5/29/23 Update: The new debt ceiling agreement means the student loan restart is almost certain to happen on August 30th, 2023.
On March 3, 2023, student loan refinance lender SoFi filed a lawsuit to end the federal student loan payment and interest pause. The big question for borrowers is how this might impact the payment pause restart date.
The good news is that it probably doesn’t change things.
The bad news is that litigation is, by nature, unpredictable, and a poorly worded order from a judge could cause chaos.
The SoFi Lawsuit Likely Changes Nothing
Before SoFi filed its lawsuit, repayment was set to resume 60 days after the Supreme Court ruled on Biden’s one-time forgiveness program.
Based on typical Supreme Court judgment timelines and a cutoff set by the Biden administration, September 1, 2023, looked like the most likely restart date.
There are two big reasons why the SoFi lawsuit is unlikely to impact the restart. First, litigation takes time. By the time there is a ruling in the SoFi case, the restart may have already begun. Second, SoFi may not win the lawsuit.
Like the lawsuits challenging the one-time forgiveness program, it isn’t clear that SoFi has the legal standing to bring the suit. Losing on this one issue could end the case.
SoFi’s Lawsuit Motivation
If the lawsuit isn’t an easy win for SoFi, and the restart is likely to happen before the case gets resolved, why would SoFi file suit?
It’s a question I’ve been asking myself for weeks.
The most logical answer is that SoFi wants to ensure there isn’t another repayment pause extension. The Biden administration previously declared “final” extensions but later changed course.
This lawsuit could motivate the Biden administration to end the pause as planned, or the court could force payments to resume. Either way, SoFi helps guarantee that the break doesn’t extend into 2024.
It is also possible that SoFi thinks they can quickly win the lawsuit. This outcome seems unlikely, but there is no certainty in litigation.
The Chaotic Timeline
What does the worst-case scenario look like for borrowers?
A judge may issue a preliminary injunction ordering the Department of Education to resume repayment immediately. This disaster scenario would put servicers and borrowers in an awful situation as neither is ready to resume repayment right now.
The injunction disaster is unlikely for several reasons, but it isn’t the only bad outcome for borrowers.
If the suit gets resolved in July, the judge could order payments to resume immediately. Again, it’s a mess for borrowers and servicers because neither is prepared to resume.
Sherpa Thought: I’d be genuinely surprised if either of these chaotic scenarios happened. Then again, I was surprised that SoFi filed the lawsuit, as it appears the only winner is Joe Biden.
If you are worried about yet another disappointment for borrowers, the safest approach is to prepare for the restart now. If you stay ready, you don’t have to get ready.
The Most Likely Impact of the SoFi Lawsuit
Between the one-time forgiveness case before the Supreme Court and the SoFi lawsuit, there are many unanswered questions.
Undoubtedly, it is a situation for borrowers to monitor closely. However, it seems unlikely that SoFi can cause the restart to happen earlier than planned.
Ultimately, the real impact of the SoFi lawsuit is that it helps guarantee that September 1, 2023, is the day the federal student loan payment and interest pause ends.