A pair of borrowers pursuing student loan forgiveness for public servants is suing the Missouri Higher Education Loan Authority, which manages the program on behalf of the federal government, for repeatedly failing to process their applications.
The case explores what consumer advocates and liberal lawmakers say is MOHELA’s haphazard handling of the federal Public Service Loan Forgiveness program, which encourages college graduates to enter fields serving the public good with the promise of having their student debt canceled after a certain period. People have complained of inaccurate payment counts, inconsistent information, long wait times and processing delays, problems they say undermine the program.
The PSLF program was created by Congress in 2007, and requires borrowers to make 120 on-time monthly payments for 10 years to have their remaining balance canceled. They must work for the government or certain nonprofit organizations and be enrolled in specific repayment plans.
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The program has long been derided by participants, lawmakers and consumer groups for being exceedingly complex and poorly managed, leading the Biden administration in 2021 to temporarily relax the rules and then ultimately rewrite them.
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In a lawsuit filed Monday, plaintiffs Jennifer Joy and Misty Thomas say some of the same administrative breakdowns that have come to define PSLF persist. Both say they hit the required 120-payment threshold and submitted applications for forgiveness in August 2022. When neither received word from MOHELA about their applications, they resubmitted a year later to no avail, according to the lawsuit. But despite being eligible for loan forgiveness, Joy and Thomas said the servicer requested they start repaying their loans when the pandemic-era payment pause for federal student loan borrowers ended in October.
“Our clients, like the many other borrowers who contacted us, worked in public service jobs and relied on the Public Service Loan Forgiveness program,” said Joseph Kenney, a partner at Sauder Schelkopf, which is representing Joy and Thomas. “Now that these individuals have fulfilled their obligations, they should receive the benefits promised by PSLF. Instead, they are waiting months for a decision and as a result being forced to make extra loan payments.”
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The lawsuit, filed in U.S. District Court for the Eastern District of Missouri, accuses MOHELA of breach of contract and violating fair debt-collection practices. The plaintiffs are seeking class-action status, timely processing of outstanding applications and undisclosed damages.
MOHELA did not immediately respond to requests for comment. While the Education Department declined to comment on the allegations in the lawsuit, the agency said it will not tolerate errors from loan servicers that prevent eligible borrowers from accessing the student debt relief they’ve earned.
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In July 2022, MOHELA became the sole servicer for the public service forgiveness program after the Pennsylvania Higher Education Assistance Agency cut ties with the department. By November of that year, the loan servicer warned borrowers of delays in processing applications because it was inundated with forms in the wake of President Biden’s waiver allowing more people to potentially qualify for relief.
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MOHELA said it was also stymied by a lag in receiving files from the Education Department’s Federal Student Aid office and other servicers needed to update payment counts and complete loan discharges. The company said it could not write off loans or conduct other adjustments without the files, which contain millions of records that MOHELA said would take weeks to process and absorb. MOHELA and the Education Department told borrowers it would take at least 90 business days to process forms as they are received.
“There is a delay because there is a lot of manual work in looking at these accounts, pulling up the payment history and trying to reconcile all of that,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for loan servicers. “That’s a lot of work to be done at FSA, but I don’t think this is a servicer issue necessarily.”
There has been a steady flow of applications amid heightened awareness of the program and as the Education Department has streamlined the digital form, according to the agency. As of October, 715,000 public servants had received a total of $51 billion in debt cancellation through Public Service Loan Forgiveness. There are still hundreds of thousands of applications awaiting review.
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In September, a group of Democratic lawmakers, led by Sen. Bob Menendez of New Jersey, sent a letter to Education Secretary Miguel Cardona accusing MOHELA of leaving public servants in the dark about the status of their applications. Menendez said he had heard from constituents who had not received credit for all of their qualifying payments, had experienced long wait times when attempting to contact MOHELA and had been waiting up to a year for relief.
MOHELA and other student loan servicers have been contending with reductions in call center hours and staffing shortages, which they attribute to a dearth of funding for the Education Department from Congress. Servicers say they are being asked to execute a series of new policies and usher millions of borrowers back into repayment without enough money to pull it all off.
