SoFi Stock Falls After Student Loan Forgiveness Decision

The student-loan plan was designed to forgive up to $20,000 in debt for some borrowers. Data from the U.S. Census Bureau indicated the plan would have eliminated balances for 29% of federal student-loan borrowers.

Now, the resumption of repayments, expected this fall, will give more people reason to refinance. That would be good for SoFi because in its most recent quarter, the lender saw student-loan originations slide 47% year over year.

If the loan-forgiveness plan had passed muster with the court, some of that market for refinancing would have disappeared.

But the stock’s decline Friday suggests that investors were expecting this decision—indicating it might have already been priced into the stock—or that refinancing won’t be the boost the company expects it to be.

J.P. Morgan voiced such concerns earlier this week. On Thursday, analysts led by Reginald Smith wrote that SoFi might be too optimistic about a refinancing windfall. SoFi management values the multiyear addressable refinance opportunity at around $200 billion, while J.P. Morgan expects roughly half of that, closer to $90 billion.

When asked what the decision on student-loan forgiveness means for the stock, Smith told Barron’s on Friday “the underlying financial impact is fairly insignificant.” He said most of SoFi’s borrowers wouldn’t have qualified for forgiveness in the first place. 

He called the stock’s slide on Friday “a knee jerk reaction,” particularly from retail investors.

The stock is a little expensive, Smith said, noting that it is above his December 2023 price target of $6. “It should, over time, trade down as people refocus on fundamentals, and so it becomes less of an emotional trade,” he said. 

In a report published Friday, Wedbush analysts wrote that a ruling against the Biden plan was already reflected in the company’s valuation.

Some analysts, however, remain more optimistic.

In a Friday report, Jefferies analysts wrote that “the net impact (magnitude uncertain) should be a tailwind to refinancing volumes” at SoFi, starting in the fourth quarter of this year.

“Per management commentary, this will be primarily individuals who took advantage of the payment moratorium and are now looking to lower their monthly payments through refinancing, even at a higher interest rate,” analysts added.

Of the analysts surveyed by FactSet, 37% rate shares as Buy, 53% at Neutral, and 11% at Sell.

Write to Emily Dattilo at [email protected]