HomePoliticsThe student loan company used to attack Biden's debt relief plan

The student loan company used to attack Biden’s debt relief plan

MOHELA now manages the accounts of nearly 7 million federal student loan borrowers, more than double the number two years ago. Last year it generated more than $130 million in revenue, most of which came from its federal contract to service student loans.

MOHELA, like the other Department of Education loan servicers, had been moving forward with the implementation of the Biden administration’s debt relief until the courts stopped it in November. The company had gone so far as to finalize a letter, co-branded with MOHELA and federal logos, notifying borrowers that their debt relief application was complete, according to documents obtained by POLITICO under a public records request.

But at the same time, MOHELA has been embroiled in the fight against student debt relief by Missouri Attorney General Eric Schmitt, one of the lead plaintiffs in the multi-state lawsuit, even though the company is not part of the case.

The other states pursuing the legal challenge include Nebraska, Iowa, South Carolina, Kansas, and Arkansas. They claim that Biden’s debt relief plan will hurt them in a number of ways, such as reducing tax revenue or lowering the value of investments tied to student loans.

But it is the part of the Missouri case, asserting financial damage to MOHELA, that has occupied much of the attention of legal observers and lower courts.

Missouri argues that MOHELA will lose money on Biden’s relief plan because it will have fewer bills to manage. Missouri says less revenue for the company will make it harder for MOHELA to make required payments to a state fund that helps its public colleges and universities.

Taking advantage of the damage to loan servicers who work for the Department of Education, like MOHELA, was “the best chance to file a successful lawsuit,” said Phil Kerpen, a conservative political organizer who runs American Commitment and was an early advocate. of the strategy and circulated the idea in conservative circles.

All of the loan servicers hired by the Department of Education decided not to sue over the debt relief plan. MOHELA presented a different situation, Kerpen said, because of the company’s relationship with a state with a Republican attorney general who could act on his behalf.

When Biden first announced his plan to forgive student debt in August, Republicans and conservative groups vowed to bring legal challenges to the policy. But finding a plaintiff who had a specific injury that would allow them to file a lawsuit was a great challenge.

MOHELA’s role in the case has drawn fresh criticism from some Democrats and consumer advocacy groups.

Rep. cory bush, The progressive Democrat whose district neighbors the company’s Chesterfield, Mo., headquarters, for example, criticized MOHELA for what she called an “inordinate” effort to halt debt relief. MOHELA, he added in a statement to POLITICO, is “a representative of the six conservative attorneys general” in challenging the administration’s debt relief program and “would benefit from the success of this challenge.”

MOHELA responded to Bush’s criticism last month by saying appearing to distance himself from the lawsuit. The company explained in a letter to Bush that its “executives were not involved” with the Missouri attorney general’s decision to file a lawsuit.

With much at stake for the company’s federal loan servicing business, the company’s MOHELA officials have also sought to reassure Democratic congressional aides and Biden administration officials that they were not involved in the lawsuit. Missouri attorney general seeking to block debt relief, according to people familiar. with the conversations.

MOHELA did not respond to a request for comment for this story. Company executives have not detailed publicly, in court or otherwise, how they expect Biden’s debt relief to affect the company. Some of its competitors in the industry have predicted some kind of financial hit if the plan goes ahead.

Progressives oppose the idea of ​​interest from any Department of Education contractor being used to override an administration’s student loan policy.

“It’s not just that this could derail debt cancellation, but it sets up a dynamic where the legal status of these contractors creates veto points in the student loan system that allows it to become even more partisan and dysfunctional.” said Mike Pierce, the executive director of the Center for Student Borrower Protection. “Ultimately, borrowers are going to pay the price for that.”

For decades after Missouri lawmakers created it in 1981, MOHELA provided federally guaranteed student loans. That changed when President Barack Obama in 2010 signed legislation to scrap the program, which Democrats saw as a worthless giveaway to lenders. In response to concerns about the bankruptcy of state entities like MOHELA, Congress required the Department of Education to set aside new loan servicing contracts for those companies.

“I don’t think anybody thought about the politics of that, and here we are 12 years later and the cost of that sponsorship can wipe out the debt cancellation of tens of millions of people,” Pierce said.

MOHELA has dramatically expanded its loan servicing business since receiving an initial contract from the Department of Education in 2011 to service around 100,000 federal student loans, winning additional contracts and new business from the agency. As of August, MOHELA managed the accounts of 6.7 million borrowers on behalf of the Department of Education. It also services the accounts of an additional 330,000 private loan borrowers.

The big expansion followed the company’s effort to bolster its presence in Washington. Over the last decade or so, the company began hiring an outside firm to lobby Congress and the Department of Education. And he established a DC office in the same building complex that houses the Department of Education’s Office of Federal Student Aid.

On Capitol Hill, MOHELA has benefited from having Missouri Sen. Roy Blunt as the top appropriator for the Republican Party that oversees education funding. Senate appropriators have repeatedly added language to government funding bills requiring the Department of Education to keep companies like MOHELA in the mix, as the agency has tried to review their student loan servicing contracts in the past. last years.

MOHELA has also managed to remain relatively free of controversy, as Democrats and progressives have heavily criticized the student loan servicing industry in recent years. It avoided the fate of some larger companies, such as Navient and FedLoan Servicing, which have been dogged by federal and state lawsuits and investigations into their loan servicing practices.

Last year, the Biden administration renewed MOHELA’s loan servicing contract through 2023. It also gave the company millions of new accounts by appointing it as the new exclusive contractor to administer the Public Service Loan Forgiveness program, which cancels the debt of public service employees after 10 years. Fixing the long-troubled program, which had previously been operated by FedLoan Servicing, has been a top priority for Democrats.

MOHELA’s role in the debt relief lawsuit has so far been mixed for the red states pursuing the case. In October, a federal judge in St. Louis threw out the red states’ lawsuit, concluding that MOHELA was too far from the state of Missouri for the attorney general to sue on its behalf. The judge ruled that the other states also lacked standing.

But a federal appeals court in November took a different approach. “Due to MOHELA’s financial obligations to the state treasury, the discharge of the challenged student loan debt presents a threat of financial harm to the state of Missouri,” said a three-judge panel of the 8th Circuit Court of Appeals. concluded unanimously.

The Supreme Court will now consider whether the states have the right to bring their lawsuit when it hears the case in February or March. That will determine whether the judges end up reaching a decision on the legality of the administration’s plan under the emergency authority that the Education Department claims it has to cancel millions of debt in response to the Covid-19 pandemic.

The judges also agreed to hear a second case based on whether two borrowers can sue because they were deprived of the opportunity to submit public comment on the policy.

However, debt relief advocates acknowledge that the battle to defend the administration’s program extends beyond MOHELA. A Supreme Court defeat is also likely to spark renewed calls for Biden to try another legal authority to cancel student debt.

“Ultimately, MOHELA is not a plaintiff in this case,” Bush said. “Attorneys general should be pressured to drop the case, the Supreme Court to rule in favor of the people who will benefit from this relief, and the Biden Administration to continue to use its legal authority to ensure that relief from student debt is fast. given to the borrowers.

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