Is The Student Loan Pause Now In Jeopardy? New Legal Challenge Seeks To Stop It

US President Joe Biden speaks in Washington, DC, on March 6, 2023. (Photo by SAUL LOEB / AFP) (Photo … [+] by SAUL LOEB/AFP via Getty Images)

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A major student loan company has filed a lawsuit against the Biden administration seeking to end the student loan pause for millions of borrowers.

Here’s what you need to know.

The Student Loan Pause Has Been Ongoing For Three Years

President Trump initially enacted a nationwide pause on most federal student loan payments, interest, and collections efforts in March 2020 in response to the Covid-19 pandemic. Congress then codified that relief into law via the CARES Act, which provided for six months of paused student loan payments, suspended interest, and stopped collections. President Trump, and subsequently President Biden, then extended that relief several times.

Biden’s most recent extension is set to end 60 days after either June 30, or whenever the Supreme Court rules on Biden’s one-time student loan forgiveness plan.

Student Loan Company Files Suit To End Student Loan Pause

SoFi, a student loan refinancing company, filed a lawsuit this week against the Biden administration, seeking to end the student loan pause. The company — which offers private student loan products to borrowers seeking to refinance existing federal or private student loans — argues that Biden’s most recent extension is unlawful and deprives them of revenue derived from its student loan refinancing products.

Claiming that Biden’s most recent extension of the student loan pause was “adopted in an arbitrary and capricious manner without following mandatory procedural requirements,” SoFi argues in its complaint that it was improper for the Biden administration to rely on the uncertainty surrounding the administration’s student loan forgiveness initiative before the Supreme Court as justification for yet another extension.

SoFi argues that the ongoing student loan pause has hurt the company’s bottom line. “The decrease in refinancing business caused by the Loan Moratorium has substantially injured SoFi,” says the complaint. “Since the Loan Moratorium went into effect in March 2020, and as a direct result of the Moratorium, SoFi has lost approximately $300 to $400 million in total revenues from its federal loan refinancing business. As a result, SoFi has lost approximately $150 to $200 million in profits during that period. Those numbers also significantly understate the Moratorium’s harmful effects, because they do not take into account the growth that SoFi’s federal student-debt refinancing business would otherwise have experienced.”

With federal student loan interest rates set at zero percent under the ongoing student loan pause, there is little reason for any federal student loan borrower covered by the pause to choose to refinance via a private lender like SoFi. Notably, refinancing a federal student loan via a private loan program would cause the borrower to be permanently locked out of any federal student loan debt relief, including any federal student loan forgiveness initiative, income-driven repayment plans, or default resolution.

SoFi is seeking a court order to end the student loan pause, or alternatively, “to require repayment by borrowers who are not eligible for student-debt cancellation.”

Biden Administration and Borrower Advocacy Groups Respond to SoFi Suit

The White House responded to the suit, maintaining that Biden’s latest extension of the student loan pause is 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 risk of serious harm,” said a White House statement.

Leading advocacy organizations for student loan borrowers had harsh words for SoFi. Criticizing SoFi’s CEO as “a financial vulture gorging himself on our bloated and broken student loan system,” Student Borrower Protection Center’s Executive Director Mike Pierce said in a statement that, “The real story here is the huge risk this poses to tens of millions of working people who SoFi would never lend to—families across the country that depend on the student loan payment pause to shield them from financial devastation.”

“The actions of student loan lenders and servicers are nothing short of an attack on America’s students, parents, and borrowers,” said Natalia Abrams, President of the Student Debt Crisis Center, in a statement. “They are using their enormous wealth to block President Biden’s debt cancellation plan and the pandemic payment pause. We condemn SoFi’s actions and call on the Biden Administration to take every necessary step to protect borrowers from these egregious legal maneuvers.”

“This ridiculous lawsuit is just a continuation of the sham lawsuits pushed by Republican states and right-wing dark-money groups opposing student debt relief,” said Braxton Brewington, spokesperson for the Debt Collective. “A predatory corporation losing revenue because the federal government continues good policy is not grounds to end that policy. SoFi claims they want to lower Americans’ interest rates, but they’re working to destroy zero percent interest to force Americans into a higher rate with them.”

Lawsuit Is Latest Effort To End Biden’s Extension Of The Student Loan Pause

SoFi’s lawsuit is just the latest effort to stop Biden’s most recent extension of the student loan pause. Last month, Congressional Republicans filed the “Stop Reckless Student Loan Actions Act” to end the student loan pause and block Biden from enacting broad student loan forgiveness.

But with the Republican bill having little chance of passing the Senate (where Democrats hold a narrow majority), SoFi’s lawsuit may pose more of a direct threat to borrowers depending on the student loan pause.

The Biden administration has relied on the HEROES Act of 2003 to extent the pause, just as the Trump administration did. The HEROES Act allows the Education Department to modify or waive federal student loan programs in response to a national emergency, like a pandemic. The Biden administration used the same statutory authority to establish the one-time student loan forgiveness initiative, which is now before the Supreme Court.

During last week’s Supreme Court hearing, the parties and justices discussed the ongoing student loan pause. While a majority of justices expressed skepticism about Biden’s student loan forgiveness plan, there seemed to be broad agreement that the HEROES Act does in fact authorize the Education Department to temporarily suspend student loan payments and interest in response to a national emergency. However, at least some justices suggested that this authority was not unlimited and needed to be sufficiently linked to the emergency to be valid.

With the Biden administration set to end the Covid emergency in May, the central justification for the student loan pause may ultimately disappear. And if SoFi gets its way, borrowers may be forced to resume student loan payments sooner than expected.