As New Research Highlights Widespread Benefits of the Payment Pause, SoFi Demands Courts Yank Back Relief, Pushing 40 Million+ Back into Repayment
March 6, 2023 | WASHINGTON, D.C. — On the same day that the Student Loan Law Initiative (SLLI) released new analysis demonstrating the effectiveness and necessity of the federal student loan payment pause, reports indicate that the failing private student lender SoFi has sued the Biden Administration to force 40 million student loan borrowers back into repayment. Student loan payments, interest charges, and debt collection have been paused for nearly three years, dating back to the first weeks of the COVID-19 pandemic. Last week, Solicitor General Prelogar told the Supreme Court that without cancellation, restarting student loan repayment will cause millions of borrowers extreme financial distress and default rates to “surge.”
“SoFi CEO Anthony Noto is a financial vulture gorging himself on our bloated and broken student loan system,” said SBPC executive director Mike Pierce. “Noto’s failing company thinks it is entitled to engorge itself by skimming the cream off of the federal student loan portfolio and—after a failed back-room lobbying blitz—is running into court because the government doesn’t agree. 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.”
Founded in 2011, SoFi was once the leader of a booming private student loan refinancing industry. SoFi’s stock has declined by more than 70% since its peak.
A copy of the lawsuit filed by SoFi against the U.S. Department of Education is available here:
https://protectborrowers.org/wp-content/uploads/2023/03/Sofi.pdf
Today’s analysis from SLLI showed that the student loan payment pause has had an even more profoundly positive effect on student loan borrowers than previously understood, and that—despite claims by politically motivated opponents of student debt relief—this action was extremely well targeted toward the most financially vulnerable borrowers. For example, SLLI researchers found that a novel index of financial distress dropped by more than 30 percent for student loan borrowers with deep subprime credit scores during the payment pause while decreasing only 13 percent for deep subprime consumers without student debt, showing that the payment pause had hugely positive effects above and beyond other pandemic relief efforts.
“Our research finds that the student loan payment pause had massive positive effects for student loan borrowers, and especially for those borrowers who already faced the greatest financial hardship,” said SLLI director and co-founder Dalié Jiménez. “Ending the pause before the government has had a chance to implement its cancellation program would threaten these still vulnerable individuals.”
New research on the benefits of the student loan payment pause from the University of California Student Loan Law Initiative is available here:
https://protectborrowers.org/wp-content/uploads/2023/03/SLLI_Payment-pause.pdf
A blog post authored by SLLI researchers Dalié Jimenez, Jonathan Glater, and Sultana Fouzia is available here:
https://protectborrowers.org/new-research-shows-federal-action-protected-student-loan-borrowers-even-more-than-previously-known-during-covid-and-whats-at-stake-as-the-supreme-court-considers-cancellation/
BACKGROUND
When the COVID-19 pandemic arrived in early 2020, policymakers in Washington responded by pausing payments on federal student loans. This move—which was extended during both the Trump and Biden Administrations—offered tens of millions of borrowers across the country badly-needed breathing room in the context of a once-in-a-generation public health catastrophe. Research has shown that the payment pause has offered substantial relief to borrowers with the lowest credit scores, helped narrow the racial wealth gap, and prevented millions of borrowers from falling behind on their loans.
The fintech company SoFi, which has a large business segment in student loan refinancing, has long opposed the payment pause. SoFi CEO Andrew Noto previously called on the Biden Administration to end the pause, saying that those “that are capable of paying need to be put back into payment. . . .” Noto has publicly admitted that his desire for the administration to end the payment pause is motivated in part by the negative effect that the payment pause has had on his company’s bottom line, saying “our student loan business got cut in more than half. It was our largest business, it was our oldest business . . . that business has been running at about 50 percent of the pre-COVID volume for the last 20 months.” Similarly, SoFi recently included a disclosure in a filing to the SEC that stated: “legislative and regulator responses to the COVID-19 pandemic have and are likely to continue to serve as a disincentive for borrowers to refinance their federal student loans through our platform, thereby reducing our student loan refinancing origination volume and negatively impacting our revenue.”
Public reports indicate that SoFi has led a lobbying blitz on Capitol Hill aimed at ginning up opposition to the payment pause for at least the past year. Less recently, SoFi has been the subject of enforcement and other legal action related to false advertising, racial discrimination, and workplace sexual harassment.
SoFi was founded in 2011 as a student loan company, pivoting in 2013 to offering student loan refinancing. SoFi’s business model has traditionally involved offering cheap refinancing loans to so-called “HENRY” borrowers—high earners who are not rich yet, such as lawyers and doctors with high salaries alongside high loan balances. Observers have noted that this means SoFi’s business model involves “skimming the cream off the top” of the federal student loan portfolio. Accordingly, most of the tens of millions of borrowers whose loans are paused are unlikely to qualify for a loan under SoFi’s model. SoFi’s CEO has voiced support for President Biden’s debt relief plan specifically on the grounds that “Most of our customers aren’t eligible for student loan debt relief forgiveness.”
When Biden announced that he intended to restart student loan payments in January 2023, he explained that the Administration’s monumental debt relief plan was a necessary first step to protect borrowers and prevent disastrous loan defaults and other financial distress, particularly in light of the ongoing economic challenges facing our nation as a result of the pandemic. Evidence indicates that natural disasters are often followed by a wave of student loan borrower defaults. With its recent action, SoFi aims to deny tens of millions of federal student loan borrowers the promise of relief and to put them at risk of default, all so that it can boost its bottom line.
Further Reading
SLLI’s research showing that the payment pause was even more helpful and even better targeted than previously understood for borrowers: New Research Underscores How Federal Action Protected Student Loan Borrowers During COVID—and What’s at Stake as the Supreme Court Considers Cancellation
SBPC’s blog Calling for an Extension to the Payment Pause as a Civil Rights Issue: The End of the Payment Pause is a Civil Rights Issue
Polling from SBPC and Data for Progress showing that a large majority of Americans support the payment pause: New Poll: Time for Action – Large Majority Backs Pause on Student Loan Payments
SBPC blog dispelling bad-faith, incorrect arguments about the inflationary effects of the payment pause: No, the Student Loan Pause is Not Driving Inflation
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About Student Borrower Protection Center
The Student Borrower Protection Center (SBPC) is a nonprofit organization focused on eliminating the burden of student debt for millions of Americans. We engage in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance racial and economic justice for all.
Learn more at protectborrowers.org or follow SBPC on Twitter @theSBPC.