A total of 2.7 million students will be affected as Navient announces the transfer of loan portfolios to MOHELA. However, Mohela has a history with the US Education Department. 

A while back, the Education Department blacklisted MOHELA for their inability to provide billing statements for their loans. This same company will become the new handler of Navient’s Federal Family Education Loans (FFELs).

Of course, this would not be MOHELA’s first stint with government loans. The company handles the single largest number of federal student loans in the country. 

However, many students and parents are skeptical about the quality and promptness of MOHELA’s services. Navient announced its decision to outsource the loan portfolios in late January.

The press release that made Navient’s decision public spelled out details of the agreement between the two companies. The partnership will run for 18 to 24 months, with Navient remaining the sole owner of the portfolios. 

According to Navient CEO David Yowan, the decision to outsource is in the best interest of shareholders. He explained that the move will help Navient focus on more profitable ventures.

In an official statement after the handover, Mr Yowan said, “After a thorough review, we are announcing targeted actions intended to simplify our business, reduce our expense base, and increase our financial and operating flexibility.” 

About concerns of the 2.7 million loan borrowers over the not-so-good service record of MAHELA, Navient has promised to continue working with their new handler. This collaboration will foster a smooth transition and consistency in loan servicing.

Borrowers have enough reasons to give an outcry over the transition. In October, many companies involved in federal loan services experienced glitches with billing statements and poor customer service. 

 However, MOHELA was the first to receive the Education Department’s administrative whip for breach of contract terms.

If you are already asking if those faults are minor or not, let’s consider the implications of MOHELA’s inactions. In October, the Education Department could not pay about $7 million to MOHELA thanks to their refusal to provide the loan billing statement of some 2.5 million students as and when due. 

MOHELA is not alone, as many other companies servicing federal loans also defaulted this January.

Before the recent concession of its federal loan portfolios, Navient also came under strong criticism, particularly from a US Senator. Senator Elizabeth Warren accused Navient of peddling bogus loan packages and misleading student borrowers about what their portfolio covers. 

 However, the then-CEO of Navient, John Remondi, denied the allegations, claiming they were false and misleading.

The transfer of loan portfolios of the 2.7 million borrowers is still early, so no one can tell yet when official communications will commence between MOHELA and the borrowers. 

However, one thing is certain: The Education Department will, going forward, intervene in the federal loan services being dispensed to students. The Department has put up several control points to keep companies providing poor customer service in check.

Part of the initiatives set up by the Education Department is an Accountability Framework to scrutinize the service quality of loan companies. 

For example, when a company defaults repeatedly on prompt dispensing of loan services, the Education Department will go out of its way to transfer the affected loan portfolios to a higher-performing company. Naturally, this will force loan companies to do better with their services.