WARNING: Market Shock Imminent

Join us on September 29 at 4 p.m. ET at the Market Shock 2022 event to find out what’s coming and how to profit.

Thu, September 29 at 4:00PM ET

When Do Student Loans Resume? What Does That Mean for SOFI Stock?

  • Investors are scratching their heads over SoFi (SOFI) lately after President Joe Biden's newest proposed student loan forgiveness regulation.
  • The legislation would expand eligibility for student loan forgiveness and sets the stage for the long-touted $10,000 universal loan cancellation.
  • SoFi has been touch and go since the loan pause first began in 2020.
  • Ahead of the return of loan payments some believe the company is positioned to benefit -- should the moratorium truly end.
When do student loans resume - When Do Student Loans Resume? What Does That Mean for SOFI Stock?

Source: rafapress / Shutterstock.com

Fans of SoFi (NASDAQ:SOFI) stock have cause to rejoice ahead of the return of student loan payments. The loan lender has long suffered as a consequence of the federal student loan moratorium. So, when do student loans resume?

As of today, federal student loan payments technically restart on Sept. 1, 2022. With that said, President Joe Biden’s administration recently released a series of potential refinancing, repayment and student loan forgiveness proposals that may assist students not yet ready to resume payments.

On Wednesday, Biden’s education department proposed $85 billion in student loan cancellations. This includes $46 billion in the cancellation of outstanding loans and $39 billion for future loan cancellations over the next 10 years.

The regulation expands the grounds for discharged loans on the basis of borrower defense to repayment. That is, it would allow students to have their loans cancelled if their college or university “engaged in substantial misrepresentations or substantial omissions of fact, breached a loan contract, engaged in aggressive academic recruitment, or was subject to a judgment based on Federal or State law in a court or administrative tribunal.”

The proposed changes also stipulate generous modifications to policies related to interest capitalization, borrowers with disabilities and borrowers who work in public service.

The news comes as an abrupt change of pace for SOFI stock holders, who have long expected the resumption of loan payments to enhance the personal finance company’s bottom line.

When Do Student Loans Resume? What Does That Mean for SOFI Stock?

Many have maintained that the continued extensions to the student loan payment pause will yield catastrophic effects on SoFi’s revenue. Reasonably so, since when the moratorium first began, student loans made up the vast majority of SoFi’s lending volume. Losing its most prominent revenue stream is a brutal strike against the company.

As such, in the company’s Q1 2022 guidance, SoFi stated it would likely see $30 million-$35 million in additional revenue, representing $20-$25 million in extra profit, if the moratorium ended at its original Feb. 1 deadline. The moratorium has been extended twice since then, first to May and then to its current Sept. 1 date. Suffice it to say, SoFi’s student-loan-related losses have only continued.

Despite the many hurdles to SoFi’s business model, the company has performed admirably. By year’s end, SoFi is on track to triple its revenue with a quintupled user base since the loan payment pause. Given the absence of the company’s most vigorous moneymaker, it has managed to maintain much of its growth trajectory.

Unfortunately, SOFI stock has had a more tenuous story as the digital financier is down more than 60% this year. Investors have shown hesitation toward the company with the future of student loans still unclear.

Going forward, the future of SoFi’s business is undeniably in flux. The company has largely shed its dependence on student loans. Indeed, SoFi has enjoyed strong user and revenue growth despite the absence of its hero product. Yet its share price has only continued to tank. Should student loans truly return come September, SoFi can expect a big boost to its bottom line. However, as student loan legislation takes a turn for the generous, SoFi is still largely at the whim of forces outside its control.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.

Article printed from InvestorPlace Media, https://investorplace.com/2022/07/when-do-student-loans-resume-what-does-that-mean-for-sofi-stock/.

©2022 InvestorPlace Media, LLC