Private banks are trying to force the Biden administration to end the pause on federal student loan payments, arguing that the moratorium has no legal basis and is costing the bank, known for its refinancing business, millions of dollars in profits.
In a federal lawsuit filed Friday in Washington, SoFi Bank is asking a federal judge to overturn President Joe Biden’s latest extension of a payment freeze. Student loan payments were first halted at the start of the pandemic by President Donald Trump’s administration. The pause has been extended eight times in three years.
The bank said its federal student loan refinancing business has suffered because borrowers have no incentive to repay while payments and interest are being withheld. At the very least, the lawsuit asks the judge to limit the break to only borrowers eligible for Biden’s cancellation plan.
Biden’s latest extension, which was announced in November and could run until this summer, is invalid because “for various reasons,” the lawsuit claims.
Unlike the first seven extensions, which were intended to help borrowers struggling because of the pandemic, the latest was done only in response to legal challenges over Biden’s plan to forgive widespread student loans, the lawsuit said. The plan is now being challenged in the Supreme Court, which is expected to rule in June.
“The eighth extension does not even attempt to undo the harm of the pandemic, but to alleviate the ‘uncertainty’ caused by debt cancellation litigation,” SoFi said in the lawsuit.
SoFi said it was not a valid excuse provided by the HEROES Act, the federal law passed by the Biden administration to continue the pause. The bank also said the extension violated the Administrative Procedure Act because the administration failed to invite feedback from the public.
The latest extension has cost the bank at least $6 million in lost profits, SoFi said, and could lead to a total of $30 million in losses if it continues until August.
“Essentially, SoFi is forced to compete with loans with 0% interest rates and payers making principal repayment optional,” the lawsuit says.
The Department of Education did not immediately comment on the lawsuit.
The lawsuit drew swift criticism from borrower advocates, who called the money at the expense of those struggling with student debt.
“The real story here is the enormous risk it poses to the tens of millions of working people who won’t get SoFi loans — families across the country who depend on student loan payment pauses to protect them from financial ruin,” said Mike Pierce, executive director. director of the Student Borrower Protection Center. ___
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