Student Loan Repayment Accelerated by SoFi Lawsuit

The online individual finance company called Sofi first made its name by collecting money from Stanford alumni to help the university's MBA students get cheap student loans. Later, it held a mixer with fancy degrees for single borrowers. Social Finance, Get it?

But last month, with more than $ 1 billion revenue from private student loans and other offers, now the public company did some shocking work: it has done to abolish the agency's stagnation on federal student loan payments on the Education Department and forces millions of debtors Filed a lawsuit for. Those who are not customers of Sofi - teachers, soldiers, sick people who had to leave their debt quickly - had to leave.

Why a bright, shiny company is not far from its 2011 start-up days, works in such a way that looks so low?

The answer lies in a very incomplete way, we help most people - not only the future MBA - pay for higher education in the US. But this is also an object lesson in red-dryed capitalist behavior, we should expect from any benefiting institution, no matter how it prepares itself.

SOFI is present due to bizarreness in the federal student loan program. While the government takes different interest rates on the basis of loan type, there is no discrimination within those loan types. Graduate students all pay the same thing, no matter what subject they are studying, which school they go to or what they can earn later.

This fact creates an opportunity for companies such as Sofi, who want to target students from schools who produce the most earning with the best repayment history. So do not make any mistake: Sofi is a contestant from the US government who enticed the borrowers who have high balances and income to make the debt to be borne.

In its early years, Sofi introduced himself to the world as a bank anti -bank. It was effective and attractive. It was also cheerful, as one of its founders, Mike Cagney, is a former derivative banker in the Scandal-Paid Wales Wells Fargo, who ran the hedge funds as a side hustle.

Very early, as the Chief Executive, Mr. Kagney spoke of shame on the venture - romantic relations with subordinates, leaving evidence of their misdeeds on private jet manifests - and showed out themselves. His final replacement, Anthony Noto, a former Goldman Sachs managing director, acquired a bank for Sophie, who first run advertisements using the "bank don't do" tagline. Sophie.

It was worthwhile to abolish Mr. Cagney's "Kil Banks" campaign for at least two reasons. First of all, when you are a bank you can use depositors' money to take loans. It can be more beneficial than using capital from other sources.

Also, the product is sensible for a company like Sofi that wants to develop. If you do young, rich borrowers as soon as possible, they can live throughout the life of financial services.

Today, Sofi Bank can connect you to a checking account, and the company offers all types of trendy baubles such as crypto and options trading. It named its name at the football stadium where Los Angeles Rames and Chargers play. And it became public through one of the SPACs which you read a lot a few years ago.

But then Sophie ran into an epidemic problem - and a political one - that the best professor of Stanford Game Theory could not even guess.

Soon after the world closure in 2020, the law made it possible for federal student loan borrowers to stop paying without any financial penalty.

The end of the stagnation was the end date, but the Biden administration extended it several times, and it still remains unchanged. This has created a major problem for Sofi. Ultimately, if the borrowers do not have to pay any interest on their federal loans, why would they refinance for a lower rate on the loan with Sofi, which they will have to start repaying immediately?

They will probably not - and have not done. Between 2020 and 2022, the dollar value of the origin of new SOFI students loans fell 54 percent.

This was not a total disaster. SOFI also provides individual loans - says, to pay credit -card loans with single loan at low rates - and they are now dwarfed for student loans. Nevertheless, investors are not affected. Sophie's stock closure to nearly 76 percent of its all -time high in 2021 on Friday.

So he sued, all on its own. And its contestant's response to a government agency was both fully approximate and quite aggressive. The Education Department said in a statement submitted to reporters, "The lawsuit is an attempt by a multivio -dollar company to make money, while they force 45 million borrowers in repayment - at risk of financial loss."

Advocates of the borrowers found Sophie's move encouraging. Kodi Hunanian, Executive Director of Student Date Crisis Center, said, "We have private sector companies who jumped on the broken edges of American education and student debt system." "I have another symptom of profiteering to Sophie's suit. I see in the form. "

This is a white hot policy. Also consider the legal question. "When the government does something good for citizens and you cannot earn money, it should not be the basis for standing to prosecute," said Persis You, Deputy Executive Director and Managing Council of Student Boror Protection Center said. Corporations do not have the right to be profitable. "

However, companies have duty towards shareholders. And if you believe that investors come first, then Sophie's case starts to understand.

Sofi did not want to comment, citing the need to remain silent before his 1st May quarter income report. But last month, it was in a hurry to clarify that this student was in favor of President Biden's efforts to cancel $ 20,000 in loan. It also supported the initial 2020 stagnation. The company will only be fine with the immediate starting payment for those whose income is much higher to qualify for Mr. Biden's plan to cancel.

Here is what he did not say, but what the supervisors from outside: The company does not even believe for a second that the Biden administration will remove the payment ban in this summer, as he has said that he intended to do so keeps . Why will this happen, as the presidential election is getting hot?

The lawsuit may force the government to resume the repayment system, which will probably not be a terrible thing. In view of the existence of low unemployment rates and the existence of income-driven repayment schemes for those struggling, some people will be ruined by restoring the status quo of February 2020. And that status quo will make the pump prominent for more SOFI loan applications.

It can work in that way. But another question of Natalia Abrams, president and founder of the Student Date Crisis Center, was: Why would Sophie separate the potential customers by filing the case?

There are some possible answers. One possibility is that the majority - perhaps vast majority - federal student loan borrowers do not have a credit score like 773 average that sofi's current students maintain lending borrowers. In other words, none of that majority is "great" to qualify, as the company placed it in a strange commercial run during the 2016 Super Bowl.

Meanwhile, even great people may not be surprised how their potential lenders treat those who are not its customers. If you were demanding a student loan or aims to reinforce one, you would probably discover "best student loan interest rates", not "SOFI reviews." And if you asked for reviews on Google, will the news of the company's lawsuit be seen anywhere near the top of the results?

At the moment, it is not so. Sophie is relying on it - and the fact is that many people do not think that the student loan payment stagnation should have gone for this long time.

Sophie is probably right about its potential customers. So why did it suit the federal government? Because there was a little upside down and very little negative side. And because the banks repeat the words to emphasize, the banks are banks, no matter what.