The financial technology company is suing the government and lobbying lawmakers to force its customers to resume making student-debt payments.
In 2018, a group of recent student loan borrowers gathered on a rooftop at a swanky hotel in Williamsburg, Brooklyn, to celebrate paying off their debt.
And indeed, in the years since Santos paid off his student loans, he’s opened up savings and investing accounts with the company, he said recently. But now, he’s thinking of moving his money after the company filed a lawsuit to stop the COVID-era pause on student loan payments, interest and collections.
But the company’s suit against the government has some customers and experts questioning the authenticity of SoFi’s message that it prioritizes its members in a way other financial institutions don’t. SoFi is asking the courts to end the COVID-era pause on student loan payments, collections and interest.
Wealthy high-earning borrowers are exactly the demographic SoFi covets. The company isn’t shy about noting that it caters to HENRYS — people who are high earners, not yet rich. Its student-loan refinance product is based on the idea that because these borrowers are generally a good credit risk, SoFi can provide them with a lower rate than the federal government, which provides the same interest rate to borrowers regardless of their ability to repay the debt.
But filing the lawsuit could have long-term consequences that outweigh the benefits of a resumption to the student loan refinance business, said Paul Argenti, professor of corporate communication at the Tuck School of Business at Dartmouth.“‘To me it seems pretty inconsistent to file a lawsuit that goes against student loan borrowers’”
Though it’s difficult to measure a reputation’s value, it can impact a company’s bottom line. Research indicates a good reputation can help a company convince consumers to spend more on products, recruit better talent and can even have a meaningful impact on a firm’s market value. “I get that it impacts them and their profitability,” Santos said of the payment pause. “At the same time I felt like at first their priority was helping students and helping them tackle their financial debt and financial wellness overall. To me this doesn’t seem like it.”
In the months since Morse signed on, he’s received notifications “probably a few times a week” from the company advertising their student-loan-refinance product. Morse has about $300,000 in student loans from college and medical school. “The culture of a company is important too and what they stand for,” Morse said. “When it’s as simple as pulling your money out and putting it somewhere else, you’ve got to vote with your dollars.”
Of course, part of the reason the student loan refinance business accounted for a smaller share of revenue in 2022 is because of the payment pause, Simuni said. But after an initial spike once the government eventually lifts the freeze, he estimates the student-loan-refinance business will grow at about 5% to 10% a year, much slower than in the past, and less than the 30% overall annual revenue growth analysts expect from the company.
President Biden’s student debt relief plan has been legally challenged and is awaiting a ruling from the Supreme Court. If the Supreme Court allows the debt cancellation plan to stand it would be a win for SoFi, because implementing the initiative would clear the way for payments to resume, Simuni said.
SoFi may face similar obstacles to those challenging the debt relief plan in convincing courts to reach a conclusion in the company’s favor. For a court to rule whether the extension of the payment pause is legal, they’ll first have to decide if SoFi has standing or the right to sue under the law.
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