A company with a prominent student loan refinancing business is challenging the federal government in court to end its suspension of federal student loan payments, labeling it as “an illegal overreach of power.”
SoFi filed the lawsuit in the U.S. District Court for the District of Columbia late last week. This 32-page filing appears to be one of the first attempts to halt the payment pause through legal action.
Since March 2020, the onset of the COVID-19 pandemic, federal student loan payments have been paused for approximately 43.5 million borrowers.
Both the Education Department under President Donald Trump and President Joe Biden have extended the pause several times. Payments are expected to resume soon: Here’s how borrowers should prepare.
The current pause, costing the federal government about $5 billion per month, might continue through August, contingent on when the Supreme Court rules on Biden’s comprehensive student loan forgiveness plan.
An Education Department spokesperson stated, “The payment pause is legal, as is our plan to provide one-time debt relief to tens of millions of borrowers who are most at risk of delinquency and default when they return to repayment.”
President Biden has attempted to cancel student loan debt and extended the moratorium using a 2003 law that allows the education secretary to waive or modify student loan payments during national emergencies.
As part of the moratorium, the federal government set interest rates to zero percent and instructed collection agencies to halt efforts to collect overdue debts.
In its legal filing, SoFi contended that the Education Department indicated the most recent extension was not aimed at aiding borrowers impacted by the pandemic.
Instead, the agency’s objective was to “alleviate ‘uncertainty’ for borrowers during the litigation of Biden’s debt cancellation program.” SoFi also argued that the payment pause has been applied unfairly to all borrowers, rather than just those eligible for debt relief.
SoFi, which describes itself as the “premiere lender in the student loan refinance space,” seeks to end the payment pause.
If that is not possible, it requests that the moratorium be applied only to borrowers who would benefit from debt cancellation under Biden’s plan for widespread student loan forgiveness. The company argues that it has been adversely affected by the payment pause.
The lawsuit states, “The Moratorium has eliminated the primary benefits of student loan refinancing.” It continues, “In essence, SoFi is being forced to compete with loans carrying 0% interest rates and for which any ongoing repayment of the principal is entirely optional.”
The company claims it has lost between $300 million and $400 million in revenue since the payment pause began.
An Education Department spokesperson responded, “This lawsuit is an attempt by a multibillion-dollar company to profit while forcing 45 million borrowers back into repayment—putting many at serious risk of financial harm.”
The spokesperson added, “The department will continue to fight to deliver relief to borrowers, ensure a smooth path to repayment, and protect borrowers from industry and special interests.”
SoFi stated that it provides federal borrowers with “private financing under more favorable terms,” which may include lower interest rates.
A SoFi spokesperson mentioned, “We 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 promise to end the federal student loan payment moratorium. This latest extension is an illegal overreach of power,” the spokesperson added.
Student loan borrowers also criticized SoFi’s lawsuit. Braxton Brewington, spokesperson for the Debt Collective, said, “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.”
