What happened
Shares of the one-stop shop financial services company SoFi Technologies (NASDAQ: SOFI) fell by roughly 4.7% Tuesday after President Joe Biden said he would extend the student loan repayment moratorium again.
So what
At the onset of the COVID-19 pandemic in March 2020, the federal government paused payments on federal student loans to help ease the hardship the crisis was putting on Americans. Now, close to three years later, that moratorium is still in place.
It was supposed to expire at the end of this year in tandem with the rollout of Biden’s plan to forgive up to $20,000 of federal student loan debt apiece to tens of millions of borrowers. However, that plan has not been able to move forward because Republican governors in six states sued to block the debt-relief program, and several federal courts have ruled that it can’t take effect until those cases play out.
The Biden administration asked the Supreme Court to rule on those cases, and said it was extending the pause on federal student loan payments until 60 days after the debt-forgiveness program goes live, 60 days after the court challenges against it are resolved, or 60 days after June 30, whichever comes first.
However, CNN, citing anonymous sources, reported that the moratorium could potentially end sooner if the Supreme Court makes a ruling sooner.
The extension is a tough blow for SoFi, which is in the business of student loan refinancing. Student loan refinancing has been way down since the moratorium went into effect because few borrowers have either the need or the desire to refinance debt they aren’t making payments on. In addition, many borrowers have been waiting for clarity from Biden about whether they’d be eligible for some debt forgiveness before refinancing.
SoFi originated more than $2 billion of student loans in the first quarter of 2020. In the third quarter of this year, it only originated about $457 million of student loans, and there have only been two quarters since Q1 2020 when student loan originations have surpassed $1 billion.
Now what
The extension of the moratorium is exactly what SoFi shareholders didn’t want because it removes the clarity that would have helped borrowers decide whether or not they should refinance.
SoFi could see its full-year outlook impacted, but Biden’s move will likely result in lower revenue and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) for the lender than analysts had been projecting for 2023.
And given that federal borrowers won’t have to make any payments until 60 days after the moratorium ends, the resumption of payments could in actuality be delayed through August, depending on when the Supreme Court rules.
Coupled with the news Monday that members of the Senate Banking Committee were urging regulators to investigate SoFi’s crypto activities, I definitely think this stock could be in for a tough time in the near term. I’d rate it as a hold for now.
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