A company with a significant student loan refinancing business is suing the federal government to end its moratorium on federal student loan payments, calling it “an illegal overreach of power.”
SoFi Bank filed its suit in US District Court in the District of Columbia late last week. The 32-page filing appears to be one of the first efforts to end the payment pause through litigation.
Federal student loan payments have been paused for roughly 43.5 million borrowers since March 2020, at the onset of the pandemic. The Education Department under presidents Donald Trump and Joe Biden has extended the pause multiple times.
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The current pause, which costs the federal government about $5 billion per month, could last through August, but that depends on when the Supreme Court issues its verdict on Biden’s mass student loan forgiveness plan.
“The payment pause is legal,” an Education Department spokesperson said, “as is our plan to provide one-time debt relief to tens of millions of borrowers most at risk of delinquency and default when they return to repayment.”
Biden has attempted to cancel student loan debt and extended the moratorium via a 2003 law that lets the education secretary waive or modify student loan payments in times of a national emergency. As part of the moratorium, the federal government set interest rates at zero percent and instructed collection agencies to stop their attempts to collect on overdue debts.
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Suit argues payment pause extension no longer tied to the pandemic
In its filing, SoFi argued that the Education Department had said the most recent extension was not to help borrowers affected by the pandemic. Rather, the agency’s goal was to “alleviate ‘uncertainty’ for borrowers during the pendency of ongoing litigation regarding the debt-cancellation program.” It also argued the payment pause has been applied unfairly to all borrowers, not just those eligible for debt relief.
SoFi, which describes itself as the “premiere lender in the student loan refinance space,” is seeking to end the payment pause. Barring that, it requested the moratorium to apply only to borrowers who would see portions of their debt canceled under Biden’s plan for widespread student loan forgiveness. The loan refinancing company argued that it had been hurt by the payment pause.
“The Moratorium has eliminated the primary benefit of student loan refinancing,” the lawsuit says. “In essence, SoFi is being forced to compete with loans with 0% interest rates and for which any ongoing repayment of the principal is entirely optional.”
The company argued it has lost between $300 to $400 million in revenue since the payment pause started.
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“This lawsuit is an attempt by a multi-billion dollar company to make money while they force 45 million borrowers back into repayment – putting many at serious risk of financial harm,” an Education Department spokesperson said. “The Department will continue to fight to deliver relief to borrowers, provide a smooth path to repayment, and protect borrowers from industry and special interests.”
SoFi stated it offers federal borrowers “private financing under more favorable terms,” which may include lower interest rates.
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Student loan borrowers also fired back at SoFi over its suit.
“SoFi claims they want to lower Americans’ interest rates, but they’re working to destroy zero percent interest to force Americans into a higher rate with them,” said Braxton Brewington, spokesperson for the Debt Collective.
A SoFi spokesperson said it supports and continues to support “targeted loan forgiveness, in addition to the student loan payment moratorium during the economic crisis at the height of the COVID-19 pandemic.”
“However, it’s time for the administration to follow through on its word to end the federal student loan payment moratorium. This latest extension is an illegal overreach of power.”