Court Denies MOHELA’s Attempt to Dismiss Borrowers’ Lawsuit
Borrowers from predatory for-profit institutions sued the lender after it failed to implement student loan discharges ordered by the Department of Education
SAN FRANCISCO (April 10, 2025) — In a win for California student borrowers, the federal court for the Northern District of California has denied attempts by the Missouri Higher Education Loan Authority (MOHELA) to dismiss the lawsuit Maldonado v MOHELA, which alleges that the lender failed to implement student loan discharges ordered by the Department of Education.
In its Motion to Dismiss, MOHELA argued that its relationship with the state of Missouri makes it immune from any lawsuits related to its violation of consumer protection laws, including plaintiffs’ claims that MOHELA violated California’s debt collection, credit reporting, and student loan servicing laws. The court disagreed, writing in the order that “it would be an affront to the dignity of California if an entity like MOHELA were permitted to avoid suit in California based on alleged commercial misconduct towards California residents.”
MOHELA is one of a handful student loan servicers paid by the Department of Education to collect payments and to help borrowers access loan discharge and relief programs. It is the only one of these servicers to claim that its relationship with a state makes it immune from lawsuits by student loan borrowers harmed by its misconduct, going so far as to ask the Supreme Court, in a petition filed March 18, 2025, to grant it immunity from borrower claims.
The case was filed on September 5, 2024, in Alameda County Superior Court under California consumer protection laws, including the state’s Student Borrower Bill of Rights. The borrowers are represented by the Project on Predatory Student Lending and the law firms of Jubilee Legal and Kemnitzer, Barron & Krieg, LLP. Through the lawsuit, borrowers are demanding that their loan discharges be implemented immediately and that MOHELA immediately stop its inaccurate treatment and reporting of their accounts.
“MOHELA has repeatedly chosen to ignore its legal obligations to defrauded student borrowers in favor of padding its own profits with taxpayer money, but the law is on our side,” said Eileen Connor President and Executive Director of the Project on Predatory Student Lending. “MOHELA’s actions have caused serious financial harm to people who were told by the government that their loan obligations are extinguished due to their schools’ fraud and misconduct, and that a discharge and refund are forthcoming. We will continue to hold MOHELA accountable to the law and to student borrowers until it does its job and delivers the relief our clients are owed.”
Case Background
Between April 2022 and May 2024, the Department of Education announced group discharges for former students from six predatory for-profit institutions (Marinello Schools of Beauty, Corinthian Colleges, ITT Technical Institute, Westwood College, the Art Institute, and Colorado-based campuses of College America).
The Department of Education released these borrowers from any further obligation to repay their loans, but the lawsuit states that MOHELA, one of the largest federal student loan servicers in the United States, never processed the promised discharges, never issued authorized refunds to the borrowers, continues reporting the debts to credit reporting agencies as current obligations, and has been illegally demanding payments from the student borrowers.
The group discharges came after the Department found that the schools engaged in rampant misconduct, including the “financial exploitation of students” and “widespread misrepresentations.” The Department then contacted affected student borrowers to tell them that their loans would be discharged. The notices, and the Department’s public statements, informed borrowers that their loans would be canceled automatically and that they did not need to take any further action. Despite the Department’s public announcements about the student loan discharges, and despite receiving a slew of complaints from student borrowers, the plaintiffs allege that MOHELA refuses to implement the discharges.
For more information about the case, visit ppsl.org/cases/maldonado-v-mohela
About the Attorneys
The Project on Predatory Student Lending (PPSL) is the leading legal organization representing student borrowers against predatory for-profit colleges and the policies that enable institutions to exploit and cheat students. PPSL uses bold, strategic litigation and advocacy to demand accountability in the higher education space and influence policy solutions to create a more just and affordable education system. PPSL represents more than one million student borrowers and its work has resulted in cancellation of more than $22 billion of fraudulent student loan debt.
Kemnitzer, Barron & Krieg, LLP (KBK) is one of the preeminent consumer law firms in California. For over four decades, KBK attorneys have made sure California consumers receive economic justice. KBK has been appointed lead or co-lead counsel in over 250 consumer class actions and has represented over 500,000 class members. KBK attorneys have secured sweeping public injunctions barring unlawful and deceptive business practices, and have achieved dozens of published appellate decisions that have changed the landscape of consumer protection laws in California.
Jubilee Legal is a debtor and consumer rights law practice based in Oxnard, California, and focused on helping people understand their rights, overcome the stigma of debt, and exercise collective power in the financial system.
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