Student rates

‘We need decisive leadership’ as end of payment pause looms, says SoFi CEO

SoFi CEO Anthony Noto joins Yahoo Finance Live to discuss the student loan crisis as the Biden administration has yet to make a decision on the federal payment pause that is expected to end soon.

Video transcript

BRIAN SOZZI: The chatter in DC is that the government will extend the student loan repayment freeze beyond May 1. Our next guest writes in a new blog post that the administration continues to dither on this issue, and $10,000 in debt should be cleared for student borrowers. Joining us now is SoFi CEO Anthony Noto.

Anthony, always happy to spend time with you. Before I even get into your blog post, based on your conversations with folks in Washington, how likely is it that we’ll have another freeze here?

ANTOINE NOTO: You know, it keeps coming and going. An announcement was supposed to be made a few weeks ago, according to President Biden’s chief of staff. That date has come and gone, and we still haven’t heard of it. This is classic leadership through indecision. And that’s not exactly what the country needs. The American people deserve better. We need decisive leadership. The administration needs to take a stand. Kicking the street will not currently meet all the needs of the American people.

You really need a three-pronged approach. And this must be announced before May 1st. First, there are people who are in distress and who would not repay their loans if payments were to start again. These people should get some kind of relief. Otherwise, they will default and have to go bankrupt.

The second group of people have the ability to pay, but their ability to pay is lower today than it was two years ago when the student loan moratorium began. And we’ve spent $150 billion – that’s what it would be – since March 2020. And it’s not March 2020 anymore. But some people have gone two years without paying their bills. And they are currently in a situation where they cannot pay that much. And programs need to be put in place for them. And these programs already exist which will be executed and communicated.

Finally, there are people who are fully capable of repaying student loans, and they should start repaying on May 1. So it is very clear that the three needs of the American people are clear. What is unclear is what the administration is going to do to help the American people instead of spending an extra $5 billion a month to unnecessarily fund the federal student loan repayment moratorium.

JULIE HYMAN: And Anthony, you also echo some of the comments we heard from Sheila Bair as well. You’re on the same page when it comes to providing that clarity. I’m curious to know why you decided to speak out on this particular issue. You seem to be quite passionate about this and in the blog post where you also lay out your point. What triggered your desire to talk about it?

ANTOINE NOTO: Yeah, first, full disclosure – SoFi is in the student loan business. We are therefore impacted by this indecision. But that’s not the motivation. SoFi will be fine either way. We achieved record sales in the third quarter. We again recorded record revenues in the fourth quarter. We achieved over $1 billion in revenue in 2021 in our first full year of profitability on an EBITDA basis, while suspending the federal student loan program.

The reason we decided to take a leadership position is because someone has to lead from the front. Someone needs to be a voice of reason for the administration and help her understand the pain and suffering she is causing by her indecisiveness. The American people deserve to know how to plan for the future. And it’s not just people who currently have student loans, but it’s all those young people who are graduating from high school this year who are making decisions about college right now. How will they finance their college education? What are the rules? What are the programs?

And so indecision prevents people from making vital financial decisions in their lives. And we see it every day. Rates are still at a historically low level. But they are expected to increase seven to eight times over the next two years. As these rates rise, student borrowers will lose the ability to refinance at lower rates through companies like SoFi and save tens of thousands of dollars.

Also, people who have saved over the past couple of years, the money they didn’t have to spend paying off their student loans, they need to know if they can keep spending, or if they have to change their budget and start allocating that to their payments. And so this indecision is causing conflict in many different constituencies and in the business world.

JULIE HYMAN: Yes, and of course this adds to an already beleaguered situation, your perspective on the burden of student loans that so many people have. Anthony, I’m really curious about your personal connection to this or if you have one. For example, I know you went to West Point, so not a student debt problem there. But I’m curious if it’s something you’ve experienced in your own school history or if you see it personally with other people you know.

ANTOINE NOTO: Yes, you know, it’s interesting that you ask this question. My younger brother, Tommy, passed away in 2017. And it was a very traumatic experience for us as a family. And my older brother and I were going through his stuff in his apartment days after he died. And on his desk was a letter from MOHELA. I had never heard of MOHELA before coming to SoFi.

And I opened this letter from a 47-year-old man who had been incredibly successful professionally, and he owed $44,000 in student loans, and he was 47, had done well professionally, had done well personally, and he still had a student loan burden. There are plenty of Americans who have done everything they can to achieve similar success, and they still have that economic burden. SoFi was originally started to help people refinance federal student loans that are at extortionate rates and subsidizing people who don’t have the right credit profile, who don’t have the right income.

And these people have to bear the burden of others. SoFi helps less than that burden and helps people repay faster at a lower cost. And so I have a personal connection to that. I never would have guessed when I came to SoFi that I would have this connection when he passed away in 2018, but I did.

And I see it happening every day in my inbox. My inbox contains messages from people trying to figure out what to do. And we see the conflicts and the tension in their lives. So it affects me personally, and I have a connection with these other people who try to figure it out every day, as they try to budget their lives and plan for the future.

And the administration also has a huge fiscal responsibility. It costs $5 billion a month that could be reallocated to people in difficulty, to people who are having difficulty repaying their loans. And instead, it’s needlessly wasted on people who can pay their bills. And that just adds to the deficit, the deficit that currently cannot even fund additional COVID relief. And so the administration is really making huge mistakes in a number of areas. They must lead, and they must lead decisively with real solutions, not political agendas for midterm elections.

BRIAN SOZZI: Anthony, I’m sorry to hear of your loss. I wasn’t aware of that. But you know, going back to the blog post, you mentioned wealth. You know, what criteria do you think characterizes as rich, just in terms of what you would like to see in terms of debt reduction?

ANTOINE NOTO: Of course, there is an easy way for the administration to run a program, through self-certification. For those who can’t pay, they self-certify online, and then they work with the capabilities of the agency — it might be repairers, it might be SoFi — to implement a plan refund or seek full relief. And this is done on the basis of financial standards. Because there are people with high incomes who are in dire straits for various reasons.

And so what we did in March 2020 is we allowed people to self-certify for forbearance. And 15% of our borrowers at that time requested forbearance, and all received it. Today, 99.2% of our borrowers repay their refinanced student loans.

So the vast majority of people are able to repay their loans today and should be against the government wasting $5 billion on them. This money could be reallocated to people who cannot pay. And they can certify themselves why they can’t pay. And then they can run against a program that the government already has in place. And if they need someone to run it, SoFi is more than willing and able to help them run it.

BRIAN SOZZI: And I will say this. I encourage everyone to check out Anthony’s post on SoFi. It’s very helpful, very insightful, in fact, which continues to be a developing situation here with respect to student loans. Anthony Noto, CEO of SoFi, always nice to see you. We’ll talk to you soon.

ANTOINE NOTO: Thank you. Thanks Brian. Thank you for.