WHY WAS THIS FUNDED?

The Department of Education is required by law to manage millions of federal student loans, and it contracts with outside organizations to handle the day-to-day servicing of those loans. This award falls under an existing contract (ED-FSA-11-D-0012) that gives FSA the authority to issue task orders for loan servicing work.

WHAT PUBLIC PROBLEM IS IT TRYING TO SOLVE?

Tens of millions of Americans have federal student loans and need reliable help managing repayment, applying for income-based plans, and avoiding default. The federal government does not handle this work directly and relies on contracted servicers to keep the loan system running for borrowers.

WHO BENEFITS?

Federal student loan borrowers across the country benefit from having a servicer manage their accounts and answer their questions. MOHELA employees and operations in Missouri also benefit from the work and revenue this contract provides.

WHAT ARE THE RISKS?

Large-scale loan servicing contracts have historically faced criticism over borrower errors, miscommunication, and inconsistent customer service, which can lead to borrowers being placed in wrong repayment plans or facing unexpected penalties. With $639.6 million at stake, oversight of service quality and proper use of funds is a significant accountability concern.

WHAT HAPPENS IF FUNDING IS REMOVED?

Without this contract, the federal government would need to quickly find another way to service the loans covered by this task order, which could disrupt billing and repayment processing for a large number of borrowers. Borrowers could experience confusion, missed payments, or delays in getting assistance during a transition.

ARGUMENTS FOR

• •Contracting with an established nonprofit loan authority like MOHELA allows the government to leverage existing expertise and infrastructure to manage millions of borrower accounts efficiently.
• •Maintaining consistent loan servicing helps protect borrowers from defaults that can damage credit and financial stability.
• •Using competitive federal contracts for this work is intended to hold servicers accountable to performance standards set by the Department of Education.

ARGUMENTS AGAINST

• •Federal student loan servicers have faced repeated complaints and federal investigations over errors, poor customer service, and mishandling of borrower accounts, raising questions about whether this model works well enough.
• •The scale of the contract, $639.6 million for a single task order, represents a major expenditure that some critics argue could be reduced by bringing more servicing in-house or streamlining the system.
• •Loan servicers have a financial incentive to keep borrowers in repayment rather than guiding them toward forgiveness or income-driven plans, which can create a conflict of interest that may not serve borrowers' best interests.