SoFi Technologies stock's gain persists in wake of Biden's student debt plan

Aug. 25, 2022 1:31 PM ETSoFi Technologies, Inc. (SOFI)By: Liz Kiesche, SA News Editor20 Comments

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Justin Sullivan

SoFi Technologies (NASDAQ:SOFI) stock is continuing to rise Thursday, the day after President Biden announced his student debt forgiveness plan, which provides a measure of certainty for the company that has a large chunk of business in refinancing student loans.

Its shares have increased 3.2% to ~$6.66 in Thursday afternoon trading, or 9.2% higher than its $6.10 closing price on Monday, before reports about the administration's plan.

Student loan repayments on now set to resume in January 2023 after two years on pause. "This announcement is an important step towards removing a key overhang for SOFI, as an end to the moratorium should drive a surge in private student loan refi volumes in 2023," Morgan Stanley analyst Jeffrey Adelson wrote in a note to clients.

As a result, he raised his 2023 adjusted revenue forecast for the fintech stock by 4% to $2.16B and projects 2023 EBITDA of $332M, up 18% from his prior estimate. Baked into his estimates are $6.7B of student loan refi originations, up from his earlier $4.5B estimate.

He also expects that this will be the last extension for the moratorium on student loan repayments, now that a debt forgiveness plan has been announced.

The government plan isn't all good news for SoFi (SOFI), as the loan forgiveness will shrink the company's total addressable market, said Oppenheimer analyst Dominick Gabriele. About 68% of student loan recipients could have incomes of under $120K, the analyst said. And while 34% of recipients had less than $10K of debt in Q2 2019, 7% of total borrowers accounted for ~34% of balances, he said.

With Biden's plan released, "investors have clarity, likely a positive for the stock," Gabriele wrote in a note. "Net/net loan forgiveness is negative for SOFI fundamental trajectory." Thus, he sees "choppy" action in SoFi's (SOFI) stock for the near term.

Another factor that could overhang the stock is whether the debt forgiveness plan can be implemented. "There are legal questions surrounding the President's authority to cancel student debt vis executive order," said Morgan Stanley economist Sarah A. Wolfe in a note to clients. "Such a policy might require action by Congress, which dims prospects for passage given a variety of procedural and political constraints."

The Justice Department, though, issued an opinion that the U.S. Department of Education can cancel federal student loan debt under the HEROES Act of 2003 as a response to the COVID pandemic (Added at 1:43 PM ET).

For economic implications of the plan, "forgiveness could temporarily improve subprime credit quality, but resumption of payments could add to credit deterioration risks in 2023," Wolfe said. As a result she expects negative implications for consumer asset-backed securities performance metrics.

SA contributor Christopher Hoeger expects SoFi (SOFI) stock to climb as the company will benefit as student loan repayments restart.

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