When will student loan payments resume? A new lawsuit aims to lift the payment pause
Another lawsuit was filed Thursday aiming to force an end to a pause on payments for student loan borrowers that has stretched over three years.
The lawsuit, filed in federal district court in Michigan, was brought by the New Civil Liberties Alliance on behalf of the Mackinac Center, a free market think tank.
Federal student loan payments have been paused for roughly 43.5 million borrowers since March 2020, at the onset of the COVID-19 pandemic. The Education Department under presidents Donald Trump and Joe Biden have extended the pause multiple times.
Get ready: Student loan payments are set to restart in 2023.
What does the lawsuit say?
The suit challenges the legality of the department's decision to continue extending the pause without approval from Congress. According to the complaint, the moratorium, during which borrowers have not accrued interest, has cost taxpayers more than $150 billion.
"We know that only Congress may suspend student-loan repayment obligations and cancel interest accrued because it took an act of Congress to provide such debt relief at the outset of the pandemic," said Sheng Li, litigation counsel for the NCLA, in a statement.
Specifically, the NCLA argues that the loan repayment pause hurts nonprofits and other public-service organizations that benefit from the federal Public Service Loan Forgiveness program. The program relieves the loans of individuals who work in eligible public service jobs for at least 10 years. But according to the NCLA, the "suspending of repayment obligations is an unlawful form of debt relief that substantially reduces the incentives PSLF provides."
The plaintiff in this case is a nonprofit that relies on PSLF and is hurt by the pause, the suit alleges.
"When the Department of Education administratively undercuts Congress’s enacted program –either with permanent debt forgiveness or by extending deferments – PSLF employers have standing to sue to stop it," said Mark Chenoweth, NCLA's president and general counsel, in a statement.
But borrowers in public service jobs have still been accumulating credit toward forgiveness during the pause.
"The payment pause is legal, as is our plan to provide one-time debt relief to tens of millions of borrowers most at risk of delinquency and default when they return to repayment," an Education Department spokesperson said in response to the lawsuit. This lawsuit is an attempt by partisan special interest groups to put millions of borrowers at serious risk of financial harm. The Department will continue to fight to deliver relief to borrowers, provide a smooth path to repayment, and protect borrowers from industry and special interests”
Another lawsuit also targets payment pause
Last month, SoFi, a loan refinancing company, also sued the Biden administration over the long running pause.
In its lawsuit, SoFi argues the Education Department's intent with the latest extension wasn't to help borrowers affected by the pandemic but rather to "alleviate uncertainty" amid ongoing litigation. The company alleges that it, as the "premiere lender in the student loan refinance space," has been hurt financially by the moratorium.
“In essence, SoFi is being forced to compete with loans with 0% interest rates and for which any ongoing repayment of the principal is entirely optional," the lawsuit says.
Democrats and other supporters of debt forgiveness were quick to denounce the suit as corporate greed.
“SoFi’s lawsuit against ED is a dangerous and cynical ploy to prevent millions of borrowers from obtaining relief," wrote Sen. Elizabeth Warren and U.S. Rep Ayanna Pressley in a letter Wednesday to the CEO of SoFi. "It not only contradicts its stated values, but threatens your own customers and millions of other Americans."
Student loan payments are expected to resume this year, sometime after the Supreme Court rules on a broad Biden administration plan to forgive up to $20,000 in student loan debt for some borrowers.
More: Lawsuit filed to end student loan payment pause
Contact Alia Wong at (202) 507-2256 or awong@usatoday.com. Follow her on Twitter at @aliaemily.
This article originally appeared on USA TODAY: Federal student loan payment pause is the target of a new lawsuit
