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Activists: Biden Risking Student Debt Relief Plans by Continuing MOHELA Contract

Sticking with the servicer at the center of the SCOTUS debt relief case threatens current forgiveness plans, they say.

Debt activists are urging the Biden administration to end its contracts with student debt servicer MOHELA ahead of a hearing for the servicer that was central to the Supreme Court decision that struck down President Joe Biden’s broad-based student debt relief plan, saying that the contracts are still threatening Biden’s current debt cancellation efforts.

In a statement released Tuesday, the Debt Collective said that the Biden administration is putting itself at risk of more “frivolous lawsuits from right-wing litigants” as long as it continues to allow MOHELA to administer federal student loans. Similarly to the Supreme Court case, these potential lawsuits could also see the end of Biden’s more piecemeal cancellation plans, the activist group warned.

“By continuing to contract with MOHELA — a servicer riddled with loan servicing errors and account mishandling — the Biden administration opens themselves up to another round of legally baseless but potentially damaging legal challenges. The Biden administration must ward off this threat and protect borrowers by cutting contracts with the student loan servicer MOHELA immediately.”

The group explains that MOHELA — Missouri’s student loan servicer, which is under congressional scrutiny because of years of alleged mismanagement of loans — is a liability because the Supreme Court has granted legal standing to the servicer in relation to debt relief. This means that the High Court has legally established that, as right-wing plaintiffs seeking to strike down the student debt plan argued, MOHELA would be financially harmed by student debt relief and would therefore not be able to pay its obligations to the state treasury.

The Debt Collective, along with researchers at the Roosevelt Institute, showed in a report last year that this basis for standing is false — in fact, MOHELA would be making far more after student debt relief because of fees that MOHELA receives to process a discharge of a loan.

The Supreme Court’s liberals similarly disagreed with the fact that the justices took up the case at all, saying that the Court’s right-wing supermajority was pushing the limits of judicial power. But, urged on by right-wing interests, the Supreme Court nevertheless moved forward with the case, leaving debtors to hope that Biden might come up with another plan.

“In more ways than one, MOHELA could serve as the achilles heel of any student debt relief proposal the Biden administration puts forward,” Braxton Brewington, Debt Collective spokesperson, said in a statement.

“If President Biden wants to see his own plan through and deliver on his promise of economic and racial justice — and increase turnout in November — then he must fire MOHELA and cease contracting with the predatory student loan servicer altogether. Cutting the thread of the one lawsuit that Republicans were able to stick gives his own student debt relief proposals a fighting chance,” Brewington said.

The Debt Collective’s plea comes after Biden announced a new student debt initiative this week that could affect over 30 million borrowers, directing forgiveness primarily at debtors who have higher loan balances than their original loan amount because of interest and who are eligible for cancelation through Income Driven Repayment plans, with forgiveness up to $20,000.

The activist group criticized this plan, saying that it is still “woefully inadequate” to address the student debt crisis. Further, the group said that the plan is endangered by the administration’s continued contracts with MOHELA.

“These efforts may improve the Department of Education’s methods for debt collection, but they fall short of the Debt Collective’s demand to fully cancel all federal student debt and fully fund free public higher education,” the group said.