Trump Department of Education Reassigns MOHELA Student Loans After Mounting Complaints

Millions of Americans may soon see another shakeup in the federal student loan system. The U.S. Department of Education confirmed in August it will begin transferring an unspecified number of accounts currently serviced by the Missouri Higher Education Loan Authority (MOHELA) to other contractors by the end of 2025.

The data migration, announced quietly within correspondence between Senator Elizabeth Warren of Massachusetts and Education Secretary Linda McMahon, represents a major development in how federal student loans are managed.

The federal student loan portfolio—more than $1.7 trillion held by over 42 million borrowers—is administered through private contractors. In 2024, the Biden Administration announced it would restrict its contracts to a reduced number of loan servicers. Today, only four main servicers now handle most accounts: MOHELA, Nelnet, Aidvantage, and EdFinancial.

MOHELA faced mounting scrutiny for its repeated performance and customer service issues. That was particularly true since it oversaw the Public Service Loan Forgiveness (PSLF) program before management of that system was consolidated at StudentAid.gov by the Biden Administration. PSLF borrowers tend to be extraordinarily conscientious about managing their student loans because they’re on an accelerated 10-year repayment schedule.

In a letter to Senator Warren, Sarah Ursprung—the new acting assistant secretary for legislation and congressional affairs at the Department of Education’s Federal Student Aid department—said the decision to transfer accounts reflects the agency’s intent to “prioritize efforts to improve customer service to students and parent borrowers.” Ursprung added that “FSA is collaborating with MOHELA to help the servicer manage the multiple strains on its portfolio to help drive overall improvement.”

Except for indicating that the migration is planned to take place before 2026, the department has not yet disclosed how many accounts will be moved, which borrowers will be affected, or exactly when the transfers will occur. However, it appears that PSLF borrowers are most likely to be included in the transition, given that MOHELA no longer needs to serve as the central servicer for that program.

MOHELA has come under fire for years from lawmakers, regulators, and borrower advocates. Critics say the company issued late or inaccurate billing statements, sent misleading notices about interest charges, and employed “call-deflection” tactics that trapped borrowers in endless automated loops rather than connecting them with call center agents.

The Student Borrower Protection Center and the American Federation of Teachers accused the servicer of intentionally creating a “byzantine loop of misinformation and false promises.” Senator Warren likewise emphasized how MOHELA performed worse than its peers in answering borrower calls. “In the fourth quarter of 2024, MOHELA took roughly seven times as long to answer phone calls from borrowers compared to the servicer with the second-worst average wait time,” she wrote earlier this year.

Financial experts see the problem as both managerial and practical. Michael Ryan, founder of MichaelRyanMoney.com, said in comments to Newsweek that “the portfolio is mismatched to their capacity. Once PSLF tracking shifted to StudentAid.gov, there’s no reason to keep PSLF-heavy borrowers at MOHELA.”

Borrowers in online forums like Reddit have echoed these complaints, pointing to chronic telephone-hold issues and unresolved billing errors. Some of them say the prospect of moving to another servicer cannot come soon enough.

The decision fueled political debate as well. Senator Warren pressed the Department of Education to explain how it will ensure MOHELA’s failures do not carry over to other servicers. “You admitted that you were doing so to improve MOHELA’s performance, and I appreciate your acknowledgement and action—to my knowledge, the first such admission from the Trump Administration—in response to MOHELA’s failures to adequately serve borrowers,” she wrote in her letter to McMahon.

Department officials, however, have framed the move more as “load-balancing.” Ellen Keast, ED’s deputy press secretary, said the agency intends “to spread out federal student loans that are eligible for PSLF across all servicers to drive overall service delivery improvement.” Ursprung emphasized that the transition would be carried out “thoughtfully and in a responsible way that avoids negative impacts to borrowers.”

MOHELA has always denied any wrongdoing and continues to do so in recent press releases. “Any claims that MOHELA does not act in the best interest of the borrowers we serve as a federal contractor is simply not true,” a company spokesperson told Forbes last year.

“MOHELA’s priority has always been on helping the student borrowers that we are here to serve while they navigate the often complex and overwhelming federal repayment process, and that is what we remain proudly committed to doing.”

Although frustrated customers may welcome the news, loan servicing transfers have historically created headaches. In 2024, the Consumer Financial Protection Bureau warned that data errors and mismanagement can result in inaccurate borrower records, lost progress toward forgiveness, and payment disruptions.

Kevin Thompson, the CEO of 9i Capital Group, cautioned borrowers to be proactive. “Transfers are rarely smooth. If the records at the current servicer are inaccurate, then the receiving servicer will be working off bad information from the start,” he told Newsweek. “That’s why it’s critical for borrowers to keep their own documentation—PDFs or hard copies—of statements, balances, and interest calculations. If there’s a discrepancy down the line, you’ll have what you need to push back and ensure your loan data is accurate.”

Ryan also warned that the process can be unsettling: “People don’t like change; transfers create friction. Autopay can break. Due dates can slip. Payment counts for PSLF/IDR can display wrong, even if they’re later corrected.” Still, he added, “A better borrower experience is possible, but only if data quality becomes the metric that pays. Otherwise, they’ll just play musical chairs with your loan file.”

The problems with federal student loan servicers have become so pervasive and widespread in recent years that some states have taken steps to protect their citizen borrowers. California is one such state, and ahead of the migration, its Department of Financial Protection & Innovation (DFPI) recently posted updates on its website from Celina Damian, the state’s student loan ombudsperson.

For example, Damian reminds borrowers that the comprehensive California Student Borrower Bill of Rights “protects borrowers from any negative consequences stemming from a sale, assignment, transfer, system conversion, or payment made by the borrower to the original student loan servicer.” Damian encourages borrowers to use DFPI’s complaint form if they experience any issues because of the migration.

Along with Damian’s updates, we also found several websites offering actionable steps that borrowers can take as soon as they receive confirmation that their student loan will transfer to a new servicer. One of the best sites we found is maintained by Pedro Gomez, a Miami-based student loan expert, certified financial planner, and licensed investment advisor.

Gomez argues that borrowers first need to verify that the specific loan migration at issue is legitimate and not a scam—a surprisingly frequent occurrence these days. That’s because student loan migrations have turned into such a confusing yet common process that scammers may attempt to take advantage of unsuspecting borrowers.

Fortunately, borrowers have some actions at their disposal that can help. From his article:

• Call the original student loan company. If your debt will be sold to another lender or serviced by a different company, your current lender should know all about it.
• Find external verification. These transfers often happen on a large scale, making it a newsworthy event.
• Check the federal database. The Department of Education keeps detailed records on federal student loans. This information includes the company assigned to service the loans. If you receive notice that your federal loans are being serviced by someone new, check the federal database to see if it is true.

If the borrower verifies the migration as legitimate, Gomez then recommends the following seven-point plan before and during a transfer to a new servicer:

1. Download payment records. Keep copies of all billing statements so you can verify balances if discrepancies appear after the transfer.
2. Confirm your contact details. Make sure your mailing and email addresses are current to avoid missing important notices or bills.
3. Pause autopay at your bank. Disable automatic payments to your old servicer so your bank or credit union won’t send money to the wrong financial institution during the transition.
4. Save all communications. Archive any emails, letters, or chat transcripts from your current servicer in case disputes arise later.
5. Look for a welcome notice. Once you receive confirmation from the new servicer, create an online account promptly to track your loans.
6. Re-launch autopay. After the new account is active, update your payment method to prevent interruptions in payments to the new servicer.
7. Check your credit report. Verify that the loan transfer is recorded accurately, without duplication or errors.

For borrowers, the immediate takeaway is uncertainty. The exact timing, scope, and impact of the transfers remain unclear, and experiences may vary widely depending on how effectively the department and the receiving servicers manage the handoff. Gomez and other experts encourage continuing vigilance to avoid disruptions.

As Alex Beene, a financial literacy instructor at the University of Tennessee, told Newsweek, “Given the recent slew of changes to student loans at the federal level, borrowers may take this news with concern. However, there are many borrowers who have had poor experiences with MOHELA, citing poor customer service as the primary reason.”

In the weeks ahead, student loan borrowers will be watching to see whether the Department of Education’s plan to reassign MOHELA’s accounts actually improves customer service—or simply reshuffles all the longstanding problems.