The Biden administration will find itself in court once again over student loans, this time concerning the three-year-old repayment pause.
SoFi Bank, a public company that refinances student loans, has sued to end the pause, arguing that it no longer has any connection to the pandemic.
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“The eighth extension does not even attempt to redress harm from the pandemic at all, but rather to alleviate ‘uncertainty’ caused by the debt-cancellation litigation,” SoFi says in the lawsuit.
That’s unlike the first seven extensions, which were aimed at helping struggling borrowers as a result of the pandemic, the lawsuit says. With that pretense abandoned, the company argues that the Education Department can no longer use the HEROES Act of 2003 as legal justification for the pause.
Then-President Donald Trump initiated the pause in March 2020 and extended it twice before leaving office, and President Joe Biden has continued it with his own extensions.
The suit will add to Biden’s student loan headaches. He promised to cancel student debt on the presidential campaign trail and announced a $400 billion debt transfer ahead of the 2022 midterm elections, but the Supreme Court may rule that plan illegal.
Republican leaders welcomed the latest suit.
“President Biden sees the writing on the wall,” said House Education and Workforce Committee Chairwoman Virginia Foxx (R-NC). “His student loan bailout plan is floundering in the Supreme Court, and he’s clinging to this half-measure to make good on a campaign promise that he doesn’t have the authority to keep. I support SoFi’s efforts to lift the pause on loan repayments and urge this administration to work with Congress to tackle student loan reform head-on.”
SoFi is a California-based company that got its start refinancing student loans for Stanford University students, then expanded to other schools and to other financial products. It sponsors the $5 billion SoFi Stadium where the NFL’s Los Angeles Rams and Los Angeles Chargers play, reportedly at a cost of $30 million a year.
The company says the latest pause extension will cost it $6 million in profits because borrowers effectively have 0% interest at the moment and thus little reason to refinance and that the pause in total could cost it $30 million.
But SoFi’s stock has fallen more than 70% from a November 2021 peak, argues borrower advocate Mike Pierce, and the lawsuit represents a desperate attempt to boost business.
“The pause means that student loans are a good deal and people won’t refinance them,” said Pierce, executive director of the Student Borrower Protection Center. “This is just sour grapes. This is a CEO who doesn’t have any creative ideas for how his company can make money again and so instead is throwing a temper tantrum in federal court.”
The Education Department says both the pause and the cancellation program 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. “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 political implications for the White House are uncertain.
When Biden announced the cancellation program on Aug. 24, it was seen as a nod to younger voters and as a way to boost turnout ahead of the midterm elections. But the program was blocked two days after the elections, leaving at least 26 million borrowers stressed about whether or not the administration could come through.
The pause was due to expire on Jan. 1 pending cancellation, but when that was blocked, Biden extended it until 60 days following the Supreme Court ruling. Now, borrowers have to add the uncertainty of knowing whether that too could be struck down in court.
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The White House and leading Democrats have put the blame on Republicans, while conservatives argue the administration should have known its program was illegal.
“It is unfortunate,” press secretary Karine Jean-Pierre said Monday, “that you have certain elected officials across the country that are trying to prevent nurses and doctors and teachers from getting this type of benefit.”
