WASHINGTON (AP) — A private bank is trying to force the Biden administration to end its pause on federal student loan paymentsand claims the moratorium has no legal basis and has cost the bank, known for its refinancing business, millions of dollars in profits.
In a federal lawsuit filed Friday in Washington, SoFi Bank NA asked a federal judge to overturn President Joe Biden’s recent extension of the payment freeze. Student loan disbursements were first halted at the beginning of the pandemic by President Donald Trump’s administration. The break has been extended eight times over three years.
The bank says its federal student loan refinancing business has suffered because borrowers have little incentive to refinance while payments and interest remain on hold. At a minimum, the lawsuit is asking a judge to limit the break to only borrowers who would be eligible for Biden’s cancellation plan.
Biden’s latest extension, which was announced in November and could extend as far as this summer, is illegal on “several grounds,” the lawsuit alleges.
Unlike the first seven extensions, which were intended to help borrowers struggling as a result of the pandemic, the latest was passed solely in response to legal challenges to Biden’s plan for widespread student debt forgiveness, the lawsuit said. The plan is currently being challenged in the Supreme Courtwho is expected to rule in June.
“The eighth extension does not attempt to remedy the damage from the pandemic at all, but rather to remedy the ‘uncertainty’ caused by the debt relief lawsuit,” SoFi says in the lawsuit.
SoFi argues that is not a valid reason authorized by the HEROES Act, the federal law the Biden administration has invoked to continue the pause. The bank also claims that the extension violated the Public Administration Act because the administration failed to invite public feedback.
The latest extension has cost the bank at least $6 million in lost profits, SoFi says, and could lead to a total of $30 million in losses if it continues through August.
“Essentially, SoFi is being forced to compete with 0% interest loans and for which any ongoing repayment of principal is entirely optional,” the lawsuit states.
The Department of Education defended the legality of the break, calling the lawsuit “an attempt by a multibillion-dollar company to make money while forcing 45 million borrowers back into repayment.”
“The Department will continue to fight to provide relief to borrowers, provide a smooth path to repayment, and protect borrowers from industry and special interests,” the agency said in a statement.
The lawsuit drew swift condemnation from borrower advocates, who called it a money grab at the expense of those struggling with student debt.
“The real story here is the enormous risk this poses to tens of millions of working people that SoFi would never lend to — families across the country who rely on the student loan payment break to protect them from financial devastation,” Mike said Pierce, executive. director of the Student Borrower Protection Centre. ___
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