Why Student Loan Forgiveness Can Take SOFI Stock to the Next Level

Credit: Michael Vi/Shutterstock

The success of the neo-bank Sofi Technologies (NASDAQ:SOFI) as a commercial enterprise will, to some extent, depend on recent government actions. In particular, the administration of President Joe Biden comes extended the moratorium on student loan repayments Again. Additionally, the administration canceled up to $20,000 in college loan debt per qualifying student. All of this may sound bearish for SOFI stocks, but there are actually reasons to buy the stock now.

I will be 100% honest with you. I found SoFi’s $95.8 million in Q2 2022 loss of net income off-putting. Also, it bothered me when Software bank (OTCMKTS:SFTBY) revealed plans for sell “all or part” of its 9% stake in SoFi Technologies.

Then, when the White House revealed another student loan repayment pause, I almost threw in the towel on SoFi. Yet a closer look at the facts and circumstances actually gives hope for a sustained rally in stocks.

SOFI stock traders should watch these numbers closely

Despite SoFi Technologies’ second-quarter profit loss, the company’s numbers weren’t all bad. As CEO Anthony Noto pointed out, the company delivered “record adjusted net revenue, which increased 50% year-over-year, and our eighth consecutive quarter of positive adjusted EBITDA, which doubled sequentially”.

However, here is where it gets tricky. SoFi Technologies knocked it out of the park with a 91% year-over-year (YOY) increase in personal loans. On the other hand, the company reported a 54% decline in student loans year-on-year.

This is unacceptable and must be remedied as soon as possible. SOFI stock traders should be watching closely for (hopefully) improving SoFi Technologies’ upcoming student loan volumes.

The end of the student loan moratorium should help SOFI

How can SoFi Technologies improve its number of student loans in the coming quarters? The company could actually get help from the government. Indeed, student borrowers will likely have to start repaying these loans in January 2023.

It is true that the Biden administration just canceled $10,000 in student debt for some borrowers and $20,000 for others. SOFI shareholders might not be particularly pleased with this.

They may also find it problematic that the White House has just signed into law the US government’s seventh repayment extension for student loans. However, there’s actually some potential good news for SoFi Technologies on this.

According to the Biden administration, this extension of the moratorium on student loan payments until December 31, 2022 is the “last time” it will be extended. If true, SoFi Technologies should soon be able to generate more revenue from student loans.

As Mizuho analyst Dan Dolev said, this development is “a bright spot for SOFI…because the ongoing expansions have weighed on sentiment and fundamentals.” Along the same lines, Jefferies analyst John Hecht said the news “removes an overhang that refinancing volumes were previously impacted by those waiting for an announcement on federal debt cancellation. “.

What you can do now

Interestingly, an extension of the student loan repayment pause could actually benefit SoFi Technologies. Still, it’s true if this is actually the final break.

SoFi Technologies really needs to increase its volume of student loans. Today, the company has the opportunity to improve in this area. With that – and assuming the government doesn’t back down on its “one last time” promise – SOFI stock could rise significantly. Thus, going long today is likely to provide strong returns over the next few quarters.

As of the date of publication, David Moadel had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.

David Moadel has delivered compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga and (of course) InvestorPlace.com. He is also the Chief Analyst and Market Researcher for Portfolio Wealth Global and hosts the popular YouTube financial channel Looking at the Markets.

Comments are closed.