Biden Student Loan Ruling Could Decide NJ Transit Dispute

The US Supreme Court weighed whether a state-created transit authority can be hauled into another state’s courts for damages arising beyond its home borders, a dispute that could have consequences for public agencies nationwide.

Several justices suggested in the case against New Jersey Transit argued Wednesday that the court’s decision striking down the Biden-era student loan forgiveness plan in 2023 could be decisive.

The case stems from two bus accidents involving New Jersey Transit—one in Pennsylvania and another in New York—that led to conflicting rulings from the states’ highest courts.

New York’s Court of Appeals concluded NJ Transit isn’t an arm of the New Jersey government and allowed a damages suit to proceed. The Pennsylvania Supreme Court reached the opposite conclusion, holding that state sovereign immunity barred litigation against the agency in Pennsylvania courts.

A ruling against New Jersey could disrupt hundreds of state-created agencies around the country that operate across state lines, New Jersey Deputy Solicitor General Michael Zuckerman argued. He said the legislature designed NJ Transit to function within the state’s executive branch, pointing out the governor has a veto over all agency operations.

“This court has never suggested states experiment with efficiency at peril to their sovereignty,” Zuckerman said.

Michael Kimberly, of Winston & Strawn, said NJ Transit has all the hallmarks of an independent agency. The New Jersey state government disclaims liability for its debts, although the state has in practice covered them, and NJ Transit has both contracting and sue-and-be-sued authority.

Justices from across the ideological spectrum appeared skeptical of New Jersey’s position, questioning why the state chose to structure NJ Transit as a separate corporation if it intended it to share the state’s immunity.

“Why did the state choose the corporate form?” Justice Ketanji Brown Jackson asked. “It was doing something.”

What it was doing, Jackson said, was trying to “distance itself” from liability for NJ Transit’s operations.

But several justices, including Elena Kagan, suggested the state has a compelling precedent on its side in the court’s decision in Biden v. Nebraska.

In that case, the court held MOHELA, a public corporation created by the state of Missouri as a student loan servicer, was an arm of the state.

That case addressed standing to challenge President Joe Biden’s student loan forgiveness plan, rather than state sovereign immunity, but several justices indicated the logic could apply in New Jersey’s case.

A holding against New Jersey would allow the underlying damages suits against NJ Transit to continue in Pennsylvania and New York courts and could reshape how states structure agencies intended to operate outside their own borders.

A decision is expected by July.

The case is Galette v. New Jersey Transit Corporation, U.S., No. 24-1021, argued on 1/14/26.