Widely criticized student loan servicer MOHELA faces investigation by multiple state attorneys general

Student loan servicer MOHELA is under investigation by multiple state attorneys general and regulators over alleged mismanagement of borrowers' accounts, according to three sources directly familiar with the matter.
The investigations, which began in late 2023, focus in part on MOHELA's frequent errors handling basic administrative tasks like calculating monthly payments, billing customers, and processing paperwork when the Biden administration resumed loan repayments that year — mistakes that often turned costly for borrowers and the servicer was slow to fix, according to the sources, who were not authorized to speak on the record about the investigations.
The states are scrutinizing issues similar to ones covered in a lawsuit filed last summer against MOHELA by the American Federation of Teachers, two of the sources said. That complaint accused the nonprofit of committing a 'shocking series of abuses' against its customers and claimed it actively 'misleads and misinforms borrowers' about their repayment options.
MOHELA — otherwise known as the Higher Education Loan Authority of the State of Missouri — currently racks up the worst customer satisfaction and performance scores among the government's servicers. At the end of January, it was responsible for handling accounts for 6.8 million federal direct loan borrowers.
State attorneys general in Washington, New York, Pennsylvania, Colorado, Illinois, Massachusetts, and the District of Columbia have all filed so-called civil investigative demands seeking information from MOHELA, according to two of the sources. The California Department of Financial Protection and Innovation and the Oregon Division of Financial Regulation have also begun investigations.
The states have created a working group to collaborate on their investigative efforts, one of the sources who spoke with Yahoo Finance said. Their investigations are adding to a sprawling, years-long pressure campaign by borrower advocates and elected Democrats against the servicer, which played a high-profile role in the court cases that blocked President Biden's student loan forgiveness efforts.
'Multi-state investigations don't happen every day,' said a former US Department of Education Official who described the inquiries to Yahoo Finance. 'The last time we saw an investigation of this scale, the company was ultimately forced out of the market entirely, and we're still cleaning up the mess they left. That should make clear the gravity of the misconduct happening at MOHELA.'
A MOHELA spokesman told Yahoo Finance that the servicer 'does not comment on the existence or nonexistence of confidential investigations.'
Sources who spoke with Yahoo Finance suggested that the investigations could potentially be hampered by the recent mass layoffs at the Department of Education, which eliminated its oversight divisions that supervised the servicers. Those teams were also responsible for fulfilling information requests from state attorneys general; without them, inquiries may get bogged down, the sources said.
The states have also lost a potentially important federal ally in the Consumer Financial Protection Bureau, which has partnered with them in past lawsuits against servicers. Under the Trump administration, the bureau's staff has been told to 'deprioritize' student loan cases.
The Massachusetts attorney general's office declined to confirm or deny whether they were scrutinizing MOHELA. But an official said the office was generally in touch with the Department of Education about investigative efforts and waiting to see what level of cooperation the Trump administration would offer. They said that without assistance from the federal government, they could be forced to bring cases to court earlier in order to obtain information through civil discovery.
The other state attorneys general offices and regulators also declined to confirm or deny the investigations, or did not respond to a request for comment.
Student loan servicers are nonprofit organizations and private companies hired by the federal government to collect monthly payments from borrowers and help them manage their debt. But they've frequently been accused of gross incompetence and of trying to save costs by cutting corners on customer service, sometimes leading to legal actions.
In 2022, for instance, 39 states reached a $1.85 billion settlement with Navient, then the country's largest servicer, over its treatment of borrowers. Among other failures, states accused it of pushing Americans who had trouble paying their loans to enter more expensive long-term forbearances instead of income-driven repayment plans, essentially because it saved the company time and money.
The CFPB later reached a deal with Navient that banned it from the student loan collections business.
MOHELA has found itself under the gun more recently. In 2023, the Department of Education said it would dock $7.2 million from the nonprofit's pay because it had sent bills late to millions of borrowers. In October of 2024, the department told MOHELA it would stop awarding it new accounts, partly because it had failed to inform the agency that it had built up a large backlog of applications for income-driven plans. Officials also threatened to terminate MOHELA's contract unless its performance improved.
Much of the scrutiny on the organization has come from progressive advocacy groups and Democrats on Capitol Hill. Last year, the American Federation of Teachers and the Student Borrower Protection Center released a report called 'The MOHELA Papers,' claiming that 4 in 10 of its customers had experienced a servicing failure since loan repayments resumed from their pandemic pause.
The report singled out MOHELA's handling of the Public Service Loan Forgiveness program, claiming its botched management had led to a backlog of 800,000 forms (MOHELA temporarily began overseeing PSLF in 2022 and has since handed it off). It also suggested understaffing at its call centers had left many borrowers facing hours-long wait times for help on the phone, and that it had engaged in a 'call deflection scheme' meant to loop borrowers away from live customer service representatives.
MOHELA responded with a lengthy cease-and-desist letter demanding that the organizations remove their report, which it said had made 'false, misleading, and sensationalized claims.' The letter said MOHELA had fewer than 15,000 PSLF forms left to process, and that it had increased its staff by more than 500% to deal with PSLF and the resumption of payments. It also said it had been instructed to use 'call deflection' by the Department of Education.
The issues have already spilled into court. MOHELA is currently fighting a class-action lawsuit in Missouri over its management of the public service program and another in California that argues it failed to properly implement student loan discharges. The American Federation of Teachers filed its lawsuit last summer in Washington, D.C., alleging MOHELA was guilty of wide-ranging failures that created a 'kafkaesque experience' for its customers.
MOHELA has argued that it is immune from the lawsuit because it is technically an arm of the government of Missouri, and that the teachers' union lacks legal standing to bring its case.
In Congress, meanwhile, Senate Democrats, including Elizabeth Warren of Massachusetts, have savaged MOHELA in hearings and launched investigations into its work. In September, following the teacher's union lawsuit, more than 50 House and Senate Democrats wrote to the Department of Education urging it to potentially drop its contract with the nonprofit. Warren, Sen. Minority Leader Chuck Schumer, and Sen. Bernie Sanders also called on the CFPB and state attorneys general to investigate MOHELA over its handling of PSLF.
Republicans have argued that the actions by the Department of Education and congressional Democrats, as well as lawsuits by advocacy groups, are merely an attempt at revenge against the servicer for the role it played in lawsuits that foiled the Biden administration's attempts to offer broad-based student debt forgiveness.
The Supreme Court ruled that the state of Missouri had the legal right to challenge Biden's plan because it had created and technically governed MOHELA, which stood to lose $44 million a year in fees if the loans were canceled. MOHELA itself did not have any say in its involvement in the case, which was spearheaded by Missouri Attorney General Andrew Bailey.
Bailey later brought suits that froze Biden's SAVE plan, a more generous student loan repayment option, as well as a second attempt at large-scale loan cancellation.
Those cases 'drew the ire of litigants who have sought to retaliate against MOHELA for its role in upholding the rule of law,' Bailey wrote in a recent Supreme Court filing arguing the nonprofit should be immune from suits. Bailey also sent a letter to Trump's Department of Education in February asking it to review the previous administration's actions and 'acknowledge that they were efforts to retaliate' against MOHELA.
If MOHELA were to ever exit the servicing business, it could potentially deprive Missouri of the legal standing to challenge future student loan actions by the federal government.
Jordan Weissmann is a senior reporter at Yahoo Finance.
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Other photos obtained by the Chronicle from inside the base also show soldiers in fatigues walking around the area as well as construction projects with cranes and wooden pallets. A nearby resident, who declined to give his name, said he has a good view of the base from his backyard. He said it's common for troops to stage there for training. He said troops had camped in smaller tents when they arrived, but now are staying in a massive tent that he estimated is longer than a football field but about the same width. The resident described the National Guard troops as 'wonderful neighbors' even if they make noise early in the morning. Reached by phone Thursday afternoon, he said he could hear troops marching down the middle of a road near his home. Cross said it's not surprising that National Guard soldiers would be stationed at the base in Los Alamitos and that it's normal protocol to build massive tents to house soldiers. 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