Student Borrowers Sue MOHELA for Failing to Implement Student Loan Discharges
Borrowers from predatory for-profit institutions continue to receive collection notices and show balances more than a year after ED cancelled their loan obligations
OAKLAND (September 5, 2024)— California student borrowers have filed a lawsuit alleging that the Missouri Higher Education Loan Authority (MOHELA) failed to implement student loan discharges ordered by the Department of Education. 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.
Between April 2022 and May 2024, the Department 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).
“I walked into Heald with a goal of bettering myself and instead fell into a Venus flytrap. For years, I assumed this debt would loom over my head for the rest of my life,” said Jaime Maldonado, a plaintiff who attended Heald College, a Corinthian school. “When the Corinthian group discharge was announced, it felt like a huge weight was lifted — they told us we didn’t have to do a thing and our loans would be canceled. Two years later, I’m still fighting for answers and the relief I was promised, wondering if this was just another trap.”
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.
“These loans are not enforceable, but MOHELA has gone rogue. MOHELA has padded its own profits while causing serious financial harm to people who were told by the government that their obligations are extinguished, and that a discharge and refund are forthcoming without further action on their part,” said Eileen Connor, President and Executive Director of the Project on Predatory Student Lending. “MOHELA has repeatedly and widely failed to fulfill its core obligation to borrowers. The Department of Education’s history of holding its servicers accountable has been abysmal. The Biden-Harris administration ordered these discharges years ago, and if the Department won’t follow through, we will.”
The case was filed 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.
“The Department of Education sent a letter saying my ITT loans would be canceled and no action was needed, but instead I’ve spent hours going back and forth between MOHELA and the Department trying to sort through their incompetence,” said Jeff Plamondon, a plaintiff who attended ITT Technical Institute. “These loans are invasive and affect every aspect of your life – my wife and I have even put off having kids because of this debt. I keep hearing in the news about the Department approving more discharges, but we still haven’t seen ours. They can’t keep messing with people’s lives and making empty promises.”
PPSL also represents student borrowers in the Sweet v Cardona borrower defense settlement and in Villalba v ITT. Class members in both cases have had their hard-won relief stalled by MOHELA’s more than year-long failure to process their discharges.
For more information about the case, visit: https://www.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.
