Kevin Wolf/AP Content Services for The Debt Collective
Student borrowers from Debt Collective, American Federation of Teachers, Student Borrower Protection Center, and Young Invincibles join AFT president Randi Weingarten to urge the Biden administration to terminate the contract of federal student loan servicer MOHELA during a rally at the Capitol, May 22, 2024, in Washington.
Kamala Harris is justifiably proud of her work in shutting down fraudulent for-profit Corinthian Colleges while California attorney general, and helping to secure full debt relief for defrauded students while vice president. At last month’s Democratic National Convention, Nathan Hornes, one of those students, appeared onstage to thank Harris for this work. (Hornes spoke right before a board member of Corinthian Colleges, but that’s another story.)
Harris “stuck up for students, prosecuted Corinthian, and stood with us as we fought and organized for debt relief,” Hornes said. The debt cancellation, he added, “gave us back our futures.”
But although the debt relief was announced by the Department of Education more than two years ago, one of Hornes’s fellow Corinthian victims filed a lawsuit this week in superior court in Alameda County, California (Harris’s birthplace), alleging that her private loan servicer, the Missouri Higher Education Loan Authority (MOHELA), has not implemented the loan discharges. In fact, this student alleges along with others in a proposed class action lawsuit, MOHELA has failed to refund money due to borrowers, continues to report the canceled debt to credit bureaus, and insists on demanding payment on loans that have been extinguished.
“When the Corinthian group discharge was announced, it felt like a huge weight was lifted,” said Jaime Maldonado, a former Corinthian student and one of the lead plaintiffs in the case against MOHELA, in a statement. “They told us we didn’t have to do a thing and our loans would be canceled. Two years later, I’m still fighting for answers and the relief I was promised, wondering if this was just another trap.”
On paper, the Biden-Harris administration has forgiven $167.3 billion in student debt for nearly five million borrowers, according to numbers from The Washington Post. But actually ensuring that borrowers receive that debt relief depends heavily on the work of private loan servicers, which the Department of Education contracts to handle day-to-day management on its student loan portfolio. That includes MOHELA, which has repeatedly been accused of ineptitude in its servicing practices.
Last year, the Department of Education withheld $7.2 million in payments to MOHELA after finding that it failed to send timely billing statements to 2.5 million borrowers, causing 800,000 to fall into delinquency. The department also transferred one million loan accounts away from MOHELA in May. In February, the Student Borrower Protection Center published a trove of internal documents from MOHELA, alleging that “more than four in ten student loan borrowers MOHELA services have experienced a servicing failure since loan payments resumed in September 2023.”
The saga suggests that the government is more interested in sending out press releases touting student debt forgiveness than paying attention to the implementation process.
“What we have seen specifically with MOHELA, they are at the top of every list you don’t want to be at the top of. For call times, complaints, messing things up, they stand out,” said Eileen Connor, president and executive director of the Project on Predatory Student Lending, which is representing borrowers in the lawsuit. “It’s not OK to have the actual labor of this [student loan] program managed by entities that are profit-driven and that seem to be lawless.”
Despite all this, millions of borrowers still have their fates tied to MOHELA, which according to this lawsuit cannot handle basic operations like discharging loans they were told to discharge. Last year, MOHELA handled over $345 billion in student loan accounts, and received $300 million in servicing fees from the Department of Education.
Numerous members of Congress have called on the department to end its relationship with MOHELA as a loan servicer, after waves of class action lawsuits from borrowers and the American Federation of Teachers, along with actions from regulators. “It is time to fire them,” said Rep. Ilhan Omar (D-MN) in May.
MOHELA was used as the primary justification for standing in the Supreme Court case throwing out the Biden administration’s mass student debt relief. The state of Missouri filed suit saying that MOHELA would suffer “irreparable harm” if loans were forgiven. Just yesterday, Missouri won a temporary restraining order against a second Biden administration mass student debt relief program that would affect as many as 30 million borrowers.
Yet as the lawsuit filed today claims, when loans actually are being forgiven, MOHELA is inflicting harm rather than suffering it, by failing to process the discharges. “I wish the state of Missouri had to defend MOHELA’s failure to deliver these discharges,” Connor said.
In an emailed statement to the Prospect, a MOHELA spokesperson said, “As a contractor for the U.S. Department of Education’s Office of Federal Student Aid (FSA), MOHELA’s highest priority is supporting the borrowers we serve. Borrower Defense to Repayment is an FSA-run program … MOHELA works diligently with FSA to fulfill the required discharges under FSA’s direction. We are proud of our work and record servicing borrowers, and we will vigorously defend ourselves against false allegations.”
In a statement, the Department of Education said that they have “no comment on this pending litigation, to which the Department is not a party.” It is the case that Corinthian and other defrauded borrowers have no obligation to make payments on any cancelled loans, and there’s a hotline at the Office of Federal Student Aid website to check the status of these loans.
The Harris campaign did not respond to a request for comment.
BETWEEN APRIL 2022 AND MAY 2024, the Department of Education made announcements that it would be canceling all student loans from borrowers who matriculated at six different for-profit college networks: Corinthian, ITT Technical Institute, Marinello Schools of Beauty, Westwood College, the Colorado locations of CollegeAmerica, and The Art Institutes.
The discharge announcements followed years of organizing from groups like Debt Collective, which amassed significant evidence that the colleges lured in students with false promises of job placement, maximized loan amounts, and then gave worthless degrees that were of no use in employment efforts. Debt Collective has released other reports on for-profit colleges that the department hasn’t yet cited for loan forgiveness, including Brooks Institute and Argosy University.
Not only did the department announce forgiveness for the six for-profit chains, it sent communications directly to the affected borrowers, saying that their loans would be discharged, no additional payments should be made, and that borrowers did “not need to take any further Action” for that to occur. Borrowers would be eligible for refunds on past payments as well.
What was supposed to happen is that private loan servicers like MOHELA would then follow the department’s orders, discharge the loans, and issue the refunds. But according to the lawsuit, MOHELA simply didn’t execute this.
Student loans were paused for three years during the pandemic, and “turned back on” in September of 2023. To the surprise of these for-profit college borrowers, the loans they thought were discharged were put back into repayment status by MOHELA, the lawsuit explains, and bills were sent for monthly charges. MOHELA also notified credit reporting agencies of past-due amounts, which increased due to accrued unpaid interest, despite the loans being canceled in the eyes of the Department of Education. This lowers credit scores and potentially facilitates denials of credit on other purchases.
Borrowers specifically told MOHELA that they were eligible for discharges, showing them the letters they received from the Department of Education. But, the lawsuit says, MOHELA continued to demand payment, issue notices to credit reporting bureaus, and pursue debt collection.
Four plaintiffs lead the case. Three attended a Corinthian College, Westwood College, and ITT, respectively. The fourth is a parent who took out Parent Plus loans for her sons to attend Westwood College and the Art Institute. All of them were serviced by MOHELA and still show balances on their canceled loans for as much as $60,000.
The lawsuit was filed in superior court in Oakland, California, taking advantage of the state’s Student Borrower Bill of Rights as well as California’s Unfair Competition Law, Fair Debt Collection Practices Act, and Consumer Credit Reporting Agencies Act. All four plaintiffs notified MOHELA of violations of the Student Borrower Bill of Rights four months ago, without MOHELA remedying the errors, according to the lawsuit.
The plaintiffs are seeking restitution for all affected borrowers, in the form of immediate discharges and refunds, as well as additional damages. Over 1.2 million borrowers who were defrauded by for-profit colleges have received loan forgiveness, according to Connor. It is unknown precisely how many of these loans are being serviced by MOHELA, or how many of them MOHELA failed to discharge.
FOR THE DEPARTMENT OF EDUCATION, which has touted student debt relief consistently, the allegation that MOHELA simply didn’t comply with its orders is a black eye. That’s also true of the Harris campaign for president, given how she has leaned in to her work on shutting down Corinthian Colleges and securing forgiveness.
The saga suggests that the government is more interested in sending out press releases touting student debt forgiveness than paying attention to the implementation process of whether the forgiveness actually gets to borrowers. That disconnect is especially debilitating in the context of the upcoming election, where this is one of the key parts of Harris’s record that she’s running on.
It also calls into question why the government outsources collection of student loan payments to private servicers that for years have continuously failed to follow prescribed guidelines or even the law. The Internal Revenue Service is one of the largest payment collectors in the world, with a dedicated track record of success in this area. Privatizing payment collection on higher-education loans would be unnecessary enough if the private companies actually did their jobs correctly; that they are being sued repeatedly over misconduct makes the situation ridiculous.
Connor, whose Project on Predatory Student Lending has filed multiple lawsuits to secure debt relief promised to students, was in the room when Harris announced the Corinthian loan discharges. “She needs to finish the job,” Connor said. “I think there are more direct ways to process discharges and deliver the relief to people. There is some red tape that can be cut through if someone is paying attention.”
This story has been updated with a comment from the Department of Education.
