Court Denies MOHELA’s Second Attempt to Dismiss Borrowers’ Lawsuit
Borrowers are suing the lender for failing to implement student loan discharges ordered by the Department of Education
SAN FRANCISCO (July 8, 2025) – In a win for California student borrowers, the U.S. District Court for the Northern District of California has, for the second time, denied attempts by the Higher Education Loan Authority of the State of Missouri (MOHELA) to dismiss the lawsuit Maldonado v MOHELA, which alleges that the servicer failed to implement student loan discharges ordered by the Department of Education and continued to collect on, and report to credit reporting agencies, debts that had been cancelled.
In its motion, MOHELA argued that the Department of Education should be a required party in the case, claiming that it could not discharge any federal loans without the Department’s approval and that continuing the lawsuit without the Department could force it to choose between following federal rules and complying with a future court order. Today, District Judge Vince Chhabria denied the motion, ruling that the Department is not required because the plaintiffs are not asking for loan discharges beyond what the Department has already authorized.
Today’s order follows MOHELA’s failed attempt to dismiss the case on the basis of state sovereign immunity, in which the court wrote 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 of student loan servicers paid by the Department of Education to collect payments and to help borrowers access loan discharge and relief programs.
“Again and again, MOHELA has tried to ignore its obligations to defrauded student borrowers, but the courts continue to reinforce that the law is on our side,” said Eileen Connor, President and Executive Director of the Project on Predatory Student Lending. “The government discharged these borrowers’ loans because of their schools’ fraud and misconduct, and we will continue to hold MOHELA accountable until it does its job.”
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 MOHELA immediately stop collecting on discharged loans and cease its inaccurate treatment and reporting of their accounts.
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 two million student borrowers and its work has resulted in cancellation of more than $30 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.
