The Missouri Higher Education Loan Authority (MOHELA) joined Republican Attorney Generals from Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina last week in filing a lawsuit to end Biden’s student loan reduction plan, claiming that including the Federal Family Education Loan (FFEL) borrowers by consolidation for student loan relief would result in a loss of profits for student loan servicer companies like MOHELA.
The complaint seeks to overturn Biden’s student loan reduction plan, which targets borrowers earning less than $120,000 annually.
Biden dropped his intention to include private FFEL loans in the relief to counter the lawsuit.
However, while playing the plaintiff’s role in ending President Biden’s student-loan reduction plan, MOHELA is also working to take over millions of borrower accounts as the new student loan servicer for the Public Service Loan Forgiveness program (PSLF).
PSLF is a student loan forgiveness program for persons who make 120 payments (10 years of monthly payments, not payments within 10 years) while working in federal, state, tribal, or municipal government, or for a non-profit organization.
Borrowers have always been required to consolidate their FFEL loans with the Department of Education to be eligible for loan forgiveness under PSLF.
Those consolidated loans are then given to MOHELA to make loads of money from fees and interest, unlike the FFEL loans that would have been included in the $10k student loan reduction that would have been given to any number of loan service companies.
See the difference?
One program benefits MOHELA, the other does not.
And while Biden’s plan would provide at least some relief to millions of people earning less than $75,000 annually, any reduction in student loans is a loss of profits for banks.
While advocates pleaded for any relief, even if it meant simply forgiving principal balances that had already been paid multiple times but were still going nowhere due to accruing interest, banks, which had reported massive profits every quarter even before the inflation-fighting interest rate hikes, lobbied Congress and the President to ignore calls for student loan relief.
Every year, Congress has the opportunity to cut 90% of student loan interest rates and utilize its authority over the federal student loan market to reduce college and university prices, but it does not.
Federal loans account for almost 90% of student loan debt, with interest rates ranging from 2.59% to 11.99% over a two-decade period.
According to the Federal Student Aid Office, all federal student loan rates are established by Congress, which approves legislation establishing student loan interest rates for the Department of Education.
Rates are calculated using 10-year Treasury notes plus a fixed increase. (Private lenders set their own interest rates for student loans.)
Members of Congress who are truly worried about student loan debt could, for example, require schools not to raise sticker prices over the Consumer Price Index or risk losing access to federal student loans.
Most colleges and universities would then be highly motivated to keep their costs within a reasonable range or risk losing students who cannot pay out of pocket, which constitutes the majority of their customer base.
Instead, Republicans are complaining that student loan relief is unfair and does not address rising education costs or high-interest rates while proposing legislation that “allows” borrowers to “renegotiate their interest rates” with the Department of Education, which receives their interest rates from Congress.
If the lawsuit filed by MOHELA and the six Republican states successfully establishes that a financial institution’s losses from FFEL consolidation are of greater value than student loan reduction, the $10k program will disappear and servicers will continue making lots of money off of student loans, while MOHELA will start making lots of money off the PSLF program.
Re-establishing the status quo of helping banks at the expense of people.
It’s a feature, not a bug.