A major student-loan lender is putting millions of borrowers 'at serious risk of financial harm' by filing a lawsuit to end the payment pause, Biden's Education Department says
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- Student-loan lender SoFi asked a federal court to end the student-loan payment pause.
- It cited direct harm to its refinancing business in the form of revenue loss.
- The Education Department said the pause is legal, and the lawsuit puts borrowers "at serious risk of financial harm."
President Joe Biden's Education Department has put a major student-loan lender on blast.
On Friday, SoFi Bank and SoFi Lending Corp. — a student-loan refinancing company — sued the Education Department and asked the District Court for the District of Columbia to end Biden's latest extension of the student-loan payment pause.
At the very least, SoFi wrote, borrowers who do not qualify for the president's broad debt relief plan should be required to reenter repayment.
In November, Biden extended the student-loan payment pause through 60 days after June 30, or 60 days after the Supreme Court issues a decision on the lawsuits that paused the president's plan to cancel up to $20,000 in student debt for federal borrowers, whichever happens first. SoFi wrote in its complaint that the extension was "unlawful on multiple grounds," citing direct harm to its refinancing business.
But the Education Department on Monday night pushed back on those claims.
"The payment pause is legal, 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," a department spokesperson told Insider.
"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 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."
The Supreme Court concluded oral arguments in the cases that paused Biden's broad debt relief last week. The White House has not yet commented on whether it will consider additional relief, such as a further payment pause extension if its relief gets struck down.
But as SoFi said in its complaint, Biden does not have the authority to continue extending the pause as part of pandemic relief using the HEROES Act of 2003, which gives the Education Secretary the ability to waive or modify student-loan balances in connection with a national emergency, like COVID-19.
"The HEROES Act provides limited authority to relieve transitory burdens for federal student borrowers who are temporarily unable to make payments on their loans due to active military service or national emergencies. But the eighth extension applies to all federal borrowers in the country, not just those suffering hardship as a result of the current phase of the pandemic," the complaint stated.
It also claimed that it has suffered direct harm to its student-loan refinancing business, saying that the student-loan payment pause "has eliminated the primary benefits of student loan refinancing. 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."
Advocates said the lender's lawsuit could potentially throw millions of borrowers back into repayment earlier than anticipated.
"SoFi CEO Anthony Noto is a financial vulture gorging himself on our bloated and broken student loan system," advocacy group Student Borrower Protection Center's Executive Director Mike Pierce said in a statement.
"Noto's failing company thinks it is entitled to engorge itself by skimming the cream off of the federal student loan portfolio and—after a failed back-room lobbying blitz—is running into court because the government doesn't agree," Pierce continued. "The real story here is the huge risk this poses to tens of millions of working people who SoFi would never lend to—families across the country that depend on the student loan payment pause to shield them from financial devastation."
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