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SOFI Stock Alert: Federal Judge Strikes Down Student Loan Forgiveness Plans

  • A Texas federal judge has ruled President Joe Biden’s student loan forgiveness plan as unconstitutional.
  • Student loans accounted for 13% of SoFi’s (SOFI) origination volume during Q3.
  • Shares of SOFI stock are down by more than 60% year to date.
SOFI stock - SOFI Stock Alert: Federal Judge Strikes Down Student Loan Forgiveness Plans

Source: shutterstock.com/rafapress

SoFi (NASDAQ:SOFI) stock is in the spotlight after a federal judge in Texas ruled that President Joe Biden’s plan to cancel up to $20,000 of student loan debt per borrower was unconstitutional. Under Biden’s plan, borrowers who earn less than $125,000 per year in income are eligible for $10,000 of student loan debt cancellation. Additionally, married couples who earn less than $250,000 per year in combined income are eligible for $10,000 of debt cancellation as well. Furthermore, recipients of the Pell grant are eligible for an additional $10,000 in debt reduction. The deadline to submit a debt forgiveness application was set for Nov. 15.

The ruling came after two ineligible or partially ineligible borrowers under Biden’s plan filed a lawsuit. The two individuals, who are backed by a conservative advocacy group, argued that the plan “did not follow proper rulemaking processes and was unlawful.” U.S. District Judge Mark Pittman ruled in favor of the plaintiffs, characterizing the plan as an “unconstitutional exercise of Congress’s legislative power.”

Student loans accounted for about 13% of SoFi’s Q3 origination volume. Still, Q3 student loan volume was down by more than 50% in comparison to the average pre-pandemic volume. This is due to the effects of the federal student loan moratorium, which is set to expire on Dec. 31.

SOFI Stock: Federal Judge Strikes Down Biden’s Student Debt Cancellation Plan

The ruling can be seen as a positive for SOFI stock. After all, the company makes money through student loan financing and refinancing programs. Applicants of Biden’s forgiveness program had totaled more than 26 million.

Following the ruling, the Department of Education stopped accepting student loan debt relief applications. In addition, the U.S. Department of Justice (DOJ) promptly filed an appeal to the 5th U.S. Circuit Court of Appeals. We don’t yet know how long it will take for the appeal to reach a decision. However, it could take up to several months.

However, the DOJ could request an emergency stay of the Texas judge’s order. If the stay is granted, and if another appeals court overturns its temporary stay on the program in a separate case, then borrowers could receive debt cancellation before the 5th Circuit makes a final ruling.

Meanwhile, CEO Anthony Noto has previously voiced his opinion for canceling $10,000 of student debt for “distressed and defaulted borrowers.” Now, it’s up to the courts to make a final decision.

On the date of publication, Eddie Pan 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.

Eddie Pan specializes in institutional investments and insider activity. He writes for InvestorPlace’s Today’s Market team, which centers on the latest news involving popular stocks.


Article printed from InvestorPlace Media, https://investorplace.com/2022/11/sofi-stock-alert-federal-judge-strikes-down-student-loan-forgiveness-plans/.

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