CNBC: Education Department penalizes Missouri lender for error that made 800,000 student loan borrowers delinquent

Oops!

CNBC headlines this craziness: https://www.cnbc.com/2023/10/30/education-dept-penalizes-student-loan-servicer-mohela-for-errors.html

Education Department penalizes Missouri lender for error that made 800,000 student loan borrowers delinquent

Now that’s a tad more than a clerical error. CNBC reports:

“The U.S. Department of Education will penalize student loan servicer Mohela, or the Missouri Higher Education Loan Authority, for its failure to send timely billing statements to 2.5 million borrowers.

As a result of Mohela’s errors, more than 800,000 borrowers were delinquent on their loans, the Education Department said in a statement Monday.

The department is withholding $7.2 million in payment to Mohela for October and has directed the servicer to place all affected borrowers in forbearance until the issue is fully resolved, it said.

“Our top priority is to support borrowers as they return to repayment and fix the broken student loan system, and we will not tolerate errors from loan servicers that cause confusion and unwarranted financial instability for borrowers and families,” said Rich Cordray, the chief operating officer of federal student aid.

Higher education expert Mark Kantrowitz said he believed this was one of the first instances of the government withholding payment from a student loan servicer. 

‘Borrowers are penalized for making late payments,’ Kantrowitz said. ‘It is only fair for the loan servicer to be penalized for mailing late statements.’

Mohela did not immediately respond to a request for comment.”

If this is, as reported, “ one of the first instances of the government withholding payment from a student loan servicer” then that would indicate that since this rarely if ever happens – something is amiss here.

The obvious question: If the U.S. Education Department sees this incident as worthy of penalizing Mohela – will it be investigating to see just what went wrong? And why? How could something like this happen in the first place?

Will there be more news forthcoming on this when already the news report says “Mohela did not immediately respond to a request for comment.”

So far, no word.