2 student-loan borrowers sued a major servicer over accusations it delayed their debt cancellation and 'forced' them to make extra payments

• A pair of student-loan borrowers filed a lawsuit against servicer MOHELA.
• They accused the company of delaying their PSLF applications, forcing them to make extra payments.
• The Education Department recently withheld pay from MOHELA over failure to meet its obligations.

A major student-loan company just got hit with a lawsuit over accusations it delayed relief through a targeted loan forgiveness program.

On December 11, law firm Sauder Schelkopf filed a class-action lawsuit on behalf of two student-loan borrowers — Jennifer Joy of Colorado and Misty Thomas of Florida — against servicer MOHELA, accusing the company of "failure to timely process and render decisions" for borrowers enrolled in the Public Service Loan Forgiveness program, according to the legal filing.

The suit defines three classes to be considered for relief: a nationwide class that includes all borrowers who have submitted PSLF forms to MOHELA, along with separate classes for Colorado and Florida borrowers who have done the same.

PSLF is intended to forgive student debt for government and nonprofit workers after ten years of qualifying payments. However, the lawsuit said that some borrowers' applications have been left waiting for years, and when they call MOHELA to get an update on their loan status, they are left for hours on hold with customer service.

"Our clients, like the many other borrowers who contacted us, worked in public service jobs and relied on the Public Service Loan Forgiveness program," Joseph Kenney, a partner at Sauder Schelkopf, said in a statement.

"The PSLF was designed to encourage careers in public service by providing for loan forgiveness after ten years," he continued. "Now that these individuals have fulfilled their obligations, they should receive the benefits promised by PSLF.  Instead, due to no fault of their own, they are now being forced to make extra loan payments."

MOHELA did not immediately respond to Business Insider's request for comment on the claims in the lawsuit.

According to the lawsuit, both plaintiffs submitted applications for relief through PSLF as early as August 2022, but their forms have still not been processed. As a result, once the over three-year pause on federal payments ended in October, they both had to make payments on loans that might have qualified for relief.

The case cited a series of letters Democratic lawmakers have sent to MOHELA over the past few years requesting information on how the company was preparing borrowers to resume payments, expressing concern with the strained customer service borrowers were facing as they attempted to get answers on PSLF.

For example, a September letter from a group of Democrats including Sens. Bob Menendez and Elizabeth Warren said that the payment restart could further worsen delays borrowers were already experiencing with PSLF.

"Borrowers who are eligible to have their debt cancelled under the PSLF program should not be forced back into repayment due solely to MOHELA's processing delays, which cause difficult financial situations for so many borrowers," they wrote. "The Administration assured public service workers across the country that the PSLF program would be fixed, yet MOHELA appears to be continuing a legacy of lost paperwork, long call wait times, and processing errors and delays."

With the plaintiffs residing in Colorado and Florida, the lawsuit accused MOHELA of violating each of the states' consumer protection laws, along with the federal Fair Debt Collection Practices Act on behalf of the nationwide class. The plaintiffs are seeking monetary relief, along with an order that requires MOHELA to process PSLF applications in a timely manner.

The Education Department has previously cracked down on MOHELA's failure to properly assist borrowers. In October, it withheld $7 million in pay to MOHELA over failure to send on-time billing statements to 2.5 million borrowers, and in a broader framework for accountability over servicers, the department said it will continue to take similar actions when it finds a servicer does not meet its contractual obligations.

Additionally, in an internal Federal Student Aid memo, the agency said "borrowers who were financially harmed due to servicing errors would seek a legal remedy against their servicers and/or the Department."

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