The MOHELA building in Chesterfield, Missouri.
Washington CNN  — 

The Department of Education is penalizing one of its student loan servicing contractors for failing to send billing statements on time to 2.5 million borrowers earlier this month when payments resumed after a more than three-year pause.

More than 800,000 federal student loan borrowers were late making their payment as a result of the mistake made by the servicer MOHELA (Missouri Higher Education Loan Authority), the Department of Education said Monday.

The department is withholding $7.2 million from MOHELA’s October payment and has directed the student loan servicer to place all affected borrowers in forbearance – a period during which payments are not required and interest is frozen – until the issue is resolved.

MOHELA is one of several student loan servicers that the Department of Education contracts with to collect federal student loan payments from borrowers. Since 2022, MOHELA has been tasked with handling student loan payments from borrowers who are seeking debt cancellation from the Public Service Loan Forgiveness program, which wipes away remaining student debt after qualifying public-sector workers make 120 monthly payments.

“The Biden-Harris Administration is looking out for borrowers at every step throughout their return to repayment. Our oversight efforts have uncovered errors from loan servicers that will not be tolerated,” said Education Secretary Miguel Cardona in a statement.

As of August, MOHELA serviced nearly 7.8 million student loan borrowers – about 5.3 million new accounts compared with 2020, according to a letter the company wrote to some Democratic lawmakers about the resumption of payments. Since then, many accounts were transferred to MOHELA because several companies ended their loan servicing contracts with the federal government.