Lender SoFi Sues to End Student Loan Payment Pause
Credit: Image Credit: Rafael Henrique / SOPA Images / LightRocket / Getty Images- Most federal student loan borrowers have not had to make payments on their debt since March 2020.
- That pause has been repeatedly extended throughout the COVID-19 pandemic.
- SoFi Bank alleges the prolonged pause has cost the company between $150 and $200 million in profits
A major national bank is seeking to end the pause on federal student loan payments.
California-based SoFi Bank sued the Department of Education (ED) on March 3 in the U.S. District Court for the District of Columbia. The lawsuit alleges that the department’s eighth extension, issued in late November, is unlawful.
It also alleges that the nearly three-year-long pause has cost SoFi between $150 and $200 million in profits since March 2020.
The current pause is scheduled to end on July 1. President Joe Biden’s administration instituted the eighth extension because his plan for widespread federal student debt cancellation is currently in the hands of the U.S. Supreme Court. A decision in the case is expected in early summer.
SoFi’s lawsuit states pending litigation isn’t a valid excuse to extend the pause.
ED has used the Higher Education Relief Opportunities for Students (HEROES) Act to justify each extension. This law allows any ED secretary to “waive or modify” parts of the federal student loan program during an emergency – like the COVID-19 pandemic – so borrowers aren’t in a worse position than before the emergency.
The suit alleges that because the eighth pause is in place due to ongoing litigation – not the pandemic – it is unlawful.
SoFi also claims Biden’s extensions break the “major questions” doctrine, which means the company believes ED is acting outside the agency’s scope. Congress should be the body to approve these successive extensions, not ED, the lawsuit states.
This is a similar argument to one made during the Supreme Court’s hearing of the Biden debt forgiveness plan on Feb. 28.
All the while, SoFi alleges that three years of paused payments has hurt the company financially. The bank is a leader in student loan refinancing, which allows borrowers to refinance loans into a single loan, potentially at a more favorable rate.
Since the moratorium went into effect in March 2020, SoFi says it has lost approximately $300 to $400 million in total revenues from its federal loan refinancing business. That equates to approximately $150 to $200 million in profits lost during that period, according to the lawsuit.
The eighth extension alone is projected to cost the company $40 to $45 million in lost revenues and approximately $25 to $30 million in lost profits.
SoFi has asked the court to declare the eighth extension invalid, end the payment pause, and prevent ED from enforcing the pause.