It was March 13, 2020, when the federal government first paused student loan payments. We’re currently on the eighth extension of that pause, meaning that borrowers with federal student debt have had no payments due and no interest accrued in almost three years.

Now, the private sector is saying, “Enough already.” The lender SoFi, which competes with the federal government to hold those debts, has sued the Department of Education, saying the latest extension was illegal.

To understand what’s happening with student debt, let’s think of lenders as brands of soda. 

“Well, it is sort of like the Coke and Pepsi wars, right?” said Jonathan Fansmith, who works in government relations at the American Council on Education. “But then Coke decides midway through the wars, ‘We’re not going to charge anyone.’ Which brand are you going to buy, right?”

And in this case, one brand has a lot more market share. The federal government holds 93% of the $1.7 trillion in outstanding student debt.

Borrowers usually seek out private lenders only if they need more money than the government will lend them or they can get a better interest rate. 

“Well, in the federal loan program, since the payment pause started, interest rates are effectively zero,” said Jason Delisle with the Urban Institute. 

In its lawsuit, private lender SoFi says it can’t compete with that — “that their business model is mostly ruined, as long as that is in place,” Delisle added.

SoFi also says the Joe Biden administration overreached in its latest extension. 

The losses companies suffer will get passed on to their customers, argued Scott Buchanan, who leads the Student Loan Servicing Alliance, a trade association of which SoFi is an affiliate member.  

“You know, if those loan costs are higher because of a mix of things, including higher interest rates, but also, you know, lost revenue, those indirectly always sort of arrive back at the consumer,” Buchanan said.

But an abrupt end to the moratorium would have costs as well, per Jonathan Fansmith of the American Council on Education.

“Rushing borrowers back before they’re ready and before the Department of Education is ready is going to cause a lot of chaos and harm to borrowers,” he said.

The Department of Education said in a statement that “the payment pause is legal … and this lawsuit is an attempt by a multi-billion dollar company to make money while they force 45 million borrowers back into repayment.”