Student loan servicer MOHELA is allegedly under investigation by a coalition of state attorneys general and regulators, according to a report by Yahoo Finance. The investigations focus on alleged mishandling of borrower accounts, billing errors, and paperwork delays during the restart of federal loan payments last year.

The Higher Education Loan Authority of the State of Missouri, known as MOHELA, services federal loans for nearly seven million borrowers. It has come under heavy scrutiny for repeated administrative problems, including sending late billing statements, inaccurate payment calculations, and backlogs to process applications for programs such as income-driven repayment plans and Public Service Loan Forgiveness (PSLF).

The surge of investigations comes at a time when state officials are expanding their role in policing student loan companies, stepping in to fill oversight gaps left by federal agencies under the new administration.

State Agencies Step In As Federal Oversight Retreats

Attorneys general from Washington, New York, Pennsylvania, Colorado, Illinois, Massachusetts, and the District of Columbia have allegedly launched investigations and have been seeking records from MOHELA. California and Oregon regulators have also allegedly opened their own inquiries. According to the report, the states have formed a working group to coordinate their investigations.

This coordinated action reflects a growing trend. In recent years, states have enacted “student loan borrower bill of rights” laws designed to impose new standards on servicers, including requirements to provide accurate information, process payments correctly, and prevent wrongful denials of repayment benefits. These laws have given states new tools to take action independently of federal regulators.

Massachusetts, Colorado, and Washington, among others, have passed sweeping borrower protection laws. New York created a student loan ombudsman within its Department of Financial Services to investigate complaints. These efforts have been framed by state officials as necessary to safeguard borrowers amid what they describe as weakening federal oversight.

With layoffs at the Department of Education, which eliminated teams tasked with monitoring servicers, and a shift at the Consumer Financial Protection Bureau (CFPB) to deprioritize student loan enforcement, states have been left to act on their own.

States, though, do have their own laws which they can bring lawsuits under and make it painful for loan servicers to operate unlawfully. Over the last few years, several major loan servicers, such as Navient and Fedloan, have stopped servicing student loans due to litigation and settlements.

Shift In Student Loan Consumer Protection

The growing focus on MOHELA represents a broader shift in how student loan servicing is regulated in the United States. As federal oversight mechanisms have weakened (with the dismantling of the Department of Education and the CFPB), states are seeking to build a parallel enforcement structure to protect borrowers.

The CFPB, once a major player in student loan enforcement, has largely stepped back under new leadership, directing staff to focus less on student loan servicer actions. Meanwhile, staffing cuts at the Department of Education have further constrained federal capacity to monitor companies like MOHELA.

Senators Elizabeth Warren, Chuck Schumer, and Bernie Sanders issued a joint statement praising state investigations into MOHELA, describing them as necessary in light of what they called federal abdication of responsibility.

“MOHELA’s mismanagement of Americans’ student loans has resulted in a series of abuses for hundreds of thousands of borrowers. We’ve previously urged state Attorneys General to investigate MOHELA and pursue action to the fullest extent possible under the law, and reports of these new investigations are an important step toward making right by our nation’s student loan borrowers — especially as the Trump Administration abandons and penalizes them. Americans deserve better than MOHELA’s failures.”

Republicans, however, have framed much of the scrutiny of MOHELA as politically motivated. Missouri Attorney General Andrew Bailey has defended MOHELA’s role in the Supreme Court case that blocked President Biden’s debt cancellation plan, arguing that litigation targeting the servicer amounts to political retaliation.

The future of MOHELA’s role in student loan servicing remains uncertain.

Should the investigations lead to major settlements or loss of servicing contracts, it could force the federal government to find new contractors for millions of borrower accounts, a daunting task given recent turmoil in the sector. There are not many companies in the United States that seem willing to do the work required.

What Borrowers Should Do Moving Forward

Borrowers who are struggling to get resolution for issues with their loans should reach out to their state agencies if they are not getting help from their servicer or the Department of Education.

Borrowers can also contact their state representatives, who can also work on their behalf to get assistance from the Department of Education.

See this list of state student loan ombudsman that can potentially assist with your loans, or at least keep a record.

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