Consumer complaint received 2025-10-23 00:00:00
Product: Student loan — Federal student loan servicing
Issue: Dealing with your lender or servicer — Trouble with how payments are being handled
Company: MOHELA
State: NY

Complaint narrative:
Capitalized Interest Often Legal but Abused or Misapplied Whats allowed : Federal servicers ( like MOHELA ) can capitalize unpaid interest only under certain conditions such as : When leaving deferment or forbearance, After income-driven repayment ( IDR ) plan recertification lapses, When consolidating, or When defaulting. 
Whats suspicious in your file : I have XXXX  of capitalization events, many labeled IBR Hardship End or Forbearance End. The frequency ( sometimes multiple times per year ) and amounts ( e.g. {$3000.00} {$4000.00} each time ) suggest either : MOHELA repeatedly put my loan in administrative forbearance without your explicit consent, or They mishandled interest capitalization rules under the XXXX IDR reform ( which limits capitalization ). 
I was on an income-driven plan ( IBR, PAYE, REPAYE, or SAVE ), interest should not capitalize when your payment is {$0.00} or when your hardship ends unless you voluntarily left the plan. 

XXXX. Forbearance Misuse ( a Known Legal Issue ) My record shows numerous forbearances and hardship end transitions over the years. 
The Consumer Financial Protection Bureau ( CFPB ) and Department of Education Inspector General have explicitly warned servicers including MOHELAs predecessors not to push borrowers into forbearance when other options ( like IDR ) are available. Why this matters : Every forbearance added thousands of dollars of unpaid interest. 
MOHELA may have extended your repayment by years and inflated your balance, depriving you of affordable repayment or forgiveness progress. 
I was placed into forbearance unknowling as I should have been placed on in school deferment, thats a servicing violation under CFPB rules and FSA guidance. 
This is known as forbearance steering the same issue central to recent federal enforcement actions and one-time payment count adjustments. 

XXXX. Payment Misallocation and Reversals There are repeated entries of : Payment Reversal ( e.g., XX/XX/XXXX ), Adjustment, and Reapplication without clear explanations. 
Under 34 C.F.R. 682.209 ( b ) ( 5 ) and Consumer Credit Protection Act 1692f, servicers must : Apply payments first to outstanding interest, then principal, Provide accurate transaction records, and Avoid retroactive changes that disadvantage the borrower. 
Possible dispute : If these reversals changed my amortization or erased progress toward forgiveness or interest subsidies, If they cant justify it, thats a violation of accurate record-keeping and servicing transparency laws. 
XXXX. Potential Breach of SAVE / IDR Interest Protections ( XXXX ) If youve been on SAVE or REPAYE since XXXX, unpaid interest should no longer accumulate ( interest subsidy ). 
Yet, my file shows continued interest and late fees through XXXX which could mean : They never transitioned you properly to SAVE, or They incorrectly applied interest capitalization after hardship periods. 
Possible dispute : ( a ) Servicing Misconduct / Erroneous Capitalization 20 U.S.C. 1082 ( a ) ( 6 ) This gives the Secretary of Education broad power to compromise, waive, or release any right, title, claim, lien, or demand relating to federal loans.

The Department has used this to correct balances, cancel interest, and discharge loans where servicers made systemic or prolonged errors ( see XXXX, XXXX, MOHELA settlements ). 
My documented pattern repeated unauthorized forbearances, capitalization during active repayment, and payments made during forbearance fits this category perfectly. 
( b ) Borrower Defense to Repayment ( 34 C.F.R. 685.206 ( e ) ) If you can show that your servicers actions were unfair, deceptive, or abusive under federal law, you may seek loan cancellation under the Borrower Defense program.

MOHELAs conduct unauthorized forbearances, false interest capitalization, accepting payments during suspensions arguably violates UDAAP ( 12 U.S.C. 55315536 ) and the CARES Act 3513.

3.

I have documented, dated payment history proving continuous repayment.

I never requested forbearance yet multiple were applied.

I paid during COVID, when payments were officially paused proving good faith.

I have quantified evidence of violations ( capitalization frequency, unauthorized pauses, late fees under CARES Act ). 
My case mirrors the AFT allegations ( servicer deception and misapplication ). 
These together show a strong pattern of servicer fault, not borrower fault the key requirement for administrative discharge or interest reversal.

Company response to consumer: Closed with explanation