Student loan company embroiled in lawsuit over Biden debt relief

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  • Six GOP-led states have filed a Missouri-based lawsuit over Biden’s student loan forgiveness.
  • Missouri is home to MOHELA, a student loan company that recently took over some accounts from federal borrowers.
  • The lawsuit says MOHELA faces loss of income due to debt relief.

As a student loan company works to take over millions of borrower accounts, it plays a role in a lawsuit over President Joe Biden’s recently announced student loan forgiveness.

Last week, six GOP-led states filed a lawsuit in Missouri over Biden’s announcement of federal debt forgiveness of up to $20,000. The state is home to the State of Missouri Higher Education Loan Authority, a student loan company also known as MOHELA. Long before Biden announced broad debt relief, the student loan industry was facing upheaval as three loan companies announced they would be ending their federal contracts. This required the transfer of millions of accounts to new entities that would service the loans.

FedLoan Servicing, which previously held loans under the Civil Service Loan Forgiveness Program, was one of the companies terminating its federal service, and those accounts were transferred to MOHELA – which appears to be at the center of the lawsuit led by the GOP. According to the filing, the states say the loan manager faces a “number of ongoing financial harms” to his business, specifically referring to the federal Family Education Loans program, a government-backed private loan that would not qualify for Biden debt. relief without consolidation in the direct loan program.

The trial argue that pushing Federal Family Education Loan borrowers to consolidate will result in a loss of income for MOHELA. In response, Biden decided that borrowers from this program could not qualify for his one-time student loan forgiveness.

While the move made it harder for the GOP attorneys general to win, they also said in the suit that canceling direct student loans — the federal loans eligible for Biden’s relief package — would hurt MOHELA’s business operations.

“MOHELA faces an imminent loss of revenue in its role as a Direct Loan Program (DLP) loan servicer,” the lawsuit states. “MOHELA’s income as a DLP loan servicer is a function of the number of accounts it manages. So when student loan balances drop to zero, as they will en masse under the mass cancellation of debt, MOHELA will lose income from servicing these loans.”

Prior to Biden’s announcement, there was speculation about which entities, or individuals, would take legal action against the debt relief. Jack Remondi, CEO of leading student loan company Navient, said last month he would not sue the administration even though his company “clearly has standing”. And Abby Shafroth, the attorney for the National Consumer Law Center, told Insider that it would be difficult for loan companies to sue given that they made their money through contracts with the federal government.

For now, the trial is scheduled for a hearing before a federal judge this month to determine next steps — but lawyers and Democratic lawmakers are confident nothing will come of it.

“This lawsuit is just the latest chapter in a long story of student loan companies like MOHELA and their Republican allies cheating people in debt,” said Mike Pierce, executive director of advocacy group Student Borrower Protection Center. A declaration.

“Governments have given billions of dollars to companies like MOHELA since they were created by state legislatures decades ago,” Pierce added. “It must stop now. As President Biden writes off student debt for tens of millions, state governments must end their failed student loan experiments and dismantle student loan companies like MOHELA.”

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