- Student-loan lender SoFi filed a lawsuit to end the student-loan payment pause.
- But with the pause set to expire this summer, an expert said the lawsuit might not even matter.
Student-loan borrowers hoping for Biden's debt relief have been hit from all sides in the past few months.
Late last month, the Supreme Court heard oral arguments in the two conservative-backed lawsuits that blocked President Joe Biden's plan to cancel up to $20,000 in student debt for borrowers making under $125,000 a year. Since November, the implementation of that debt relief has been paused due to those lawsuits. Now, borrowers have a few months of limbo until the Court issues a final decision on the legality of Biden's plan by June.
Just when borrowers might have thought those were the only lawsuits they had to deal with, a student-loan lender stepped in. Last week, SoFi Bank — a student-loan refinancing company — filed a lawsuit against the Education Department. It's asking the court to end Biden's latest extension of the student-loan payment pause, and at the very least, return borrowers ineligible for Biden's broad debt relief back into repayment.
After his relief's implementation was put on hold, Biden extended the student-loan payment pause. It's currently set to end 60 days after June 30, or 60 days after the lawsuits are resolved, whichever happens first, and the intent was to ensure that borrowers did not have to start paying off their debt without a decision on relief. SoFi wrote in its complaint that Biden did not follow proper procedure with his latest extension of the payment pause, and they also cited revenue loss to their refinancing business.
Dalié Jiménez, a law professor at University of California Irvine and director of the Student Loan Law Initiative, told Insider she was "surprised" with the timing of the lawsuit, and how it might not even make it through the courts before payments are scheduled to resume anyway.
"I'm more surprised about the timing than anything. I'm not surprised that they're making this argument," Jiménez said. "They might not win because it might not matter since the pause would just be over. In a normal moving lawsuit situation, that's probably what would happen."
"I think the most likely outcome is that it doesn't get fast-tracked, and the court just waits to see what happens," she added.
Given the scope of Biden's broad debt relief, the Supreme Court fast-tracked the case to allow a decision to be issued this year. It's unclear if SoFi's case will get the same treatment — the Education Department has 21 days to file a response — but Jiménez thinks that given how close the expected payment resumption is, the court could likely just wait it out.
"All of these lawsuits make people very confused," Jiménez said. "But for borrowers, what I'd say is at this point, nothing is changing. I don't think a court would be like, as of tomorrow, you have to start billing because we can't just do that. It takes a while for that to happen. So basically, I wouldn't worry very much."
SoFi's case would likely complicate an additional payment pause extension
SoFi's complaint targeted the latest extension of the student-loan payment pause and didn't explicitly mention a potential further extension. But the bank noted that it takes issue with the terms of the latest extension, which didn't focus on the pandemic, but rather, the ongoing lawsuits.
"Unlike the other extensions, the Department did not claim that continuing the moratorium was necessary to address harm caused to borrowers affected by the pandemic," the complaint said. "Instead, the Department asserted that the further extension was intended to alleviate 'uncertainty' for borrowers during the pendency of ongoing litigation regarding the debt-cancellation program. Yet the extension applies to all federal borrowers, whether or not they qualify for debt cancellation."
That could complicate matters going forward. The Education Department has said it is preparing for payments to resume this year, even asking for additional funding in Biden's budget to facilitate a smooth transition back into repayment. But SoFi's lawsuit could likely restrain any additional relief the department might look to implement if the Supreme Court strikes down Biden's broad loan forgiveness plan.
"This does make it a little harder for the administration to extend the pause," Jiménez said. While the lawsuits blocking student-debt relief made a similar argument to SoFi, in that Biden cannot keep using the pandemic to implement continued relief, the administration has said the pandemic's effects are long lasting and warrant relief beyond a national emergency.
Still, even as Democratic lawmakers have expressed their support for a continued payment pause until borrowers get relief, Republican lawmakers are not on board — some have introduced legislation to block another payment pause extension. So even if SoFi's lawsuit doesn't go anywhere, it could place constraints on additional relief going forward, but it might not accomplish what it's seeking before the payment pause expires.
"There's so many different steps in between," Jiménez said. "It's not really practicable, what they're asking."