More than 1 million student-loan borrowers could soon be transferred to a new company after their servicer requested a lighter load, the Education Department says

More than 1 million student-loan borrowers could soon be transferred to a new company after their servicer requested a lighter load, the Education Department says
  • Over 1 million student-loan borrowers are being transferred from MOHELA to new servicers in the coming months.

  • MOHELA requested the transition, and Federal Student Aid agreed to allow for "the best service."

  • The Education Department withheld pay from MOHELA last year for not fulfilling some of its obligations.

A major student-loan company has requested that it no longer manage some of the borrowers in its servicing portfolio.

On Monday, Federal Student Aid released a blog post — first reviewed by Business Insider — announcing that beginning this week, it will begin transitioning some student-loan borrowers' accounts from MOHELA to other federal servicers.

An Education Department spokesperson told BI that it expects this transition will impact over one million borrowers, but that number is subject to change as the transition progresses.

"MOHELA requested these transfers and FSA, as part of its work to ensure borrowers receive the best service and support, agreed to this path," the blog post said.

According to FSA, it has already started to work with MOHELA and the other servicers to manage these transitions effectively. Impacted borrowers will receive a notice from both MOHELA and their new servicer notifying them of actions that they need to take to complete the transition. Those include creating an account with their new servicer, ensuring their new servicer has their contact information, and making sure any payment settings — like banking information — are up to date.

The transition is expected to be completed "over the next several months," per FSA, and impacted borrowers will still be able to benefit from reforms set to be implemented over the summer, including some new provisions in the SAVE income-driven repayment plan to allow for lower monthly payments.

With regards to the borrowers in the Public Service Loan Forgiveness program, the Education Department already announced that beginning May 1, the program will be paused as PSLF borrowers switch from being managed by MOHELA to being managed through Federal Student Aid. Monday's announcement will work in accordance with that shift.

"MOHELA continues to serve as one of the Department's federal student loan servicers and will continue their support for millions of student loan borrowers," the blog post said. "FSA will work closely with MOHELA and our other federal student loan servicers throughout the transition period to create a smooth process for borrowers."

This announcement comes as the Education Department is working to overhaul the student-loan servicing industry to make it easier to use for borrowers. Since student-loan payments resumed in October after an over three-year pandemic pause, many borrowers have reported hourslong hold times with their servicers, along with inaccurate and delayed billing statements, among a list of other errors.

MOHELA was the first servicer to receive punishment from the Education Department in October for failing to send on-time billing statements to 2.5 million borrowers, resulting in over $7 million of its pay withheld. The department has since released an accountability framework to enforce oversight over servicers, vowing to take additional action if it finds any federal servicer is failing to fulfill its contractual obligations.

Some Democratic lawmakers have also been pushing for greater oversight over MOHELA. Sen. Elizabeth Warren held a hearing earlier in April to examine MOHELA's performance, and while the company's CEO declined to attend, MOHELA said in a statement that it is instead offering private briefings with lawmakers to answer their questions.

Warren told BI in a statement that less than three weeks after she held the hearing, "the Education Department is taking critical action to protect student loan borrowers."

"There is more that the Education Department can do to hold MOHELA accountable, but today's action is an important first step," Warren said.

Read the original article on Business Insider