Sofi sues to end loan payment pause

Private lender Sofi is suing to overturn the Biden administration’s last extension of the pause on federal student loan payments, arguing the move is unlawful and harms its student loan refinancing business.

The lawsuit, filed in the U.S. District Court for the District of Columbia on Friday, takes aim at Education Secretary Miguel Cardona and the department’s decision in November to extend the pandemic-era moratorium while the Supreme Court considers Biden’s student loan forgiveness program. At the time, Cardona said the extension was intended to alleviate “financial uncertainty” for borrowers awaiting word on the relief program’s fate.

Sofi argues the rationale is out of step with the 2003 Higher Education Relief Opportunities for Students Act, the legal authority the department is using to suspend payments.

“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. This latest extension is an illegal overreach,” Sofi said in a statement to The Washington Post on Monday.

A spokesperson for the Education Department said the payment pause stands on firm legal ground.

“This lawsuit is an attempt by a multibillion 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.

The Heroes Act authorizes the education secretary “to alleviate the hardship that federal student loan recipients may suffer as a result of national emergencies.” The Trump administration first used the statute in March 2020 to give borrowers the option of postponing student loan payments as the coronavirus pandemic battered the economy. Congress later codified the reprieve in the Cares Act and made it automatic.

The Trump administration twice extended the payment moratorium, and Biden’s White House has done so six times. The Biden administration had earlier justified its actions as necessary to help borrowers recover from the economic fallout of the public health crisis. The Heroes Act also is the legal basis of the administration’s embattled plan to forgive up to $20,000 in debt for eligible federal student loan borrowers.

But Sofi argues that tying the latest extension to the Supreme Court’s review of loan forgiveness is improper. It wants the courts to invalidate the last extension or order the Education Department to make borrowers who are ineligible for Biden’s debt relief program start repaying their loans.

Sofi has a lot at stake with the ongoing payment pause. The company made a name for itself by refinancing education loans — lowering the interest rates and monthly payments of people with private and federal student loans. Refinancing federal student loans can save borrowers money, especially those with high-interest graduate debt. But it means giving up federal benefits, including access to income-driven repayment plans and public service loan forgiveness. The trade-off has become less appealing in the wake of the payment pause, according to Sofi.

The moratorium has eliminated the primary benefits of student loan refinancing by suspending interest on most federal student loans for the past three years, the complaint said. Whereas Sofi originated about $450 million to $500 million of refinanced federal student loans per month before March 2020, the volume plummeted by more than 75 percent following the initial pause, according to the company. The decline has accelerated and resulted in the company losing roughly $150 million to $200 million in profits over the past three years, the company said.

“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 company said in the complaint. “Every day that the eighth extension of the loan moratorium remains in place, it causes significant, irreparable harm to Sofi.”