MOHELA Overcharged or Misapplied Your Payment?

What the court record actually says

Strip away the aggregator pages and there is one case worth knowing about. The American Federation of Teachers sued MOHELA in July 2024; MOHELA moved the case to federal court; the union filed an amended complaint on January 15, 2026. In that amended complaint the union alleges MOHELA “traps more than 6.5 million borrowers in a system of its own design, rife with errors, misinformation, and broken promises,” in violation of the D.C. Consumer Protection Procedures Act. Source: Amended Complaint, AFT v. MOHELA, No. 1:24-cv-02460-TSC (D.D.C. Jan. 15, 2026)

Two allegations in that filing map directly onto what borrowers describe. First, that MOHELA debited borrowers’ bank accounts “without their affirmative consent,” including people who had never opted back into auto-pay after the payment pause ended. Second, that some borrowers watched funds leave their accounts “without a corresponding credit against their loans.” Money out, balance unchanged.

The filing also points at the Department of Education’s own numbers, alleging that in the Loan Servicer Performance data for the last quarter of 2024, MOHELA’s Average Speed to Answer and Average Call Abandonment Rate were considerably worse than the other federal servicers, and that this is the intended result of a “call deflection” practice rather than an accident of staffing.

Say the obvious thing out loud: these are allegations in a pending case, not proven facts, and MOHELA disputes them. But they are allegations made under penalty in a federal filing, which puts them a long way above a screenshot on social media. If your experience matches them, you are not imagining it, and you are not the only one.

The paid-ahead trap that eats lump-sum payments

This is the single most useful thing on this page, and almost nobody explains it before the damage is done.

Federal regulation sets the order your payment is applied in. For a Direct Loan outside the Income-Based Repayment plan or the Repayment Assistance Plan, money goes to accrued charges and collection costs first, then outstanding interest, then principal. That part is 34 CFR § 685.211(a)(1)(i), and it is why a payment can land without visibly moving your balance.

Then comes the trap. Under § 685.211(a)(3)(ii), when a prepayment equals or exceeds your monthly repayment amount, the due date of your next payment is advanced unless the borrower requests otherwise. Read that again. Send a big payment and the default behavior is not “knock down my principal.” It is “you are now paid ahead, we will see you in a few months.” Source: 34 CFR § 685.211

For anyone chasing Public Service Loan Forgiveness, that default is quietly expensive, because months you are paid ahead are months you may not be making qualifying payments. The fix costs nothing and takes one sentence: before or with any payment above your monthly amount, send written instructions telling the servicer how to apply it and that you do not want your due date advanced. Keep the copy. If the payment is misapplied anyway, that written instruction is the whole case.

Money taken without authorization: go to your bank

Borrowers lose weeks here by arguing with the servicer. Wrong counterparty. An unauthorized debit is a Regulation E matter, and Regulation E points you at the institution holding your account.

Start with the authorization question. A preauthorized electronic fund transfer out of your account “may be authorized only by a writing signed or similarly authenticated by the consumer,” and whoever obtained that authorization has to give you a copy (12 CFR § 1005.10(b)). So ask MOHELA in writing for a copy of the signed authorization. Either it produces one, in which case you know where you stand, or it cannot, in which case you have a documented unauthorized transfer.

There is a second, narrower rule worth knowing if the amount changed. When a preauthorized transfer varies in amount from the previous one, the payee or the bank has to send you written notice of the amount and date at least 10 days before the transfer (12 CFR § 1005.10(d)(1)). A surprise larger debit with no advance notice is its own violation, separate from whether you authorized anything at all. Source: 12 CFR § 1005.10

Then file the error notice with your bank. Regulation E defines an “error” to include an unauthorized transfer and an incorrect transfer to or from your account. Your notice has to reach the bank no later than 60 days after it sent the statement on which the error first appeared, and it has to identify you, your account, and why you think there is an error. The bank must investigate promptly and decide within 10 business days, or take up to 45 days if it provisionally credits your account for the disputed amount in the meantime. Source: 12 CFR § 1005.11

That 60-day window is the reason this section sits above the credit-report section. It is the only deadline on this page that can expire on you.

Fixing the credit-report damage

A servicing error that turns into a 30-day late mark costs more than the payment did. Dispute it with the credit bureaus, not just with MOHELA, because the bureau dispute is what triggers the statutory clock on both of them.

Under 15 U.S.C. § 1681i(a)(1)(A), a credit bureau has 30 days from receiving your dispute to complete a reasonable reinvestigation, free of charge. That window extends by no more than 15 additional days, and only if you send relevant information during the original 30 (§ 1681i(a)(1)(B)). Within 5 business days of getting your dispute, the bureau has to notify MOHELA as the furnisher of the information (§ 1681i(a)(2)(A)). Source: 15 U.S.C. § 1681i

Once that notice lands, MOHELA has obligations it cannot answer with a shrug. Under 15 U.S.C. § 1681s-2(b) it must investigate, review all relevant information the bureau sent, report the results back, and if the item turns out to be inaccurate, incomplete, or unverifiable, promptly modify it, delete it, or permanently block it from being reported. Source: 15 U.S.C. § 1681s-2

Send it to all three bureaus, in writing, with copies of your payment confirmations and bank statements attached. Send it certified. The point is not politeness; the point is that a dated delivery receipt turns a vague complaint into a countdown.

The escalation ladder when the phone never answers

If call deflection is the strategy, then the phone is the one channel where you have no record and no clock. Everything below produces both. Work down the list, keep every copy, and stop expecting the call center to be step one.

• Write, do not call. Use MOHELA’s secure message system and its mailing address for the same request, on the same day. Ask for one specific thing, name the date and dollar amount, and ask for a written response.
• Request the authorization. If money left your account, ask in writing for a copy of the signed or similarly authenticated authorization Regulation E requires. The answer, or the silence, is evidence either way.
• File the bank error notice within 60 days. Do not wait for MOHELA to reply first. This is the deadline that expires.
• Dispute with all three credit bureaus in writing if anything reached your credit file. Certified mail, documents attached.
• File a CFPB complaint. Companies generally respond in 15 days, or say the response is in progress and give a final answer within 60 days; you then get 60 days to comment on what they said. The record is public and dated. Source: CFPB, Complaint process
• Then, and only then, consider a lawyer. By that point you have a file: written requests, delivery receipts, a bank determination, a bureau result, and a federal complaint number. That file is what makes a consumer attorney return your call.

The honest read on this sequence is that it is slow and irritating and it works more often than the phone does. Every step generates a document with a date on it, and documents with dates are the only thing that has ever moved a servicer.

The uncomfortable part: no fund, and an immunity defense

Two things you should know before you plan around a lawsuit.

On September 29, 2025 the district court denied the union’s motion to send the case back to D.C. Superior Court and denied MOHELA’s motion to dismiss without prejudice. In doing so it found that the arm-of-the-state factors “support a finding that MOHELA has a colorable state sovereign immunity defense, although it does not reach the merits of its defense.” Colorable is not the same as winning, and the court was explicit that it was not deciding. But it means the immunity question is live. Source: Memorandum Opinion, AFT v. MOHELA (D.D.C. Sept. 29, 2025)

That defense traces back to the Supreme Court, which held in Biden v. Nebraska that “By law and function, MOHELA is an instrumentality of Missouri.” A holding that once helped block student debt cancellation is now doing double duty as a shield against consumer claims. Source: Biden v. Nebraska, No. 22-506 (U.S. 2023)

Cutting the other way, and quoted at page 9 of that same September 2025 opinion, the Department of Education’s servicing contract says: “USDS Servicer acknowledges that it is not the U.S. Department of Education, and is not acting as the U.S. Government under this Contract. As such the USDS Servicer acknowledges that any claim or defense of Sovereign Immunity or Qualified Immunity is not applicable to work performed under the Contract and any Task Order issued under the Contract.” MOHELA signed that. Whether it binds MOHELA against a borrower is unresolved.

Here is the judgment call this page exists to make. Do not wait on that case. It has no claims administrator, no fund, and no timetable that helps you. The Regulation E window closes in 60 days whether or not a court in Washington ever reaches the merits, and the credit bureau clock starts the day you mail the letter. Work the rules you can enforce yourself, and treat the litigation as somebody else’s long game.

Frequently asked questions

Sources

• Amended Complaint, American Federation of Teachers v. Higher Education Loan Authority of the State of Missouri, No. 1:24-cv-02460-TSC (D.D.C., ECF No. 50, filed Jan. 15, 2026) (6.5 million borrowers; unauthorized debits; call deflection; Department of Education servicer performance metrics).
• Memorandum Opinion, AFT v. MOHELA, No. 24-cv-2460 (D.D.C., ECF No. 47, Sept. 29, 2025) (remand denied; dismissal denied without prejudice; colorable sovereign immunity defense; USDS contract language at page 9). Published by the U.S. Government Publishing Office.
• Biden v. Nebraska, No. 22-506 (U.S. June 30, 2023) (MOHELA is an instrumentality of Missouri).
• 34 CFR § 685.211 (Direct Loan payment application order; prepayment advances the next due date unless the borrower requests otherwise).
• 12 CFR § 1005.10 (Regulation E: written authorization required for preauthorized transfers; 10-day notice for varying amounts; stop-payment rights).
• 12 CFR § 1005.11 (Regulation E error resolution: 60-day notice window; 10-business-day determination; 45 days with provisional credit).
• 15 U.S.C. § 1681i (Fair Credit Reporting Act: 30-day reinvestigation, 15-day extension, 5-business-day furnisher notice).
• 15 U.S.C. § 1681s-2 (furnisher duties on notice of dispute: investigate, report, modify, delete, or block).
• Consumer Financial Protection Bureau, Complaint process (15-day general company response; 60-day final response; 60-day consumer feedback window).