SoFi lawsuit claims federal student loan pause unlawful, damaging to businesses

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SoFi student loan pause lawsuit overview: 

• Who: SoFi Bank NA has filed a lawsuit against the U.S. Department of Education and its secretary, Miguel Cardona. 
• Why: SoFi claims the Biden administration’s eight-times extended moratorium on federal student loan repayment is unlawful and cost the bank hundreds of millions of dollars in lost business. 
• Where: The lawsuit was filed in Washington, D.C., federal court. 

SoFi Bank NA has filed a lawsuit against the U.S. Department of Education in an attempt to require President Joe Biden’s administration to end its eight-times-extended moratorium on student loan repayment. 

The financial institution argues the Biden administration’s student loan repayment freeze is a violation of the law and that it has allegedly cost SoFi hundreds of millions of dollars in lost business. 

SoFi, which offers refinancing services for individuals who have student loans, claims Biden was wrong to invoke the Heroes Act when justifying extending the moratorium on student loan repayment and is in violation of the Administrative Procedure Act.

The Heroes Act was put in place to help service members that were struggling to make repayments on their federal student loans, Law360 reports. 

Congress, meanwhile, legislatively suspended payments and interest for federal student loans during the COVID-19 pandemic. However, Sofi argues, the U.S. Department of Education has since been extending the moratorium without following mandatory procedural requirements. 

SoFi Bank argues it has been ‘directly harmed’ by moratorium on federal student loan repayment

SoFi claims it has been “directly harmed” by the student loan repayment moratorium and says it has been essentially “forced to compete with loans with 0% interest rates and for which any ongoing repayment of the principal is entirely optional.” 

“Because the moratorium suspended payments and interest for federal student loans, and because privately refinanced loans are ineligible for programs and policies applicable to federal student loans, the moratorium has eliminated the primary benefits of student loan refinancing,” the SoFi lawsuit states. 

SoFi claims it was originating around $450 to $500 million in refinanced federal student loans each month prior to the moratorium, but now originates less than $100 million per month since the moratorium went into effect. 

“Every day that the eighth extension of the loan moratorium remains in place, it causes significant, irreparable harm to SoFi,” the SoFi lawsuit states. 

Biden asked the Supreme Court in November to overturn a decision by the 8th Circuit to block a program set up by the U.S. Department of Education that would provide student loan debt cancellation. 

Have you been affected by the moratorium on federal student loan repayment? Let us know in the comments.

SoFi is represented by Allon Kedem and Andrew T. Tutt of Arnold & Porter.

The SoFi student loan pause lawsuit is SoFi Bank NA, et al. v. Miguel Cardona, et al., Case No. 1:23-cv-00599, in the U.S. District Court for the District of Columbia.

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