Editor's note: This story has been updated with statement from MOHELA.
WASHINGTON — The nation’s second-largest teachers union is suing a Chesterfield-based federal student loan servicer, accusing it of gross mismanagement that has wreaked havoc on its eight million borrowers.
The American Federation of Teachers filed the lawsuit on Monday in U.S. District Court in Washington, D.C., against the Higher Education Loan Authority of the State of Missouri (MOHELA). The teacher’s union claims that the student loan servicer has cut corners, prioritized the bottom line and “grown from a small loan servicer to a leviathan in the industry†by tripling the number of its borrowers during the COVID-19 pandemic to more than eight million.
In the lawsuit, the AFT also alleges that MOHELA illegally overcharged borrowers on their monthly student loan bills, failed to process paperwork in a timely fashion and actively misled borrowers about their student loan accounts — practices that may violate state and federal laws.
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“Individually, any one of MOHELA’s failings would be sufficient to cause financial, mental, and emotional distress,†the lawsuit said. “Collectively, they result in a Kafkaesque experience and make it practically impossible for borrowers to correct account errors, make important decisions to protect their economic well-being, or even confirm basic information about their student loans.â€
MOHELA employs 1,277 people and 2,010 subcontractors and is one of the largest student loan servicers in the United States, the lawsuit states.
"Providing support to student loan borrowers is the utmost priority to MOHELA, and any claims to the contrary are false," MOHELA’s media office wrote in a statement. "MOHELA will vigorously defend against the allegations in the complaint."Â
Monday’s lawsuit touches on complaints that advocates for student loan fairness and progressive Democratic lawmakers made in May, when they called on the U.S. Department of Education to end its contract with MOHELA, the
AFT wrote in its suit that the Department of Education has paid MOHELA more than $1.1 billion since 2011 to staff call centers and help borrowers with questions. But, the suit says, it deflected millions of borrowers away from call centers and toward websites and options that often failed to address borrowers’ problems.
The loan servicer makes it “practically impossible†for its borrowers to get assistance with their loans and correct the account errors and misinformation that MOHELA itself creates, the suit said.
“MOHELA was hired by the federal government to help borrowers pay down debt, but instead it hung them out to dry to line its own pockets,†AFT President Randi Weingarten said in a statement. “Rather than fulfill its responsibilities, MOHELA has abdicated and deflected them — and it’s well past time it’s held to account.â€
The AFT is a union representing 1.8 million teachers, early childhood educators, paraprofessionals, other school-related personnel, higher education faculty and professional staff, government employees and nurses and other health care professionals.
The union called student loans a crisis in the lawsuit and said 45 million Americans owe more than $1.7 trillion. It noted that higher education costs have nearly tripled, even accounting for inflation, since 1980.