The Missouri Higher Education Loan Authority (MOHELA), one of the largest federal student loan servicers in the United States, is facing significant legal challenges and investigations in 2025 related to its student loan servicing practices. Borrowers, advocacy groups, and multiple state attorneys general have raised serious allegations against MOHELA for failing to properly implement loan discharges, inaccurately reporting debts, overcharging borrowers, and forcing unauthorized payments.
Background of the Lawsuit
The lawsuit, Maldonado v. MOHELA, filed in September 2024 in Alameda County Superior Court, represents a class of student borrowers primarily from California who were affected by MOHELA’s mishandling of student loan discharges ordered by the Department of Education (ED). These discharges were issued for borrowers defrauded by several predatory for-profit schools, including Marinello Schools of Beauty, Corinthian Colleges, ITT Technical Institute, Westwood College, the Art Institute, and Colorado campuses of College America.
Despite official loan cancellation notices by the ED, MOHELA allegedly continued to collect payments, failed to process discharges, and misinformed borrowers regarding their loan status, exacerbating financial harm.
Key Allegations
- Failure to Process Loan Discharges: MOHELA reportedly refused or delayed implementing authorized loan discharges for thousands of borrowers, contrary to federal directives.
- Continuing Collections on Cancelled Loans: Borrowers report continued billing and illegal demands for payment on loans officially forgiven.
- Inaccurate Credit Reporting: Credit agencies were allegedly provided with false information about borrowers’ financial obligations, impairing credit scores.
- Misleading Communications: Borrowers received inconsistent and confusing information about repayment plans, forgiveness options, and loan statuses.
- State Sovereign Immunity Defense Rejected: MOHELA’s attempt to claim immunity based on its governmental affiliation was rejected in court, allowing lawsuits to proceed.
Investigations by State Authorities
Multiple state attorneys general, including those from California, New York, Massachusetts, Pennsylvania, and the District of Columbia, have initiated investigations and civil demands for information. These probes examine MOHELA’s servicing failures, customer service policies, billing accuracy, and compliance with federal contracts.
The U.S. Senate Banking Committee and Department of Education’s Office of Inspector General have scrutinized MOHELA’s performance, revealing documented servicing deficiencies, including a failure to send billing statements to millions of borrowers between 2022-2023.
Legal Proceedings and Court Decisions
Federal courts have denied MOHELA’s efforts to dismiss the pending lawsuits, affirming that borrowers can pursue claims despite MOHELA’s status as a state entity. The courts emphasized the serious commercial misconduct allegations, including violations of the California Student Borrower Bill of Rights and consumer protection statutes.
Judge Vince Chhabria in the Northern District of California ruled that the Department of Education is not a necessary party because the borrowers seek enforcement of already-authorized discharges, not additional governmental relief.
Advocacy and Public Impact
Advocacy groups such as the Project on Predatory Student Lending and the American Federation of Teachers have played critical roles in bringing attention to MOHELA’s misconduct, providing legal representation for affected students and publicizing disturbing servicing practices.
Borrowers nationwide are urged to stay vigilant about their loan accounts, regularly check for inaccurate charges or erroneous information, and seek assistance from borrower defense resources and consumer protection organizations.
MOHELA’s Response
MOHELA has pledged to rigorously defend itself against the lawsuits and to prioritize borrower assistance. The servicer highlights its role in supporting over 8 million federal loan borrowers and its efforts to comply with government contracts amid operational challenges.
The organization has acknowledged past errors and pledged to implement corrective measures to restore borrower confidence and improve servicing quality.
Conclusion
The MOHELA student loan servicing lawsuit captures a critical phase in the ongoing scrutiny of federal loan servicers’ accountability and borrower protections. As litigation and investigations advance, affected borrowers may obtain redress and have their discharges properly processed.
The lawsuit underscores the necessity for transparent, fair, and effective student loan servicing practices, vital to ensuring the financial well-being of millions of Americans burdened with student debt.
