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Dive Brief:
- SoFi, a banking and loan company, is suing the Biden administration to overturn the ongoing freeze of federal student loan payments and interest.
- The lawsuit alleges the administration enacted the eighth and most recent extension of the moratorium illegally.The White House authorized it under a 2003 law known as the HEROES Act, which allows the education secretary to unilaterally change the federal student loan system in times of national emergency. But it did not “attempt to redress harm from the pandemic,” the lawsuit alleges.
- The company also says the freeze, which first went into place in March 2020, erases the main benefits of student loan refinancing. “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 lawsuit reads.
Dive Insight:
Federal student loan payments are currently set to resume in August or 60 days after the U.S. Supreme Court issues its ruling on President Joe Biden’s student loan forgiveness plan, whichever comes first. The proposal would wipe out up to $20,000 in student loan debt for certain borrowers.
SoFi’s lawsuit requests a federal judge force borrowers who won’t be eligible for the loan forgiveness program back into immediate repayment. The company expects to have lost $40 million to $45 million in revenue if the payment freeze continues through August, according to the lawsuit.
Student loan reform group We, The 45 Million spoke out against the lawsuit Tuesday.
“The lawsuit is meritless and SoFi has no standing because they have no right to anyone’s federal loans,” Melissa Byrne, the organization’s executive director, said in a statement. “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.”
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