The student loan company that could topple Biden’s debt relief plan

A mysterious financial services provider just outside of St. Louis may determine the outcome of President Joe Biden’s multibillion-dollar initiative to reduce student loan debt.

Missouri Higher Education Loan

Six Republican states have filed a lawsuit against the Missouri Higher Education Loan Authority (MOHELA), a state-created loan firm, to block Vice President Biden’s proposal to cancel the debt on more than 40 million Americans’ student loans.

Biden’s domestic policy

One of Biden’s largest and most divisive domestic policy initiatives will depend on the outcome of the case, which is scheduled to be heard by the Supreme Court next year. But it’s also drawing attention to MOHELA, which over the last ten years has quietly grown to become one of the biggest student loan servicers in the country while strengthening its links to the Education Department.

More than twice as many borrowers of federal student loans than MOHELA did two years ago now have accounts under its management. More than $130 million in income was generated by it last year, the most of which came from its government contract to manage student loans.

The Biden administration’s debt relief

The Biden administration’s debt relief was being put into effect by MOHELA and the other loan servicers for the Education Department until it was blocked by the courts in November. According to papers acquired by POLITICO via a public records request, the firm had gone as far as to produce a letter informing homeowners that their debt relief request had been successful that was co-branded with both the MOHELA and government logos.

MOHELA is not a party to the multi-state lawsuit, but Missouri Attorney General Eric Schmitt, one of the primary plaintiffs, has nonetheless dragged the organization into the controversy over student debt relief.

Along with Nebraska and Arkansas, the lawsuit is also being pursued by Iowa, South Carolina, Kansas, and Nebraska. They contend that a number of factors, such as reduced tax income or declining value of assets linked to student loans, would make Biden’s debt reduction proposal detrimental to them.

Continuing the story

However, the component of the lawsuit involving Missouri that alleges financial injury to MOHELA has received the majority of attention from lower courts and legal experts.

Missouri claims that since MOHELA would have fewer accounts to maintain under Biden’s relief proposal, MOHELA will suffer financial losses. Missouri claims that if the company’s income declines, it will be more difficult for MOHELA to make the necessary payments to a state fund that supports the state’s public schools and institutions.


According to Phil Kerpen, a conservative political organizer who heads American Commitment and was an early proponent of the strategy and circulated the idea in conservative circles, capitalizing on the harm to loan servicers who work for the Education Department, like MOHELA, was “the best opportunity to bring a successful lawsuit.”

The Education Department’s loan

The Education Department’s loan servicers all opted against suing over the debt reduction scheme. Because of the company’s connection to a state with a Republican attorney general who may intervene on its behalf, Kerpen stated that MOHELA posed a unique circumstance.

Republicans and conservative organizations promised to fight the strategy in court when Biden initially announced it in August. Finding a plaintiff, however, who would have a specific harm that qualifies them to file a claim, was very difficult.

New criticism of MOHELA’s involvement in the case has come from certain Democrats and consumer advocacy organizations.


Rep. Cori Bush, a liberal Democrat whose district borders the company’s headquarters in Chesterfield, Missouri, for example, criticized MOHELA for what she termed a “unconscionable” attempt to halt debt relief. In a letter to POLITICO, she said that MOHELA is “a surrogate for the six conservative attorneys general” who are challenging the administration’s debt relief program and “would benefit from this challenge’s success.”

Bush criticized MOHELA last month, and his response seemed to be to remove himself from the case. In a letter to Bush, the business said that “executives were not engaged” in the decision to sue made by the Missouri attorney general.

According to people with knowledge of the conversations, MOHELA representatives from the company have also attempted to reassure Democratic congressional aides and Biden administration officials that they were not involved in the Missouri attorney general’s lawsuit seeking to thwart debt relief. This is because the company’s federal loan servicing business is at stake.

A request for comment for this article from MOHELA was not met. Executives at the firm haven’t specifically said publicly, in court or elsewhere, how they anticipate Biden’s debt relief will impact the business. Some of their sector rivals have projected a financial blow if the idea is implemented.

Progressives reject the notion that the objectives of any contractor working for the Department of Education would be utilized to alter its stance on student loans.

The legal standing of these contractors provides veto points in the student loan system, allowing it to become even more political and dysfunctional, according to Mike Pierce, executive director of the Student Borrower Protection Center. This dynamic might jeopardize debt cancellation, he said. “Borrowers will ultimately pay the price for it,”

Student loans

After being established by Missouri legislators in 1981, MOHELA offered student loans that were backed by the federal government for many years. That changed when President Barack Obama signed legislation in 2010 to eliminate the program, which Democrats saw as an unnecessary handout to lenders. Congress mandated that the Education Department reserve new loan servicing contracts for state organizations like MOHELA out of worry that they might go out of business.

After 12 years, Pierce said, “I don’t believe anybody thought through the politics of it, and the cost of that patronage may kill debt cancellation for tens of millions of people.”

loan servicing business

Since receiving a first contract from the Education Department in 2011 to manage roughly 100,000 federal student loans, MOHELA has significantly increased its loan servicing business by securing further contracts and attracting new business. For the Education Department as of August, MOHELA oversaw the accounts of 6.7 million borrowers. Additionally, it manages the accounts of 330,000 additional private loan customers.

The significant increase came after the business’s efforts to strengthen its presence in Washington. The business started working with an outside firm to influence Congress and the Education Department around ten years ago. Additionally, it opened a DC office in the same complex of buildings that houses the Office of Federal Student Aid of the Education Department.


Roy Blunt, a senator from Missouri, is the main GOP appropriator in charge of controlling education funds on Capitol Hill, which has been advantageous for MOHELA. As the department has attempted to restructure its student loan servicing contracts over the last several years, Senate appropriators have regularly included language to federal spending bills that essentially requires the Education Department to retain businesses like MOHELA in the mix.

MOHELA has also been able to avoid major controversy despite recent harsh criticism of the student loan servicing business from Democrats and progressives. It escaped the same fate as several bigger businesses, including as Navient and FedLoan Servicing, which were plagued by litigation from the federal and state governments and inquiries into their loan servicing methods.

The loan servicing

The loan servicing agreement with MOHELA was extended by the Biden administration to 2023 last year. As the only new contractor for the Public Service Loan Forgiveness program, which forgives public servants’ debt after 10 years, the firm also received millions of new customers. Democrats have made fixing the long-struggling program, which was formerly run by FedLoan Servicing, a top priority.

MOHELA has had a mixed role in the debt relief lawsuit so far for the GOP states who are bringing it. As MOHELA was too far away from the state of Missouri for the attorney general to sue on its behalf, the federal court in St. Louis dismissed the GOP states’ complaint in October. The court determined that the other states lacked standing as well.

However, a federal appeals court adopted a different strategy in November. The challenged student loan debt cancellation “presents a potential financial injury to the State of Missouri due to MOHELA’s financial commitments to the State treasury,” a three-judge panel of the 8th Circuit Court of Appeals unanimously decided.

The Supreme Court

When the matter is heard by the Supreme Court in February or March, it will now be decided whether the states have the legal right to file their complaint. In light of the emergency power the Education Department believes it has to erase millions of dollars’ worth of debt in response to the Covid-19 outbreak, that will decide whether the justices ultimately reach a conclusion on the validity of the administration’s proposal.

The court have also agreed to hear a second case that will determine whether two borrowers may file a lawsuit since they were denied the chance to voice their opinions about the program in public.

However, many who support debt relief realize that the fight to protect the administration’s policy goes beyond MOHELA. A Supreme Court defeat is also likely to renew demands for Biden to pursue another legal avenue for student debt forgiveness.

Student debt relief

In the end, MOHELA is not a plaintiff in this action, according to Bush. “Pressure should be put on the attorney general to drop the case, the Supreme Court to rule in favor of those who stand to gain from this relief, and the Biden Administration to continue using its legal authority to ensure that student debt relief is promptly provided to borrowers,” the statement reads.

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