Why a NJ Transit Lawsuit Before SCOTUS Matters to Student Loan Borrowers

By Noah Zinner, Director of Litigation at PPSL

January 16, 2026

How does State sovereign immunity — a legal rule that historically was a privilege claimed by kings and queens — impact student loan borrowers?  The question is being considered by the Supreme Court of the United States, with implications for student loan borrowers across the country and for PPSL’s case against MOHELA.

Here’s what you need to know.

What is State Sovereign Immunity?

State sovereign immunity bars certain lawsuits against states without their consent.  In a representative democracy, where power is derived from the people, it prevents private, narrow, or external interests from interfering with the will of the people as exercised by elected officials. It decreases the influence of courts in favor of electoral recourse.

But should state sovereign immunity also protect what are essentially commercial corporations with some ties to a State?

What is the SCOTUS case about?

On January 14, the Supreme Court heard argument on a pair of cases asking whether the New Jersey Transit Corporation (“NJ Transit”) is immune from being sued in state courts outside of New Jersey. Both cases involve plaintiffs (Jeffrey Colt and Cedric Galette) who do not live in New Jersey and who sued NJ Transit for monetary damages after they were struck and injured by NJ Transit buses operating in New York and Pennsylvania, respectively. NJ Transit argued that its close connection to the State means that it should be entitled to the same protection against lawsuits in another state’s courts—called interstate sovereign immunity—enjoyed by the State of New Jersey.  

The plaintiffs, on the other hand, argued that NJ Transit in fact operates like an independent commercial entity, rather than a government agency or municipality.  As such, it should be liable like any other business for the injuries it inflicts. Allowing NJ Transit the advantage of sovereign immunity here would deny compensation to people injured by its negligence or misconduct and allow it to operate outside of New Jersey without accountability for its actions.

What does a New Jersey transit lawsuit have to do with student loans?

One company supporting NJ Transit’s plea for immunity is well-known to student loan borrowers: the Higher Education Loan Authority of the State of Missouri, aka MOHELA.  

With responsibility for about one in five federal student loan accounts, MOHELA operates in all fifty states and, according to the 2024 Report of the CFPB’s Student Loan Ombudsman, generated 41% of consumer complaints, nearly twice that of any other federal loan servicer. It is one of four student loan servicers the Department of Education pays to manage its Direct Loan portfolio, and the only one to publicly claim that state sovereign immunity protects it from having to comply with basic consumer protection laws.

MOHELA has attempted to avoid accountability to borrowers by asserting state sovereign immunity. For example, in Maldonado v. MOHELA, PPSL represents a group of borrowers whose lawsuit alleges that MOHELA has unlawfully continued servicing and reporting on some federal student loans for more than three years after they were legally extinguished by the Department of Education through borrower defense to repayment group discharges. The plaintiffs in Maldonado, and the class they seek to represent, are residents of California and maintain that California law requires MOHELA to compensate them for this unlawful activity.

MOHELA raised a state sovereign immunity defense in its motion to dismiss the Maldonado plaintiffs’ complaint. The district court rejected MOHELA’s argument, holding:

“If Missouri chooses to create an entity that can service loans for California students to go to California universities, it can hardly claim that being dragged into court in California based on those transactions is an infringement on its dignity. To the contrary, 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.”

Other courts around the country have also rejected MOHELA’s claims that it should be immune from liability or accountability for its servicing failures. (Good v. Dep't of Educ., 121 F.4th 772 (10th Cir. 2024), Walker v. MOHELA, No. 1:21-CV-00879, (E.D. Cal. July 26, 2024), White v. MOHELA, No. 8:25-CV-01599 (M.D. Fla. Jan. 5, 2026), Pellegrino v. Equifax Info. Servs., LLC, 709 F. Supp. 3d 206(E.D. Va. 2024)).

What impact would this have on borrowers?

Despite these losses, MOHELA may be banking on the Supreme Court for protection—it’s happened before. In Biden v. Nebraska, the State of Missouri successfully argued that a loss of revenue for MOHELA gave it standing to stop the Department of Education’s announced debt cancellation program for tens of millions of low- and moderate-income federal student loan borrowers. In legal filings, Missouri stated that the program would cost it approximately $44 million in servicing fees that MOHELA would have received from the Department on cancelled student loan accounts. While the Supreme Court’s decision in Biden v. Nebraska assessed MOHELA’s relationship to the State of Missouri, it did so only in the context of Article III standing; the Court did not hold that MOHELA is entitled to sovereign immunity.

To be clear, MOHELA looks even more like a private commercial corporation than NJ Transit. MOHELA’s finances are separate from Missouri’s.  Its revenue does not pour into the general coffers of the State of Missouri. It receives no money from the state—the vast majority of its revenue comes from charging the federal government to service student loans for borrowers from other states, who had no choice about whether they wanted MOHELA as their servicer. In contrast, during oral argument, New Jersey’s lawyer highlighted that NJ Transit “never ha[s] profits” and “if they ever did, we [the State] could take their profits and use them to fund other things. Instead, it's always us giving taxpayer money to NJ Transit to help keep it going.” Rather than being “designed to make money,” NJ Transit “couldn’t survive unless the state continually funded it.” This fact is central to NJ Transit’s claim for state sovereign immunity: It is “providing a public good for people who can’t afford to take Ubers everywhere . . . something that the state thinks in its own sovereign autonomy is really valuable to provide[.]”

The Supreme Court’s decision in the NJ Transit cases is expected by early summer.