Can student loan forgiveness get reversed? In some cases, it appears to be happening.
Some borrowers on online message boards have been sounding the alarm that MOHELA, one of the Education Department’s contracted loan servicers, has been “unforgiving” federal student loans that had previously been discharged. Balances that had been $0 are coming back. Payments are becoming due again. And borrowers are not receiving clear explanations from their loan servicer.
Here’s a rundown of what we know.
Student Loan Forgiveness Had Been Improving Under PSLF
The reversals appear to center on the Public Service Loan Forgiveness program. PSLF can lead to complete federal student loan forgiveness after a borrower makes the equivalent of 10 years of payments while working in full-time qualifying public service employment, such as for a nonprofit organization or government entity.
PSLF has suffered from significant problems since its inception, with complicated eligibility criteria and loan servicing problems resulting in many borrowers missing out on the loan forgiveness they should have been entitled to, even after working for more than 10 years in a public service job. The Biden administration tried to rectify these historic problems through several temporary initiatives, including the Limited PSLF Waiver and the IDR Account Adjustment, both of which can credit borrowers with time toward loan forgiveness that wouldn’t have counted under the original rules. The administration also enacted new regulatory changes last summer designed to codify some of these improvements so that future borrowers will have an easier time getting relief.
The results have been profound. Prior to 2021, only a few thousand borrowers had been approved for student loan forgiveness under the PSLF program. But according to recent data released by the Education Department, through February 2024, the Biden administration has approved over $56 billion in student loan forgiveness for nearly 800,000 borrowers due to the improvements to PSLF.
Some Borrowers Are Seeing Student Loan Forgiveness Reversed
But in the last few weeks, some borrowers have been reporting that PSLF discharges are getting reversed.
“I was granted PSLF forgiveness last year,” said one user on Reddit. “MOHELA sent me a letter dated August 9, 2023 showing my loans fully forgiven under PSLF. They’ve even been closed on my credit report with a zero dollar balance. This past weekend I got an email about my payments starting back up. Went to the website, found my loans back in full. Got ahold of someone today on the phone (which was a miracle) who said it looked like there had been an error in my counts and they ‘canceled the discharge.’”
A recent report by Business Insider verified that this is indeed happening to some borrowers. And this author has also heard from multiple people reporting that their student loan forgiveness under PSLF was reversed in the last few weeks — something that could be unprecedented for the PSLF program.
The explanation for these student loan forgiveness reversals is currently not fully clear. But some Reddit users who had their loan forgiveness reversed claim they spoke with MOHELA agents who told them that an audit by the U.S. Department of Education’s Federal Student Aid office uncovered that several hundred borrowers were given improper PSLF credit based on incorrect dating information on PSLF employment certification forms. These details could not be independently verified. MOHELA did not comment to Business Insider, and has not released a public response to these reports.
In response to a detailed request for comment submitted to the U.S. Department of Education, Biden administration officials did not confirm or deny the student loan forgiveness reversals, provided no details on the scope or possible reasons for the reversals, and gave no indication as to whether some sort of post-discharge audit by the Office of Federal Student Aid played a role. Instead, the department appeared to shift any blame to MOHELA.
“The Department will not stand for egregious servicer errors that have harmed borrowers and perpetuated problems in the broken student loan system,” said a department spokesperson. “We have taken 25 separate actions to deliver loan forgiveness for 3.9 million borrowers, many of whom were eligible for relief they never received.” The spokesperson went on to say, “We will not allow borrowers to suffer the consequences of gross servicing failures.”
MOHELA Under Scrutiny For Other Student Loan Servicing Problems
MOHELA has been increasingly criticized for broad student loan servicing issues that have negatively impacted borrowers. Last fall, the Education Department imposed millions of dollars in monetary penalties on MOHELA after borrowers received incorrect or untimely billing statements following the return to repayment.
“Recently, the Department withheld $7.2 million in payment from MOHELA due to wrongdoing,” noted the department spokesperson.
Earlier this week, the Student Borrower Protection Center released what it calls the “MOHELA papers,” arguing that the servicer engaged in widespread “call deflection” schemes designed to make it difficult or impossible for borrowers to speak with a customer service agent to correct mistakes, change repayment plans, or get guidance on their options. The SBPC, in a joint report with the American Federation of Teachers, contended that MOHELA’s processes “ensured that borrowers caught in a byzantine loop of misinformation and false promises were unable to resolve servicing errors” and diverted borrowers “away from customer service representatives—often to non-operative parts of the MOHELA website—even though many servicing functions can only be performed by a customer service representative.”
MOHELA defended its actions, telling Business Insider earlier this week that the information released by the SBPC “is being spun to create a false narrative in an attempt to mislead the public.”
MOHELA had also previously warned lawmakers that the return to repayment could be messy. In a letter to Senate Democrats in August, the agency said, “While we continue to provide various self-service options and work to ensure as many as possible customer service representatives are ready and able to answer borrowers’ inquiries, we are limited in the funding available.” MOHELA went on to say, “Unfortunately, the immediacy of return to repayment amid ever-increasing changes to the contract administration requirements and expanded training needs, combined with the lack of sufficient funding from FSA, mean extensive servicing delays are a likely outcome.”
MOHELA will soon be taking on an even greater role in student loan servicing, following a recent announcement that Navient will be transferring its student loan portfolio to MOHELA.
What Borrowers Need To Know About Student Loan Forgiveness Reversals
While panic is understandable, this is a new situation that remains in flux. So far, the information readily available suggests that student loan forgiveness reversals are only happening to a small fraction of borrowers who have received discharges within the last year, and could be attributable to some sort of error associated with PSLF employment certification forms. According to the Education Department, nearly four million borrowers have been approved for or received student loan forgiveness under various initiatives, with several hundred thousand approvals through PSLF alone. If indeed only a few hundred borrowers have had their discharged balances reinstated, that would represent a mere 0.0125% of borrowers who have been approved for student loan forgiveness.
But that’s not to say that the situation is not serious and alarming. And for borrowers impacted by the reversals, it could be devastating. In at least some cases, borrowers may have taken steps in reliance of the notice that their student loans were discharged — such as leaving public service employment, or purchasing a home and taking out a mortgage premised on no longer having any student loan payments. Reversal of student loan forgiveness could, thus, cause significant financial harm to people.