SoFi, one of the largest private student loan lenders in the U.S., has sued the Biden administration over the recent extension of the moratorium on student loan payments. SoFi filed the lawsuit before a federal judge in Washington, D.C. on March 3, 2023, arguing that continued freezes on payments are harming the student loan refinancing business.
Student loan payments were initially suspended in March 2020 at the onset of the COVID-19 pandemic. President Biden has extended the moratorium several times since taking office, most recently to 60 days after June 30, or 60 days after the Supreme Court decision on student debt relief, whichever comes first.
SoFi files lawsuit over ongoing student loan moratorium SoFi's main argument is that the ongoing suspension of payments has hurt its federal student loan refinancing business. With federal student loan payments and interest suspended for nearly three years, borrowers have little incentive to refinance with private lenders.
The lawsuit, filed last week, outlined those concerns, saying "SoFi is essentially forced to compete with 0% interest rate loans, where any ongoing principal repayments are entirely optional."
SoFi argues that Biden's eighth and most recent deferred payment suspension has cost them between $6 million and $8 million in lost revenue. It also claimed that the company could take a total loss of $30 million if the suspension of payments is extended through August.
SoFi's lawsuit also argues that the Biden administration has no reason to use the HEROES Act to justify its recent payment moratorium. The HEROES Act gives the Secretary of Education the authority to make changes to the student loan program to protect borrowers during the national emergency.
While the U.S. remains under a state of emergency due to the ongoing pandemic, it is scheduled to be lifted in May. SoFi's lawsuit also alleges that the recent expansion violates the Administrative Procedure Act, which requires executive agencies to allow time for public comment and feedback before making any regulatory changes.
The recent extension of the repayment moratorium is intended to reduce uncertainty for borrowers affected by court decisions to forgive student loans, according to a
Department of Education news release.
Education Secretary Miguel Cardona said: "We are extending the moratorium because borrowers are being asked to pay off debt they don't need to pay if it weren't for the baseless claims of Republican officials and special interests. Litigation, that would be very unfair," the release said. SoFi's lawsuit argues that's not enough reason to extend the post-HEROES hiatus.
Department of Education Response to SoFi Lawsuit The Department of Education responded to SoFi's legal challenge, asserting that the ongoing payment suspension and proposed student debt relief program are legal. In a statement about SoFi's attempt to end the payment freeze, the department called the lawsuit "an attempt by a billionaire corporation to make money while forcing repayments from 45 million borrowers — putting many at serious risk of financial loss." "
Both the Biden administration and the Department of Education have claimed that the HEROES Act gives them the legal authority to act to protect borrowers from the ongoing financial impact of the pandemic. How does the SoFi lawsuit affect student borrowers? SoFi's lawsuit asks the court to end the payment freeze for all borrowers, or at least those who don't qualify for Biden's student debt repayment plan. If the court rules in SoFi's favor, millions of borrowers could be forced to make repayments earlier than expected.
Given that the Education Department has already projected record-high default and delinquency rates if Biden's student loan forgiveness plan is struck down by the Supreme Court, an early end to payment interruptions could exacerbate the problem.