SoFi, a private lender, sued the Biden administration last week in an effort to end the pause on federal student loan payments that has been in place since March 2020.
The pause on payments was originally put in place during the Trump administration to help people struggling due to the Covid-19 pandemic. The moratorium has since been extended eight times, most recently by President Joe Biden in November.
In its legal complaint, SoFi argues that the last extension is different and unlawful, partly because the Biden administration tied the restart date to pending litigation over its proposed student loan forgiveness program, which is now before the US Supreme Court.
Currently, payments are set to resume 60 days after the Supreme Court issues its ruling or in late August – whichever comes first. The justices heard oral arguments in the cases over the student loan forgiveness program last week and are expected to release a decision in late June or early July.
“Unlike the other extensions, the Department (of Education) did not claim that continuing the moratorium was necessary to address harm caused to borrowers affected by the pandemic,” reads SoFi’s complaint, which was filed in a federal district court in Washington, DC.
“Instead, the Department asserted that the further extension was intended to alleviate ‘uncertainty’ for borrowers during the pendency of ongoing litigation regarding the debt-cancellation program,” it continues.
SoFi is asking the court to end the payment pause, at a minimum for borrowers who would not be eligible for Biden’s student loan forgiveness program, which promises up to $20,000 in debt relief for individual borrowers who earn less than $125,000 a year.
During the pause, the government has also set interest rates to 0% for federal student loan borrowers. With these benefits, borrowers have little incentive to refinance their loans with a lender like SoFi. The bank says it has already lost more than $6 million due to the eighth extension of the pause.
The Department of Education maintains that the pause and the proposed one-time debt cancellation plan are 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 said in a statement sent to CNN Tuesday.
SoFi is a private bank that refinances federal student loans, offering lower interest rates to borrowers who qualify. The company launched in 2011, at first offering student loan refinancing to only Stanford University graduates. Now, SoFi refinances student loans from borrowers from most colleges and has refinanced over $30 billion in student loans for more than 450,000 borrowers since 2012. It also offers personal loans and mortgages.
SoFi projects that it will lose $25 million to $30 million if the payment pause remains in place through August, according to the complaint.
“We have supported and continue to support targeted student 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 word to end the federal student loan payment moratorium,” said SoFi in a statement sent to CNN Tuesday.