The Biden administration had planned to provide millions of borrowers with loan forgiveness of up to $20,000, aiming to cancel their student debt before they were required to resume payments. But the Supreme Court invalidated the proposed student loan forgiveness program and following a more than three-year hiatus, the resumption of federal student loan payments for millions of people begins again in October.
However, it looks like the Biden administration might have found a way to work around the decision. After the Supreme Court ruling on June 30th, the Department of Education introduced a 12-month transitional period from October 1st, 2023, to September 30th, 2024. During this time, if borrowers fail to make their monthly payments, they will not be regarded as late or reported to credit agencies, thereby removing the usual consequences of not paying off debts.
By doing so, says Wedbush analyst David Chiaverini, the Biden administration has effectively extended the moratorium on student loan payments almost until the November 2024 election. And this could spell bad news for SoFi Technologies (NASDAQ:SOFI).
“Although interest on loans will still accrue, we view this as a backdoor extension of the student loan payment moratorium, and we wouldn’t be surprised if this program was extended through the presidential election in November 2024, which could dampen and/or delay an expected increase in student loan originations for SOFI, in our view,” the analyst explained.
In any case, Chiaverini thinks the $200 billion opportunity SoFi reckons refinancing represents is somewhat smaller. SOFI’s proposed (total addressable market) of $200 billion encompasses both borrowers seeking to refinance their loans at a lower interest rate and borrowers considering extending their loan duration to reduce their monthly payments, potentially at a higher rate.
“However,” says Chiaverini, “we believe that the actual TAM could be much smaller than $200 billion owing to rising rates and competing products through the government itself.”
Chiaverini makes the case that borrowers have the option to “consolidate and/or extend” their loans directly through the government at the same interest rate, rather than going through SOFI, which may offer higher rates. Additionally, consolidating with the government would allow borrowers to “retain optionality to benefit from potential future forgiveness/relief.”
To this end, Chiaverini maintains an Underperform (i.e., Sell) rating on SOFI shares along with a $3 price target. That represents a 66% drop from the current price. (To watch Chiaverini’s track record, click here)
Chiaverini’s take is the Street’s most bearish. All told, the stock claims a Moderate Buy consensus rating, based on 7 Buys and Holds, each, plus 2 Sells. The shares are expected to stay rangebound for the foreseeable future, considering the average target stands at $8.51. (See SoFi stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
