The lawsuits against Nelnet and MOHELA fall into two tracks. Nelnet resolved a $10 million class action settlement over its 2022 data breach, with final approval entered on May 22, 2026, and the case closed. MOHELA, by contrast, is still fighting a wave of active cases accusing it of illegal overcharging, botched Public Service Loan Forgiveness processing, failed loan discharges, and a 2023 loan transfer from Nelnet that left duplicate balances on roughly 1.4 million borrowers’ credit reports.1Research file
Both companies are among the largest federal student loan servicers in the country. Nelnet, together with its subsidiary Great Lakes, handles millions of accounts. MOHELA services about $270.6 billion in federal loans across more than seven million borrower accounts as of mid-2026. If you have federal student loans, there is a reasonable chance one of these two is in the chain of entities that touched your account.
The Nelnet Data Breach Settlement Is Closed
In August 2022, Nelnet disclosed that an unauthorized party had exploited a vulnerability in a borrower-facing website between early June and late July of that year. The exposed information included names, addresses, email addresses, phone numbers, and Social Security numbers. No financial account numbers or payment data were compromised. About 2.5 million borrowers were affected nationwide.
The breach did not hit people whose loans Nelnet or Great Lakes serviced directly. It affected borrowers whose loans were handled by Edfinancial Services and the Oklahoma Student Loan Authority, which used the Nelnet-hosted websites. Nelnet notified the Department of Education and law enforcement and offered 24 months of free Experian credit monitoring.
The resulting class actions were consolidated in the U.S. District Court for the District of Nebraska as In re Data Security Cases Against Nelnet Servicing, LLC, Case No. 4:22-cv-3191. Plaintiffs alleged negligence, breach of implied contract, unjust enrichment, and violations of the California Consumer Privacy Act and other state consumer protection statutes. Nelnet, Edfinancial, and the Oklahoma Student Loan Authority denied the allegations and agreed to pay $10 million into a settlement fund.
The court granted preliminary approval on March 31, 2025, and an amended preliminary approval order on December 4, 2025. The claims deadline was March 5, 2026. On May 22, 2026, U.S. District Judge John M. Gerrard entered final judgment, calling the settlement “fair, reasonable, and adequate” under Federal Rule of Civil Procedure 23(e)(2). No class members objected. The case was closed with prejudice.
What the Settlement Paid
After fees, administration costs, and service awards, eligible class members could claim:
- Two years of credit monitoring and identity restoration, plus at least $1 million in identity theft insurance (approximate retail value of $187 per year).
- Up to $5,000 in reimbursement for documented out-of-pocket losses traceable to the breach, such as fraud losses, credit-freeze fees, and costs from fraudulent tax filings. Self-prepared documents alone were not enough.
- Lost time at $25 per hour, up to four hours, for a $100 maximum.
- A pro rata cash payment for claimants who did not seek documented-loss reimbursement. California residents at the time of the breach were eligible for double the base pro rata amount.
Claimants chose one track or the other. If documented losses came in below the pro rata amount, the claim converted automatically to the higher pro rata payment. The claims administrator was A.B. Data, Ltd., based in Milwaukee. Because the claims window closed on March 5, 2026, borrowers who did not file in time cannot submit new claims under this settlement.
The 2023 Nelnet-to-MOHELA Transfer and Duplicate Credit Entries
In 2023, the Department of Education directed a transfer of student loan accounts from Nelnet to MOHELA. According to a congressional investigation led by Senators Elizabeth Warren, Ron Wyden, Jeff Merkley, and Richard Blumenthal, nearly two million duplicate student loan records then appeared on borrower credit reports because MOHELA allegedly failed to properly notify credit reporting agencies of the transfers. A single loan balance showed up twice, once under Nelnet and once under MOHELA, inflating reported debt.
At least 1.4 million borrowers were affected. Over 100,000 had incorrect credit scores for as long as a year and a half, and thousands saw score drops exceeding 20 points. Borrowers filed roughly 7,500 complaints and disputes. In August 2024, the senators demanded answers from MOHELA, Nelnet, and the three major credit bureaus and asked the Consumer Financial Protection Bureau and the Department of Education to use their enforcement authority.
The companies blamed each other. Nelnet said the issues were “entirely outside servicers’ control” and stemmed from a Department of Education-directed change in servicing requirements. MOHELA “strongly disagrees” with the allegations and said it followed standards set by the Department of Education’s Office of Federal Student Aid. The credit bureaus told investigators the duplicate balances had been resolved, with work continuing on remaining errors. If you were transferred from Nelnet to MOHELA in 2023, pulling your credit reports from all three bureaus is a reasonable precaution.
Active Lawsuits Against MOHELA
MOHELA faces several lawsuits alleging systemic failures affecting the millions of borrowers it manages. None has produced a borrower payout to date; the cases are at different stages of federal litigation.
AFT v. MOHELA
The American Federation of Teachers filed suit on July 22, 2024, in D.C. Superior Court on behalf of its 1.8 million members. The complaint alleged that MOHELA violated the D.C. Consumer Protection Procedures Act through ten categories of misconduct, including illegally deducting payments without consent, failing to send timely bills to 2.5 million borrowers (causing 800,000 to fall behind), issuing inaccurate bills, mismanaging PSLF tracking, and running a “call deflection scheme” that routed borrowers away from live representatives.
MOHELA removed the case to the U.S. District Court for the District of Columbia in August 2024. On September 29, 2025, Judge Tanya S. Chutkan denied the AFT’s motion to remand and denied MOHELA’s motion to dismiss without prejudice. The AFT’s amended complaint, filed January 15, 2026, added that MOHELA borrowers waited roughly 50 times longer than those serviced by Nelnet, Aidvantage, or CRI to reach a representative, and that MOHELA’s caller abandonment rate exceeded 14 percent while no other servicer topped 5 percent. The AFT said it had diverted at least $780,000 in staff time and $1.6 million for an outside vendor to help members. The case remains active in federal court as of May 2026.
Maldonado v. MOHELA
Maldonado v. Higher Education Loan Authority of the State of Missouri was filed in Alameda County Superior Court on September 4, 2024, and removed to the U.S. District Court for the Northern District of California in November 2024. The plaintiffs allege MOHELA failed to implement Department of Education-ordered discharges for former students of six for-profit schools, including Corinthian Colleges, ITT Technical Institute, and Westwood College, continuing to report discharged debts as active and sending bills on canceled loans.
Judge Vince Chhabria denied MOHELA’s motion to dismiss on April 9, 2025, and denied a second motion for judgment on the pleadings on July 8, 2025. On March 10, 2026, Judge Chhabria granted partial summary judgment for the plaintiffs, finding that MOHELA violated the California Student Borrower Bill of Rights and the California Unfair Competition Law by sending billing statements that misrepresented borrowers’ loan obligations. Other issues remain unresolved.
PSLF Processing Class Actions
Two class actions in the U.S. District Court for the Eastern District of Missouri target MOHELA’s handling of PSLF applications: Joy v. Higher Education Loan Authority of the State of Missouri (No. 4:23-cv-01590), filed in December 2023, and Morgan v. Higher Education Loan Authority of the State of Missouri (No. 4:24-cv-00147), filed in January 2024. Both allege that MOHELA failed to process and decide PSLF applications in a timely manner. Neither case has a reported resolution as of mid-2026.
MOHELA’s Sovereign Immunity Bid Failed
MOHELA has argued in multiple courts that it cannot be sued because it is an arm of the state of Missouri. In March 2025, MOHELA petitioned the U.S. Supreme Court (Docket No. 24-992) to settle the question. The Court denied certiorari on March 23, 2026, leaving in place the lower court rulings that rejected the immunity defense. In the Maldonado case, the Northern District of California observed 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.”
Regulatory and Congressional Pressure on MOHELA
The lawsuits sit alongside years of regulatory findings. During the period when MOHELA was the sole PSLF servicer, the backlog of unprocessed PSLF forms reached 1.2 million and stayed above 800,000 for nearly six months, according to a Senate investigation. Borrowers reported customer service waits of up to nine hours in 2022, and average email response times stretched to nearly six weeks, the longest of any servicer.
In October 2023, the Department of Education disclosed that MOHELA had failed to send timely billing statements to 2.5 million borrowers and withheld $7.2 million in payments as a penalty. About 280,000 borrowers were overcharged due to miscalculations tied to the SAVE repayment plan. The CFPB reported that MOHELA managed roughly 20 percent of borrower accounts but accounted for 41 percent of complaints.
California became the first state regulator to take public enforcement action against MOHELA, entering a consent order in April 2024 that imposed $27,500 in administrative penalties after MOHELA failed to timely provide borrower contact information needed for an income-driven repayment deadline notification. The California Department of Financial Protection and Innovation’s 2024 annual report noted that MOHELA generated 49.3 percent of the 250 student loan complaints the agency received that year, and only about 22 percent of complaints requiring a response were answered on time.
In September 2024, more than 50 members of Congress asked the Department of Education to investigate MOHELA and consider terminating its federal contract. Senators Warren, Blumenthal, and Duckworth opened a separate investigation into MOHELA’s website terms of use, alleging they may violate the Consumer Financial Protection Act by requiring borrowers to waive legal rights.
The Department of Education has not terminated the contract. In April 2023, it awarded MOHELA a ten-year Unified Servicing and Data Solutions contract. Administration of the PSLF program moved from MOHELA to the federal government effective July 1, 2024, though most borrowers pursuing PSLF are still serviced by MOHELA. In August 2025, the Department said it planned to transfer a portion of MOHELA’s PSLF portfolio to other servicers, while describing MOHELA’s performance as “steadily showing progress.”
Nelnet’s Other Issues
Beyond the data breach, Nelnet and Great Lakes have drawn scrutiny over servicing practices. In May 2020, a class action was filed against Great Lakes and the three major credit bureaus alleging CARES Act violations through improper credit reporting during the pandemic forbearance period. The law firm Lieff Cabraser has disclosed an ongoing investigation into allegations that Nelnet has been misapplying borrower payments and overcharging interest, though no formal lawsuit had resulted as of mid-2026.
What Borrowers Can Do Now
The Nelnet data breach settlement is closed, so new claims are not available. If you were part of the 2023 Nelnet-to-MOHELA transfer, check your credit reports from all three bureaus for duplicate student loan entries and dispute any you find. If you are a MOHELA borrower pursuing PSLF, waiting on a discharge, or seeing billing or payment problems, keep written records of each contact, bill, and payment, because these are the kinds of records that have driven the pending cases forward. Complaints can be filed with the CFPB and, in California, with the Department of Financial Protection and Innovation.