WASHINGTON (AP) — A private bank is trying to force the Biden administration to end its moratorium on federal student loan paymentsarguing that the moratorium had no legal basis and had cost the bank, which is known for refinancing its business, millions of dollars in profits.
In a federal lawsuit filed Friday in Washington, SoFi Bank NA asked a federal judge to reverse President Joe Biden’s latest extension of a payment stay. President Donald Trump’s administration first halted student loan payments at the start of the pandemic. The hiatus was extended eight times over a period of 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 pending.. At a minimum, the lawsuit asks the judge to limit the pause only to borrowers eligible for Biden’s cancellation plan.
The suit alleges that Biden’s latest extension, which was announced in November and could extend through this summer, is illegal for “multiple reasons.”
Unlike the first seven extensions, which were intended to help borrowers struggling with the pandemic, the latest extension was enacted solely in response to legal challenges to Biden’s plan for large-scale student debt forgiveness, the suit says. The plan is currently being challenged in the Supreme Courtwho is expected to rule by June.
“The Eighth Extension does not even attempt to repair the damage caused by the pandemic at all, but rather mitigate the ‘uncertainty’ created by the debt cancellation lawsuit,” SoFi says in the lawsuit.
SoFi argues that this is not a valid reason allowed by the HEROES Act, the federal law that the Biden administration has invoked to continue the downtime. The bank also argues that the extension violated the Administrative Procedure Code because the administration failed to invite public comments.
SoFi says the latest extension cost the bank at least $6 million in lost profits, and could result in total losses of $30 million if it continues through August.
“In essence, SoFi is forced to compete with 0% interest rate loans, and any continued repayment of the principal amount is completely optional,” the suit says.
The Department of Education defended the legality of the halt, describing the lawsuit as “an attempt by a multibillion-dollar corporation to make money while they force 45 million borrowers to pay.”
“The ministry will continue to strive 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 suit drew swift condemnation from the borrower’s 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 will never lend to — families across the country who depend on student loan defaults to protect them from financial ruin,” said Mike Pearce, executive director of the Student Borrower Protection Center. ___
The Associated Press education team receives support from the Carnegie Corporation of New York. AP is solely responsible for all content.
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