Private lenders push to restart federal student loan repayments
SoFi, one of the largest student refinancing companies, tell investors earlier this month that the latest extension of the Biden administration’s payment freeze in December was expected to cut the company’s profits by $20 million to $25 million in the first quarter of this year.
The company is one of many private student lenders that in recent months have stepped up their fight for the Biden administration to stop — or at least limit — the unprecedented freeze on federal student loan repayments that is now entering its third. year.
The companies say the drastic payment break is an unnecessary and unfair subsidy for borrowers who don’t need it, and they warn it will make rising inflation even worse.
Several private student lenders and their lobbyists have reached out to Democratic and Republican offices on Capitol Hill to counter high-profile calls from Democrats for another extension. And they have raised concerns with the Biden administration, where a decision on the matter is again pending among senior White House officials before existing aid expires in May.
SoFi and CommonBond, another student loan refinance lender, have shopped in recent weeks around the language of the next government funding program which aims to pressure the administration to reduce relief to cover less debt. federal student loan borrowers, according to a copy of the proposal obtained by POLITICO.
“Extending the moratorium on payments and interest continues to be costly and ineffective,” the two companies wrote in the proposal, adding that pandemic relief “wastes taxpayers’ money by providing payment relief. to all borrowers, including wealthy and high-income borrowers, instead of using these funds for the most needy borrowers.
Companies are lobbying Congress to order the Department of Education to produce a report on the cost of the student loan moratorium, broken down by income level, as well as how the agency could instead reduce and targeting relief only to low-income borrowers. . It is not yet clear whether lawmakers will accept the company’s request to include the language in the next education funding package.
Private student loans to new students largely rebounded to pre-pandemic levels last year, according to MeasureOne, which tracks the industry. But that hasn’t been the case for some lenders whose business is to lure federal student loan borrowers into private refinance loans with much lower interest rates.
These companies typically target customers with relatively high credit scores, such as those who have borrowed large sums of money from the federal government to fund medical, law, or MBA programs. Pandemic relief has made federal student loans — with no obligation to repay and no interest — too attractive for many borrowers to consider transferring their federal debt to private loans.
SoFi lobbyists separately circulated a two-page document to the congressional offices headlined “Returning to normal means ending the student loan payment pause.”
This echoes some concerns Biden administration officials have expressed internally in the past. The continued extension of the federal student loan payment pause, these officials say, undermines the administration’s messages about economic recovery and efforts to get back to normal amid rollbacks from pandemic restrictions.
The SoFi document argues that it would be “pointless” to extend the payment pause again and warns that doing so would contribute to sky-high levels of inflation. The company, at earlier times in the pandemic, also challenged lawmakers on legislative language this would have required the Ministry of Education to limit the payment break only to unemployed or economically distressed borrowers.
Anthony Noto, the CEO of San Francisco-headquartered SoFi, tweeted last week to the Speaker of the House Nancy Pelosi (D-Calif.) That lawmakers should end the payment pause and use it to pay for the Covid relief package that Democrats are struggling to pass.
“.@SpeakerPelosi we know you & @POTUS are disappointed that the spending bill sacrificed pandemic relief @POTUS wanted,” he wrote. “Consider funding aid with the $35 billion it will cost if @POTUS unnecessarily extends the student loan moratorium through 22.” A spokesperson for Pelosi did not immediately comment.
In a statement, Noto said the Biden administration should “end the confusion by giving struggling and defaulting borrowers the permanent relief they need, including $10,000 in student loan forgiveness, adjusting the moratorium to people in great difficulty and putting the rich and able back in reimbursement on May 2, 2022 as planned.
Other student loan refinancing companies are also working to reduce pandemic relief for student borrowers through the American Fintech Council, a trade association. Group members include SoFi, CommonBond and other refinancing companies, such as College Ave Student Loans and Earnest, owned by Navient. He also represents small financial services companies that handle student loan repayment.
The group is led by Garry Reeder, who was chief of staff to Consumer Financial Protection Bureau Director Rich Cordray during the Obama administration. Cordray, who is now the Biden administration’s student aid chief, is overseeing the Department of Education’s plans to restart federal student loan payments.
“The American Fintech Council supports a targeted moratorium and targeted relief,” Reeder said in a statement to POLITICO. “The appropriate executive branch response from March 2020 must be tailored to maximize support for the most vulnerable and minimize the subsidy for high-income borrowers.”
College Ave Student Loans and CommonBond did not respond to requests for comment. Matthew Ford, a spokesperson for Navient, declined to comment.
The latest push by private student loan companies to end the payment pause comes as top Democrats urge the White House to extend relief until at least the end of the year — beyond the election mid-term this fall.
Mike Pierce, the executive director of the Student Borrower Protection Center, which has been one of the progressive groups rallying the Biden administration to extend the hiatus, blasted lobbying by private student lenders.
“Since his first day in office, Joe Biden has broken with the endemic corruption that was a hallmark of the Trump-DeVos era,” Pierce said. “If President Biden and Vice President Harris give in to this shameless lobbying campaign by corporations that got rich from the student debt crisis, they will shatter that legacy and betray the tens of millions of people who nominated them for offer debt relief no longer dual – Trafficking and Abuse.
Republican opposition to the Biden administration’s aid extensions, meanwhile, is growing. Conservatives say the relief package is too expensive and amounts to backdoor debt cancellation without congressional approval. Top GOP Members of Education Oversight Committees – Rep. Virginia Foxx (RN.C.) and Sen. Richard Burer (RN.C.) — have Biden urged resume collection of student loan repayments. The same goes for major conservative groups, such as Americans for Tax Reform, Heritage Action and Americans for Prosperity.
The Department of Education estimates that borrowers collectively save about $5 billion in interest that doesn’t accrue each month. Ministry officials have estimated that the cost of pandemic relief over the past two years has exceeded $100 billion.
White House Chief of Staff Ron Klain said earlier this month that the Biden administration was debating extending the relief, which officials have increasingly touted as a major achievement. The Department for Education has sent signs that such an extension is on the horizon, after ordering its student loan managers to suspend sending notices about payments from May.
Sen. Patty Murray (D-Wash.) and Rep. Bobby Scott (D-Va.), Chairmen of Congressional Committees Overseeing Education, This Week demand the White House to extend relief, saying borrowers needed more time to recover from the economic fallout from the pandemic.
This week, the Congressional Progressive Caucus included canceling student debt on its wish list of executive actions it wants Biden to take in the coming year.
On Friday, a White House spokesperson did not say whether the payment break would be extended. The Biden administration has “provided some breathing room for borrowers still coping with the pandemic, even as our country experiences one of the strongest economic recoveries in history,” the spokesperson said in a statement. communicated. “The Department of Education will continue to work to ensure a smooth transition to repayment, and the administration continues to review what debt relief steps can be taken administratively.”