Loan company distances itself from student debt lawsuit by GOP-led states


The student loan servicer cited in a lawsuit that temporarily blocked President Biden’s debt forgiveness plan is distancing itself from one of the claims made by six Republican-led states challenging the program.

The states—Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina—argue that the president overstepped his authority in creating the forgiveness plan and that the move threatens revenue for public entities that profit from federal student loans, including Missouri higher education. Loan authority. The quasi-government entity, commonly known as MOHELA, is not a party to the lawsuit, but has nonetheless drawn the ire of human rights groups and Rep. Cory Bush (D-Mo.), who has questioned its alleged involvement.

Justice Department prosecutors briefed the 8th U.S. Circuit Court of Appeals on Tuesday which weighs the ban against the amnesty plan to a letter MOHELA sent to Bush last week clarifying that it played no role in Missouri Attorney General Eric Schmidt’s (R) decision to sue.

“The only link between MOHELA and [the Missouri attorney general’s office] in connection with student debt collection is that the Office recently filed a series of MOHELA requests seeking copies of documents related to the MOHELA federal loan service contract,” the company wrote in its letter to Bush.

The lawsuit, filed by Schmidt and the leaders of the other five states, says MOHELA, which owns and services debt under the defunct Federal Family Education Loan Program, would be barred from paying interest if borrowers consolidate with FFEL to take advantage of Biden’s benefits. forgiveness to plan It says the company that funds the state scholarships will also lose revenue from servicing the direct loans — those issued and owned by the federal government — that are being destroyed.

Bush asked MOHELA if the company supports efforts to block Biden’s plan to retain profits. In response, MOHELA said it was “in good faith fulfilling its obligations under the federal loan servicing contract.”

The company said it was “a public instrument of the state. As a public entity, it has no shareholders and does not exist to make a profit. Any available funds in excess of reasonable operating needs and reserves are directed to MOHELA for student financial aid.”

In their case, the states argued that Missouri had standing to sue on behalf of MOHELA because it “performs an important the public function'” and “its board consists of state officials and people appointed by the governor.

U.S. District Judge Henry E. Autry, who dismissed the state’s case for lack of standing, questioned that premise. Autry said that while the governor does appoint the company’s five board members, its revenue and liabilities are independent of the state.

The states appealed, sending it to the 8th Circuit. Last month, a court issued an administrative stay, temporarily barring the Department of Education from collecting arrears under the new grant program.

So far, MOHELA has remained silent on the states’ claim. The company did not respond to requests for additional comment on Wednesday.

MOHELA is the primary servicer for borrowers who use Public Service Loan Forgiveness, a federal program for teachers, firefighters and other public employees. The company services approximately $59 billion in direct federal loans as well as loans under the defunct FFEL program, according to court filings.

Following the state lawsuit, the American Federation of Teachers and the nonprofit Student Borrower Defense Center sent MOHELA a cease-and-desist letter last month. The group accused the company of violating the California Student Borrower Bill of Rights, which prohibits student loan servicers from interfering with borrowers’ rights to have their loans forgiven. The Student Borrower Advocacy Center said it is prepared to take legal action if the company does not drop the lawsuit.

On Wednesday, SBPC Executive Director Mike Pearce said, “It looks like these states have just been caught misleading a federal appeals court in a brazen attempt to score political points against the president. This is the clearest sign yet that the right-wing state’s call for student debt relief has no legal basis and will ultimately prove futile.”

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