MOHELA Lawsuit Update March 2026: New Charges and Settlement Rulings
As of March 18, 2026, the Missouri Higher Education Loan Authority (MOHELA) is facing a double-front legal crisis that has redefined student loan servicing standards. While the company recently secured a partial victory in California, it was simultaneously hit with a massive amended complaint in Washington, D.C., alleging systemic and “ongoing” misconduct. These developments come as millions of borrowers navigate the fallout of the One Big Beautiful Bill Act, which began phasing out several Biden-era repayment plans earlier this year.
The AFT Amended Complaint: “Ongoing Mismanagement”
On January 15, 2026, the American Federation of Teachers (AFT) filed a high-stakes amended complaint in its existing consumer protection lawsuit against MOHELA. The union, representing 1.8 million members, alleges that MOHELA’s servicing failures are not historic relics but are currently “gobbling up more and more of the market” while leaving existing borrowers in a “Kafkaesque rabbit hole.”
The March 2026 status of this litigation reveals several startling new allegations based on internal federal data:
- Extreme Wait Times: MOHELA borrowers currently wait approximately seven times longer than those with EdFinancial to speak with a representative.
- The “Abandon Rate”: While competitors see less than 5% of callers give up, MOHELA’s “abandon rate” has spiked to over 14% in early 2026.
- Processing Deadlocks: The AFT alleges that MOHELA has intentionally diverted thousands of hours of staff time away from Public Service Loan Forgiveness (PSLF) processing to focus on more profitable commercial portfolios.
Maldonado v. MOHELA: The March 10 Summary Judgment
While the AFT case ramps up, a separate class action in the Northern District of California, Maldonado v. MOHELA, reached a critical milestone last week. On March 10, 2026, Judge Vince Chhabria issued a pivotal order granting in part and denying in part cross-motions for summary judgment. This case focuses on California borrowers who allege that MOHELA refused to implement loan discharges even after they were officially ordered by the Department of Education.
The judge’s ruling means the case is now cleared to proceed toward a jury trial later this summer. The court found that there is sufficient evidence to suggest MOHELA may have “willfully disregarded” discharge notices for hundreds of borrowers. However, the judge also dismissed several claims brought by specific plaintiffs due to statute-of-limitations issues, providing a mixed legal bag for the servicer.
The Impact of the “SAVE” Plan Phase-Out
The legal pressure on MOHELA is compounded by the legislative end of the Saving on a Valuable Education (SAVE) plan. Following the 8th Circuit’s February 2025 injunction and the subsequent passage of the 2025 debt-limit compromise, the SAVE plan was officially vacated and dismissed as “moot” by a Missouri federal court on February 27, 2026.
For MOHELA borrowers, this means:
- Interest Accrual: Interest on loans previously in “SAVE Administrative Forbearance” began accruing again in late 2025.
- The 2026 “Tax Bomb”: A key component of the recent AFT settlement confirms that the federal tax exemption for non-PSLF student loan forgiveness will expire in late 2025. Any forgiveness processed by MOHELA in 2026 or beyond may now be considered taxable income at the federal level.
- Mandatory Plan Shifts: Borrowers are currently being urged to transition to the Income-Based Repayment (IBR) plan, though backlogs in MOHELA’s processing have led to delays of up to 120 days.
Operational Transparency and Legal Compliance
The systemic failures cited in the MOHELA litigation serve as a cautionary tale for any large-scale service provider. In industries where data integrity and contract fulfillment are paramount, such as high-value infrastructure, integrated design and construction models are utilized to ensure that every stage of a project is verified and auditable. Furthermore, as the Department of Education issues new guidance for 2026, staying informed on employment law updates for 2026 is essential for the administrators and legal counsel tasked with training servicing staff on the latest consumer protection mandates.
What Borrowers Should Do in March 2026
If your student loans are currently serviced by MOHELA, consumer advocates suggest the following immediate actions to protect your financial standing:
- Document Your Calls: If you are part of the 14% who “abandon” a call, take a screenshot of your call timer. This evidence is critical for potential future individual claims.
- Verify Your “Buyback” Status: For PSLF seekers, the 2026 AFT settlement ensures that “Buyback” processing must continue, even if at a slower pace.
- Check for Restitution: If your loans were transferred from Navient to MOHELA, you may be eligible for a portion of the $120 million CFPB settlement currently being distributed in March 2026.
