Updated October 10, 2018

MOHELA: What You Need to Know

Is MOHELA your federal loan servicer? Read on for what you need to know. Learn how to avoid common problems.

What Do Loan Servicers Do?

Student loan servicers are assigned by the The Department of Education (DOE) to help you manage your loans. They act as the "middleman" between you and the DOE to:

  • Oversee repayment of your loans
  • Make sure you don't default
  • Provide customer service

Usually all your federal student loans will be handled by the same company. Since the DOE chooses the service on your behalf, you'll have no control over which student loan servicer you get.

Tip: You may not choose your loan servicer, but you can choose to leave them by consolidating or refinancing your loans. Check out our articles on consolidation and loan refinance.

What Is MOHELA: What You Need to Know

MOHELA is the Missouri Higher Education Loan Authority, one of the largest student loan servicers. It's a non-profit company with over 30 years in business. MOHELA services both federal and private student loans.

The company's services are free and include:

  • Keeping track of your balances and assisting with billing
  • Loan consolidation
  • Switching repayment plans if you can't afford payments
  • Applying for forgiveness programs

Read on to learn how to navigate the world of MOHELA.

Is MOHELA legit?: Yes, MOHELA has a contract with the federal government to service federal loans. They are a non-profit which means they don't make money off your loans. However, problems can arise. We review the most common ones and some solutions below.

Making Payments with Mohela

You can make payments by auto debit, phone, your bank's bill pay service, mail-in check, or manually on their website. Here are some tips for paying off your loans:

  • Get a discount with auto debit. You get a 0.25% reduction on interest rates when you enroll in Mohela's Auto Debit program. Your monthly payments will automatically be deducted from your bank account. You won't have to worry about missing a payment.

  • Paying ahead. You can pay more than your monthly payment to pay off your loans faster. Mohela automatically advances your next payment due date. So if you pay more, your next month's payment will be less. If you want to specify a payment amount each month, you'll need to submit a special payment instruction.

  • Targeting payments. If you have more than one loan, Mohela will distribute your payment proportionally across all the loans. If you want to pay more on one loan (for example, the loan with the highest interest rate), you'll need to submit a special payment instruction too.

    Note: If you have a consolidated loan, the portions (subsidized or subsidized) must be paid evenly. If you want to target higher payments to one portion, you need to submit special instructions.

When Should You Contact MOHELA?

As soon as you are aware that MOHELA is your servicer, you should contact them. Set up an online account or call to ask whatever questions you may have. You do not need to wait until your loans are in repayment to make contact.

The best way to contact MOHELA is via their website. You can also call them at 1-888-866-4352.

You will have a grace period after graduation. During the first six months, you are not required to make payments. But making payments will help to reduce your balance. You will also reduce the interest accrued on your unsubsidized loans.

Remember: During school and deferments, interest on subsidized loans is paid for by the federal government. But the interest on your unsubsidized loans starts accruing as soon as the loan is taken out.

There are times when it is necessary to contact your servicer. You should call when:

  • You see bill issues
  • Your contact information changes
  • You can't afford your payments
  • You need to change your payment due dates
  • You received a bill while still in school
  • You have not received a bill

Note: If you don't contact MOHELA, your loan automatically goes into the Standard Repayment plan. This occurs whether you can afford it or not. If you can't afford the monthly payments, contact them to set up a different repayment plan.

For questions about MOHELA or other servicers, call the Department of Education at 1-800-621-3115.

Keep reading for some of the common problems with MOHELA and steps to avoid them.

Common Problems

Every year, most loan servicers receive complaints. The complaints include bad information about loans, trouble with payments, and issues with fees charged. Your servicer is helping you through most likely your largest debt to-date. You want to be able to trust them and feel confident.

MOHELA's most common problems include:

  • Transfers to MOHELA: Did you have another servicer previously? If your loans were transferred to MOHELA (which again, unfortunately, is not your call), you may see a fee charged to the account. When loans get transferred from one servicer to another, information may get mixed up. Check your account.

    How to Fix This: Monitor your loans closely. Set up an online account. If you know your loan is being transferred, call the new servicer as soon as possible and ask any questions you may have.

  • Lack of Information: Another issue is regarding information about loans. Or the lack thereof. There is nothing worse than learning about errors that are the fault of your servicer. MOHELA has provided the wrong information to borrowers, or none at all. Which is the case for many borrowers whose loans were transferred to MOHELA.

    How to Fix This: If you believe you received the wrong information from your servicer, the best thing to do is to contact the Department of Education. Always maintain records of important loan information.

  • Payments Applied Incorrectly: This is one of the biggest issues for borrowers with all servicers. You can specify larger payments on certain loans. But sometimes, it's not set up correctly. Some borrowers were told that their payments were not being applied to the proper loans. Or in some cases, their payments increased with no explanation at all.

    Tip: Signing up for auto-debit is the best way to save money. When guaranteeing your payment to your servicer, they usually offer you a reduced interest rate, typically by .25%.

    How to Fix This: Monitor your payments. If your payments change, contact your servicer. There may be a simple explanation for it. If they can offer no explanation, contact the Department of Education. Maybe your payment increased because an income-driven repayment plan (IBR) ended. Or maybe you were on an IBR and your income increased, so your payment also increased.

  • Public Service Loan Forgiveness: Did you think you were eligible for PSLF? Only to find out a payment plan error disqualified you? If you are planning on using PSLF, make sure you know the facts. If you change your repayment plan, you may become ineligible. Some borrowers thought they were enrolled in a PSLF-qualifying plan, only to find out their payments didn't count towards it.

    How to Fix It: Sign up for an income-driven repayment plan as soon as you can. After that, contact your servicer and ask them if there is anything else that is necessary. You will need your employer to fill out specific paperwork for the forgiveness. There may be issues when your loan gets transferred, but keeping track of all eligible payments will help. Contact your servicer for all issues. If you need to, contact the Department of Education.

Disputes: Who Do I Call?

First try to resolve the dispute with the loan servicer. You can always request to speak to a manager. If you are not satisfied:

  • The Department of Education (DOE) should be able to look at your dispute and find the best response. Call them at 1-800-621-3115.

  • The FSA Ombudsman Group can be uses as a last resort. They are a confidential resource to resolve student aid disputes.

Remember it is important to keep an eye on your credit when student loans are involved. Your servicer may have reported you during a time when you were in a forbearance or deferment. Or during a loan transfer, they may have reported a missed payment. Knowing your credit will help you.

Repayment Help from Mohela

All student loan borrowers begin repayment with the Standard Repayment Plan. The Standard Repayment Plan evenly divides payments over 10 years. This is the quickest way to repay with the least amount of interest.

If you can't make the monthly payments, Mohela offers several repayment and postponement options.

  • Graduated Repayment Plans: This plan is still a 10-year plan, but the payments start out low and get bigger. Your payments increase by 20% every two years. Your final two years of payments will never be more than three times your original payment.

    This is a great option if you know that your income will increase over the next decade. If you do not think you will be able to afford the increase every two years, you may want to reconsider.

    Keep in mind that you can always return to the standard repayment plan. Or you may want to enter into one of the income-driven repayment plans.

  • Income-Driven Repayment Plans: These plans depend on your current financial situation. There are four income-driven repayment plans. Each has a different benefit to borrowers. The four different plans are: Pay As You Earn (PAYE), Revised PAYE, Income-Based, and Income-Contingent plans.

    It's important to get any documents to your servicer immediately. These plans take a long time to process. The best thing to do is to speak with your servicer.

  • Deferments or Forbearances: Do you need to postpone your loans? Calling Mohela for a deferment or forbearance is your best option.

    A deferment can be used for many options. During a deferment, the federal government covers the interest on your subsidized loans. You are still responsible for the interest on the unsubsidized loans. A deferment is useful during periods of unemployment or underemployment, economic hardship, and in-school.

    A forbearance is valid for up to 12 months, with a cumulative maximum of 3 years. During a forbearance, interest will accrue on all your loans. Forbearances are used during unemployment, underemployment, large medical expenses, and for other reasons. For more information, read our article about forbearances and deferments.

You Might Also Consider

If you are no longer satisfied with Mohela and want to leave, there are a couple of options.

  • Consolidation: If you have many federal loans, you may have multiple monthly payments. When you consolidate your loans, it becomes one big loan. You are given a new payment due date and only one payment per month. This can make it easier to pay.

    You also get a different interest rate (a weighted average of your loan rates). If you had high interest rates on some loans, this may help. But keep in mind that your lowest interest rate will increase.

  • Loan Refinance: If you have a mix of federal and private loans, refinance may be the best option. Refinancing is through a private lender. They will combine your loans and give you an interest rate based on your creditworthiness. This will create one monthly payment.

    Also, if you had private loans with high interest rates, this may help. Getting a lower interest rate will save you a lot of money during the terms of your loans. Read our article on refinancing to learn more.

Bottom Line

You should remain in contact with your student loan servicer from the date of first disbursement. This can help you stay on top of any fees and questionable charges.

Know your interest rate and and find the best repayment option for your needs. You can educate yourself by reading our other articles about student loans. This will help you gain confidence when speaking with your loan servicer.

Write to Nicole S at feedback@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

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