Personal finance firm sues Dept. of Ed. over continued student loan repayment pause
SoFi, a student debt consolidation firm, argues that private companies cannot compete with the federal government’s ability to continually pause student loan repayment and interest accrual.
Rep. Virginia Foxx supports SoFi, saying, ‘The Biden administration is using borrowers as political pawns, knowing full well that pausing student loan payments is not a long-term working solution.’
Student loan refinancing company SoFi is suing the Secretary of the Department of Education (DoEd), Miguel Cardona, regarding the student loan moratorium, arguing that they have suffered financial harm because the Biden administration is putting private student loan companies out of business.
SoFi offers student debt consolidation services, allowing borrowers to combine private and federal loans under a single repayment plan. According to the complaint filing, SoFi’s monthly income has decreased by over 75% since the start of the pause.
The student loan payment and interest moratorium began in March 2020 in order to save borrowers from facing economic hardship during the COVID-19 economic shutdown, utilizing the national emergency provision of the HEROES Act to justify the pause.
SoFi argues that the eighth pause, issued on November 22, 2022, is different.
The DOEd’s most recent pause did not use the pandemic national emergency as its justification. Rather, it intended to “alleviate uncertainty for borrowers” pending the Supreme Court’s review of the legal challenges against Biden’s student loan forgiveness plan.
It also applied the pause extension to all federal borrowers, “whether or not they qualify for debt cancelation,” according to SoFi’s complaint.
In other words, the DoEd’s continued student loan pause is eliminating the need for private corporations like SoFi, which are unable to compete with the federal government’s intervention into the market for debt consolidation.
“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 complaint reads.
Critics of SoFi contend that private corporations should not benefit from the student loan debt crisis.
Melissa Byrne, executive director of student debt advocacy group We, the 45 Million, told Higher Ed Dive that the suit is “meritless” because “SoFi didn’t have a right to have any customers. If their product doesn’t meet current needs, they should adapt or close their doors. It is not the responsibility of the government to help them make money.”
A DOEd spokesperson provided exclusive comment to Campus Reform, insisting that “[t]he payment pause is legal.”
“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. 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,” said the spokesperson.
But Rep. Virginia Foxx (R-NC), chairwoman of the House Committee on Education and The Workforce, sees the Biden administration as the problem, not SoFi.
“The Biden administration is using borrowers as political pawns, knowing full well that pausing student loan payments is not a long-term working solution and does nothing to fix the student loan program that Democrats have worked so hard to break,” she told Campus Reform in an exclusive comment.
Instead of “clinging to this half-measure to make good on a campaign promise he doesn’t have the authority to keep,” Foxx calls upon Biden “to work with Congress to tackle student loan reform head-on.”
Under the current moratorium, repayments will resume 60 days after the Supreme Court issues its ruling or June 30, 2023, whichever is first.
Campus Reform has contacted SoFi and We, the 45 Million with request for comment. This developing story will be updated accordingly.
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