The MOHELA Strategy and the Nebraska AG

December, 2022

Lincoln — Last week, I explained in the Nebraska Examiner why the Biden administration's student loan cancellations make good sense for the Nebraska economy and expressed displeasure that the Nebraska attorney general is trying to block the well-justified loan relief.  

The motivation of Nebraska's attorney general is now partially explained by reporter Michael Stratford of Politico.  The lawsuit was planned by Phil Kerpen, a political operative with close ties to Koch brothers' organizations, who determined that the Missouri student loan lender and servicer MOHELA might have hard-to-achieve legal standing to bring a lawsuit against the loan relief:

Seizing on the harm to loan servicers that work for the Education Department, like MOHELA, was “the best opportunity to bring a successful lawsuit,” said Phil Kerpen, a conservative political organizer who leads American Commitment and was an early proponent of the strategy and circulated the idea in conservative circles.

How that strategy was circulated to the Nebraska attorney general, with an explanation of why he should front for MOHELA's interests above those of his own Nebraska citizens, would make for a good freedom of information request.  For its part, MOHELA denies* communicating with the Missouri attorney general to file the lawsuit, but there are five other plaintiffs, led by Nebraska, that might have been the conduits to carry out the strategy, not to mention other go-between organizations in Kerper's network.  

MOHELA has a history of unsavory behavior, as described in federal and state audits of the quasi-governmental organization.  It built up wealth in the period 2003-2006 by making false claims against federal taxpayers in the tens of millions of dollars.  The Missouri state auditor has identified its federal "Special Allowance" revenues over the period, increasing from $16.2 million, to $21.8 million, to $51.2 million, to $101.1 million in the last year of the false claims.   

But a Kearney & Company audit under federal auspices in 2007 showed that the rapid increases in MOHELA revenues resulted from illegal manipulations of student loans among bond estates, in the hundreds of millions.**  

The Missouri state auditor explained what MOHELA did with the bonanza of revenues: spent lavishly on its executives and employees in salaries, bonuses, vacation time, retreats, automobiles, and no-bid contracts, much of which was decided in violation of open meeting requirements.  See the audit showing where the money was going:

MOHELA's behavior was not unique.  It was duplicated at other lenders and servicers, two of which (Navient and PHEAA) have now belatedly been terminated as federal contractors because of bad loan servicing.  But they still own federally guaranteed student loans and, if the Politico reporting is correct, are eager to see the MOHELA-based strategy succeed. 

The case Nebraska v. Biden should be dropped, or settled honorably.  It is headed to the U.S. Supreme Court on a course to waste money and make bad law, however it is decided. 


* MOHELA, recipient of a huge new federal contract to take over the servicing of the Public Service Loan Forgiveness program from PHEAA, would not want to be seen conspiring with the Missouri attorney general to deny benefits to many of the same borrowers who were deceived by PHEAA, whose approach to loan servicing was to keep borrowers in debt in perpetuity, because that's how they made their money.   

** Available on request.