the Education Department recently confirmed to Insider that about 305,000 borrowers' billing statements were inaccurate.
MOHELA and the Education Department have previously expressed concerns with limited resources due to Congress failing to increase funding for Federal Student Aid in the previous fiscal year. The company warned to Democratic lawmakers in August that it expects customer service delays to extend into 2024 due to a lack of increased funding. The Education Department did not immediately respond to Insider's request for comment on whether there might be any adverse effects of withholding MOHELA's pay.