April 18, 2024

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2.7 Million Student-Loan Borrowers to Be Switched From Navient to MOHELA

2.7 Million Student-Loan Borrowers to Be Switched From Navient to MOHELA

  • Navient announced plans to outsource servicing of its private and FFEL student loans to MOHELA.
  • Navient will still hold ownership over the loans, and the change affects 2.7 million borrowers.
  • The Education Department punished MOHELA for failing to send timely billing statements.

A major servicer of private student loans announced plans to leave the servicing industry — and outsource the job to a controversial company that works with the government.

On Tuesday, Navient said it would outsource servicing of its private-student-loan portfolio and commercially held loans in the Federal Family Education Loan program to MOHELA, one of the largest servicers of federal student loans.

According to the press release, the outsourcing process will begin this year and take 18 to 24 months. Navient is set to retain ownership over the loans.

“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,” David Yowan, the president and CEO of Navient, said in a statement. “Over the longer-term, we believe these actions will increase the value shareholders derive from our loan portfolios and the returns we can achieve on business-building investments.”

A Navient spokesperson told Business Insider this change would affect 2.7 million student-loan borrowers with loans owned and serviced by Navient. The company added in its announcement that the two companies would “work toward ensuring a seamless transition in the coming months and providing customers with uninterrupted servicing of their loans.”

Outsourcing servicing responsibility to MOHELA could spark concern for some borrowers, given how the company has fared since federal student-loan payments resumed in the fall. While borrowers encountered challenges across all federal servicers when it came to long hold times with customer service and confusing billing statements, MOHELA in October was the first company to be punished by the Education Department for falling short of its contractual obligations.

Specifically, the department found that MOHELA failed to send on-time billing statements to 2.5 million borrowers. As a result, it withheld over $7 million in October pay from the company. In January, the department withheld varying amounts of pay from the remaining federal servicers for the same reason.

Navient hasn’t escaped scrutiny in the past years. Before it ended its contract to service federal student loans in 2021, Democratic lawmakers, particularly Sen. Elizabeth Warren, accused the company of predatory behavior with its borrowers, including improper marketing of the loans that steered borrowers toward unaffordable products.

“These allegations are not true,” then-Navient CEO John Remondi told Warren during a 2021 hearing. “They’re accusations and not necessarily based on facts.” 

It’s unclear how soon Navient borrowers will begin communications with MOHELA. In the meantime, though, the Education Department has vowed to bolster oversight of federal servicers through an accountability framework that includes withholding pay from servicers, transferring borrowers to higher-performing servicers, and requiring servicers to fix any errors they make if they don’t meet their obligations.