SoFi Sues to End Student Loan Payment Pause

SoFi, the private student loan refinancing company, sued the Biden administration in March 2023 in federal court of the District of Columbia to end the student loan pause on payments and interest.

We’ll cover why they might have made this decision, what their argument is, and what it could mean for your student loan payments.

Why does SoFi argue they have the right to sue?

According to SoFi, the company originated half a billion dollars of student loan refinancing per month before the pandemic. Currently, they originate a tiny fraction of that amount.

It’s plain that SoFi has lost a huge amount of revenue from the student loan pause. However, that does not in and of itself provide standing to sue, due to the broad language in the HEROES act, which gives the Secretary of Education the power to “waive or modify” statutes in the event of a national emergency.

SoFi argues that President Biden himself has stated, “the pandemic is over.” The prior eight extensions of the student loan pause specifically mentioned COVID, but the eighth extension did not mention the pandemic much at all.

Specifically, the latest extension was made in response to lawsuits against the President’s student loan cancellation plan. The eighth extension was meant to provide relief from “uncertainty” for borrowers who might have all or some of their student loans canceled.

SoFi’s argument is that they are losing millions of dollars a month from the continuation of the student loan pause and that the eighth extension is specifically illegal because it’s the first extension that does not specifically cite the pandemic, which they argue is required under the HEROES Act.

What does SoFi want as a resolution?

SoFi requests that, “at a minimum,” borrowers who will not benefit from the student loan cancellation plan be forced to restart their payments and interest. However, the lawsuit requests that all borrowers restart payments and resume paying interest.

President Biden directed the Department to simply continue the pause for everyone because, operationally, the Federal Student Aid Office (FSA) is in disarray. After being flat-funded by Congress in the latest annual budget, FSA simply does not have adequate resources to ensure a smooth restart to repayment.

Asking FSA to restart payments for only some borrowers would have potentially embarrassed the administration, so it was simpler just to continue the pause for everyone.

Why did SoFi wait so long to sue to end the pause?

The student loan pause is incredibly popular. SoFi wants consumers to bank with them, invest with them, and take out personal loans for renovations, starting a family and more.

There is significant brand risk in bringing a lawsuit like this against such a wildly popular program among student loan borrowers, SoFi’s core audience.

To make such a decision, the company would have needed to believe that the pros of bringing the lawsuit outweighed the cons.

Why the Biden Administration was likely going to continue the pause

One reason SoFi likely decided to act is the likelihood that the White House was going to continue the payment pause if they lost at the Supreme Court.

The Solicitor General, in oral arguments, said one reason servicers might have decided not to sue is that ending the student loan pause is connected to student loan cancellation being allowed to continue.

The administration could continue trying to cancel debt via the Higher Education Act. If allowed, they likely would have continued the pause well into 2024 to process cancellation via this Act.

Of course, such a move would have almost certainly drawn Republican lawsuits. Still, the Biden administration could have at least provided more relief to borrowers by continuing the pause while the lawsuits were litigated. This is a similar strategy the Biden White House used for the eviction moratorium.

SoFi did not want to wait until 2024 for a decision

SoFi likely looked at the Supreme Court calendar and knew time was running out. The current Supreme Court term ends in June 2023. If SoFi simply waited for the Court to release their opinion in Biden v. Nebraska, any legal challenge would have needed to wait probably until early to mid-2024. At that point, in the middle of another presidential election season, it could have been extended again.

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What the SoFi lawsuit means for student loan borrowers

Legal challenges take time to wind through the courts. The current student loan pause is slated to end, “60 days after the Supreme Court decision, or after the administration can proceed with its cancellation plan, whichever comes first.”

That probably meant an end to the payment pause in August or September 2023, unless the administration extended it further.

What could happen with this lawsuit is that the pause could end at around the same time as when the national emergency ends, May 11, 2023.

That’s not certain, and payments would likely not be due until the end of May or June in this case, but it throws a major wrench into borrower plans for having more time to face student loan debt.

The most serious challenge yet to the student loan pause

The SoFi lawsuit is the most serious legal challenge yet to the student loan payment pause.

In contrast to the poor performance by the legal counsel of the plaintiffs in Biden v. Nebraska, SoFi’s lawyer, Allon Kedem, is a former clerk for Justice Elena Kagan and Anthony Kennedy, who specializes in trying cases before appellate courts and the Supreme Court. He was also Assistant to the Solicitor General and a recipient of the Soros Foundation Fellowship for New Americans.

It's notable that this suit is coming from industry and not from GOP-leaning plaintiffs.

SoFi's legal team might have filed the lawsuit in DC federal district court because a ruling in their favor in DC court would automatically apply to the whole country, while a ruling in a different court might only apply in that jurisdiction.

SoFi asserting its interests in this case could also portend challenges to other administration actions on student loans, such as the New REPAYE plan. However, this point is merely speculative at this time. A challenge to New REPAYE would be substantially more difficult, due to the plan proceeding through the normal negotiated rule making process.

The Path Forward for the SoFi Lawsuit

The case has been assigned to Judge Tanya S. Chutkan, appointed by President Obama.

The government has an incentive to slow walk this case as much as possible, in the hopes that they might be able to run out the clock, so that the case gets appealed after the current Supreme Court term.

That could allow for a further extension of the pause in between that time, or if the President allows the pause to expire, it would prevent any judicial precedents on limitation of executive authority on pausing student loans.

It seems as if the government has somewhere between 20-60 days to respond to the suit, so we might next expect movement on the case in April to May.

When and if it makes it to the Supreme Court, the lawsuit seems tailor-made for a conservative majority with its mention of the “major questions doctrine,” and SoFi seems to clearly have standing in contrast to the questions surrounding whether or not MOHELA has standing in the cancellation case.

Regardless of the outcome at the federal district court of DC, it’s likely going to get appealed all the way to the Supreme Court, regardless.

Borrowers should be prepared to resume payments sooner than anticipated, while knowing that the most likely outcome is still for an on time expiration of the student loan pause, as currently outlined by the Biden administration.

Disclosure: SoFi has been an advertiser on Student Loan Planner for several years, along with other companies providing industry-leading cashback refinancing bonuses.