Private student lenders are vigorously lobbying to get the Biden administration to restart federal student loan payments as the pandemic-related moratorium continues to hurt their bottom line.
The emergency relief has suspended monthly payments and interest for roughly 40 million federal loan borrowers for the past two years, but it has also sapped demand for some private student loan products and cut into profits. The jockeying comes as President Joe Biden weighs whether to extend the moratorium past May 1.
SoFi, one of the largest student refinance companies, told investors earlier this month that the Biden administration’s last extension of the payment freeze in December was expected to reduce the company’s profits by $20 million to $25 million in the first quarter of this year.
The company is one of several private student lenders that, in recent months, have stepped up their fight to get the Biden administration to stop — or at least curtail — the unprecedented freeze on federal student loan payments that’s now entering its third year.
The companies argue that the sweeping payment pause is a wasteful and unfair subsidy to borrowers who don’t need it, and they’re warning it will further exacerbate rising inflation.
Several private student lenders and their lobbyists have reached out to Democratic and Republican offices on Capitol Hill to counter the high-profile calls from Democrats asking for another extension. And they’ve voiced concerns to the Biden administration, where a decision on the issue is once again pending among senior aides at the White House ahead of the May expiration of the existing relief.
SoFi and CommonBond, another student loan refinance lender, in recent weeks have shopped around language for the next government funding package that’s aimed at pressuring the administration into narrowing the relief to cover fewer federal student loan borrowers, according to a copy of the proposal obtained by POLITICO.
“Extending the payment and interest moratorium continues to be costly and inefficient,” the two companies wrote in the proposal, adding that the pandemic relief is “wasting taxpayer funds by providing payment relief to all borrowers, including wealthy, high-earning borrowers, instead of using those funds for the neediest borrowers.”
The companies are lobbying Congress to direct the Education Department to produce a report on the cost of the student loan moratorium, broken down by income level, as well as modeling on how the agency could instead scale back and target relief only to low-income borrowers. It’s not clear yet if any lawmakers will take the company up on the request to attach the language to the next education funding package.
Private student lending to new students last year largely rebounded to pre-pandemic levels, according to MeasureOne, which tracks the industry. But that hasn’t been the case for some lenders whose business is focused on attracting federal student loan borrowers to private refinance loans with much lower interest rates.
Those companies typically target customers with relatively high credit scores, such as those who borrowed large sums of money from the federal government to finance medical school, law school or MBA programs. The pandemic relief has made federal student loans — with no repayment obligation and zero-percent interest — too attractive for many borrowers to consider shifting their federal debt into private loans.
Lobbyists for SoFi have separately circulated a two-page document to congressional offices titled, “Back to Normal Means Ending the Student Loan Payment Pause.”
That echoes some concerns that Biden administration officials have expressed internally in the past. Continuously extending the federal student loan payment pause, those officials have argued, undercuts the administration’s messaging about the economic recovery and efforts to return to normal amid rollbacks of pandemic restrictions.
The SoFi document argues that it would be “unnecessary” to again extend the payment pause and warns that it would contribute to sky-high levels of inflation. The company, at previous points throughout the pandemic, has also pitched lawmakers on legislative language that would have forced the Education Department to restrict the payment pause only to borrowers who were unemployed or otherwise economically distressed.
Anthony Noto, the CEO of SoFi, which is headquartered in San Francisco, last week tweeted at House Speaker 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 the pandemic relief @POTUS wanted,” he wrote. “Consider funding the aid with the $35 billion it will cost if @POTUS needlessly extends the student loan moratorium thru ‘22.” A Pelosi spokesperson did not immediately have a comment.
In a statement, Noto said the Biden administration should “end the confusion by giving distressed and defaulted borrowers the permanent relief they need, including $10,000 in student loan forgiveness, tailoring the moratorium for those in severe hardship, and putting the affluent and capable back into repayment on May 2, 2022 as planned.”
Other student loan refinance companies are also pushing to scale back pandemic relief for student loan borrowers through the American Fintech Council, a trade association. The group’s members include SoFi, CommonBond and other refinancing companies, such as College Ave Student Loans and Navient-owned Earnest. It also represents smaller financial services companies that manage 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 Education Department’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 Executive Branch’s appropriate response from March 2020 needs to be tailored to maximize the 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 Navient spokesperson, declined to comment.
The latest push by private student loan companies to end the payment pause comes as top Democrats are urging the White House to extend the relief until at least the end of the year — beyond the midterm elections 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 pause, blasted the lobbying by private student lenders.
“Since his first day in office, Joe Biden has made a clean break with the endemic corruption that was a hallmark of the Trump-DeVos era,” Pierce said. “If President Biden and Vice President Harris cave to this shameless lobbying campaign by companies who got rich off of the student debt crisis, they will shatter this legacy and betray tens of millions of people who put them in office to deliver debt relief not more double-dealing and abuse.”
Republican opposition to the Biden administration’s extensions of the relief, meanwhile, is growing. Conservatives say the relief program costs too much and amounts to backdoor debt cancellation without congressional approval. The top GOP members of the committees overseeing education — Rep. Virginia Foxx (R-N.C.) and Sen. Richard Burr (R-N.C.) — have urged Biden to resume collecting student loan payments. So, too, have major conservative groups, such as Americans for Tax Reform, Heritage Action, and Americans for Prosperity.
The Education Department estimates that borrowers collectively are saving about $5 billion of interest that doesn’t accrue each month. Department officials have estimated that the cost of the 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 accomplishment. The Education Department has sent signs that such an extension is on the horizon, having ordered its student loan servicers to hold off on sending notices about payments starting in May.
Sen. Patty Murray (D-Wash.) and Rep. Bobby Scott (D-Va.), the chairs of the congressional committees overseeing education, this week asked the White House to extend the relief, saying borrowers needed more time to recover from the economic fallout of the pandemic.
The Congressional Progressive Caucus this week included student debt cancellation as part of its wish list of executive actions that it wants Biden to take in the coming year.
A White House spokesperson on Friday did not have any update on whether the payment pause would be extended. The Biden administration has “given some breathing room to borrowers who are still coping with the pandemic, even as our country sees one of the strongest economic recoveries in history,” the spokesperson said in a statement. “The Education Department will continue working to ensure a smooth transition to repayment, and the Administration continues to look into what debt relief actions can be taken administratively.”