Student loans: ‘We need decisive leadership’ as end of payment pause looms, SoFi CEO says

SoFi CEO Anthony Noto joins Yahoo Finance Live to discuss the student loan crisis as the Biden administration has yet to make a decision on the federal payment pause which is set to end soon.

Video Transcript

BRIAN SOZZI: Chatter in DC is that the government will extend the freeze on student loan payments beyond May 1. Our next guest writes in a new blog post the administration continues to waffle on this issue, and $10,000 in debt should be wiped clean for student borrowers. SoFi CEO Anthony Noto joins us now.

Anthony, always great to get some time with you. Before we even get into your blog post, based on your conversations with folks down in Washington, how likely is it that we get another freeze here?

ANTHONY NOTO: You know, it continues to waffle back and forth. An announcement was supposed to be made a couple of weeks ago, according to the chief of staff of President Biden. That date came and went, and we still haven't heard. This is classic leadership by indecision. And it's exactly not what the country needs. The American people deserve better. We need decisive leadership. We need the administration to take a stand. Kicking the can down the road is not currently going to suit all the needs of the American people.

There really needs to be a three-pronged approach. And that needs to be announced before May 1. Number one is, there are people that are in distress and that would default on their loans if payments were to begin again. Those people should be given some type of relief. Otherwise, they're going to default and have to go into bankruptcy.

The second group of people that have an ability to pay, but they have a lower ability to pay today than they did two years ago when the student loan moratorium started. And we've spent $150 billion-- that's what it would be-- since March of 2020. And this isn't March of 2020 any longer. But some people have gone two years without paying their bills. And they're currently in a situation where they can't pay as much. And there needs to be put in place programs for them. And those programs already exist that it's going to be executed and communicated.

Then last, there are people that are fully capable of paying the student loans, and they should begin repayment on May 1. So it's very clear the three needs of the American people. What's not clear is what the administration is going to do to help the American people versus spending another $5 billion a month to fund unnecessarily the moratorium on federal student loan payments.

JULIE HYMAN: And Anthony, you're really echoing some of the comments that we heard from Sheila Bair as well. You guys are on the same page in terms of offering that clarity. I'm curious why you decided to speak out on this particular issue. You seem to be pretty impassioned about it and in the blog post in which you lay out your argument as well. What sort of triggered your desire to talk about this?

ANTHONY NOTO: Yeah, first, full disclosure-- SoFi is in the business of student loans. So we get impacted by this indecision. But that's not the motivation. SoFi is going to be fine either way. We had record revenue in the third quarter. We had record revenue again in the fourth quarter. We achieved over a billion dollars of revenue in all of 2021 in our first full year of profitability on an EBITDA basis, all while the federal student loan program has been on hold.

The reason why we decided to take a leadership position is someone needs to lead from the front. Someone needs to be a voice of reason to the administration and help them understand the pain and suffering that they're causing by their indecision. The American people deserve to know how to plan for the future. And it's not just the current people with student loans, but it's all those young people that are graduating from high school this year that are making college decisions right now. How are they going to fund their college education? What are the rules? What are the programs?

And so the indecision is causing people not going to be able to make vital financial decisions in their lives. And we see it every day. Rates are at still an all-time low. But they're expected to increase seven to eight times over the next two years. As those rates go up, student loan borrowers will lose the opportunity to refinance at lower rates through companies like SoFi and save tens of thousands of dollars.

Additionally, those people that have been saving for the last two years, the money that they haven't had to spend on paying back their student loans, they need to know if they can continue to spend, or they need to change their budget and start to allocate that to their payments. And so this indecision is causing strife across many different constituencies and the business community.

JULIE HYMAN: Yeah, and of course, it's adding to an already beleaguered situation, to your point just about the student loan burden that so many people have. Anthony, I'm really curious about your personal connection to this or if you have one. For example, I know you went to West Point, so not a student debt issue there. But I'm curious if this is something you experienced in your own schooling history or if you're seeing it on a personal basis with other people you know.

ANTHONY NOTO: Yeah, you know, it's interesting that you ask that question. My younger brother, Tommy, died in 2017. And it was a very traumatic experience for us as a family. And my older brother and I were going through his belongings in his apartment a couple of days after he passed away. And on his desk was a letter from MOHELA. I had never heard of MOHELA prior to coming to SoFi.

And I opened up that letter of a 47-year-old man who had been incredibly successful professionally, and he owed $44,000 in student loans, and he was 47 years old, had done well professionally, had done well personally, and he still had a student loan burden. There are many Americans that have done everything they can to achieve similar success, and they still have this economic burden. SoFi was originally started to help people refinance out of federal student loans that are at exorbitant rates and that subsidize people that don't have the right credit profile, that don't have the right income.

And those people have to carry the burden from others. SoFi helps less than that burden and helps people pay off faster at lower costs. And so I do have a personal connection to it. I never would have guessed when I came to SoFi that I would have that connection when he passed away in 2018, but I do.

And I see it happening every day in my inbox. My inbox has messages from people that are trying to figure out what to do. And we see the strife and the strain in their lives. So it does impact me personally, and I have a connection to those other people that are trying to figure it out every day, as they're trying to budget their lives and plan for the future.

And the administration also has a huge fiscal responsibility. It costs $5 billion a month that could be reallocated to the people that are in stress, be allocated to the people that have trouble paying back their loans. And instead, it's being needlessly wasted against people that can pay their bills. And it's only adding to the deficit, the deficit that currently can't even fund additional COVID relief. And so the administration is really making huge mistakes in a number of areas. They need to lead, and they need to lead decisively with real solutions, not political agendas headed into the midterm election .

BRIAN SOZZI: Anthony, I'm sorry to hear about your loss. I was not aware of that. But you know, just going back to the blog post, you mentioned affluent. You know, what criteria, in your view, characterizes as affluent, just in terms of what you would like to see in terms of debt reduction?

ANTHONY NOTO: Sure, there's an easy way for the administration to execute a program, through self-certification. For those that cannot pay, they self-certify online, and then they work with agency capabilities-- it could be servicers, it could be SoFi-- to implement a repayment plan or apply for full relief. And that's done on a financial standards basis. Because there are some people that do have high income that are in a distressed situation for a variety of different reasons.

And so what we did in March of 2020 was we allowed people to self-certify for forbearance. And 15% of our borrowers at that time applied for forbearance, and all of them were given it. Today, 99.2% of our borrowers are paying back their refinanced student loans.

So the vast majority of people are capable of repaying back their loans today and should be versus the government wasting $5 billion on them. That money could be reallocated to the people that cannot pay. And they can self-certify why they can't pay. And then they can execute against a program that the government already has in place. And if they need someone to execute it, SoFi is more than willing and able to help them execute it.

BRIAN SOZZI: And I'll say this. I encourage everybody to please check out Anthony's post over at SoFi. It's very helpful, very insightful, in really, what continues to be a developing situation here on student loans. SoFi CEO Anthony Noto, always good to see you. We'll talk to you soon.

ANTHONY NOTO: Thank you. Thank you, Brian. Thanks for having me.