SoFi, one of the largest private student loan lenders in the U.S., has sued the Biden administration over the latest extension of the student loan payment pause. SoFi filed the lawsuit with a federal judge in Washington, D.C. March 3, 2023, arguing that the ongoing payment pause is hurting its student loan refinancing business.

Student loan payments were originally paused at the start of the COVID-19 pandemic, in March of 2020. President Biden has extended the pause several times since he took office, most recently extending it until 60 days after June 30 or 60 days after the Supreme Court issues a decision on student debt relief, whichever is sooner.

SoFi’s case against the ongoing student loan payment pause

SoFi’s primary argument is that the ongoing payment pause has caused damage to its federal student loan refinancing business. Since federal student loan payments and interest have been on hold for nearly three years, borrowers do not have much incentive to refinance their loans with a private lender. The lawsuit filed last week outlines this concern, saying “In essence, SoFi is being forced to compete with loans with 0% interest rates and for which any ongoing repayment of the principal is entirely optional.”

SoFi argues that Biden’s eighth and most recent extension of the payment pause has cost them $6 million to $8 million in profit losses. It also claims that the company could see a total loss of $30 million if the payment pause were to extend through August.

SoFi’s lawsuit also argues that the Biden administration does not have the grounds to use the HEROES Act to justify its most recent payment pause. The HEROES Act gives the Secretary of Education the authority to modify student loan programs to protect borrowers during a national emergency. While the U.S. is still under a state of emergency due to the ongoing pandemic, it is set to be lifted in May. SoFi’s lawsuit also claims that the latest extension violates the Administrative Procedure Act, which specifies that administrative agencies must allow time for public comment and feedback before implementing a regulatory change.

According to a press release from the Department of Education, the most recent extension of the payment pause is intended to alleviate uncertainty for borrowers who will be affected by the Court’s decision on student loan forgiveness. “We’re extending the payment pause because it would be deeply unfair to ask borrowers to pay a debt that they wouldn’t have to pay, were it not for the baseless lawsuits brought by Republican officials and special interests,” Secretary of Education Miguel Cardona said in the press release.

SoFi’s lawsuit argues that this is not a sufficient reason to extend the pause under the HEROES Act.

The Department of Education’s response to SoFi lawsuit

The Department of Education has responded to SoFi’s legal challenge, maintaining that the ongoing payment pause and their proposed student debt relief plan are legal. In a statement on SoFi’s attempt to end the payment pause, the Department called the lawsuit, “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.”

Both the Biden administration and the Department of Education have maintained that the HEROES Act gives them the legal authority to take measures to protect borrowers from the ongoing financial fallout caused by the pandemic.

How could the SoFi lawsuit affect student borrowers?

SoFi’s lawsuit asks the court to end the payment pause for all borrowers, or at least for borrowers who are not eligible for Biden’s student debt cancellation program. If the court rules in favor of SoFi, millions of borrowers could be forced back into repayment earlier than expected.

Given that the Department of Education had already predicted historically high default and delinquency rates if Biden’s student loan forgiveness program is struck down by the Supreme Court, ending the payment pause earlier than anticipated would likely contribute to that problem.