SoFi (NASDAQ:SOFI) rose slightly after it sued to stop the pause on student loan payments enacted by the Biden administration.
The halt on payments, and an effort to cancel some loans, may fail entirely as the Supreme Court appears ready to say the administration exceeded its authority.
SoFi was founded in 2011 to make and refinance student loans.
The Pause That Dashes Profit
Since Biden’s inauguration, SoFi stock is down by nearly two-thirds. That’s less because of the student loan moratorium than the general fall of fintech. Companies like SoFi, which use equity for growth, have found themselves losing ground to banks that borrow money from depositors.
SoFi has tried to get into that business by becoming a bank. It bought a small Sacramento bank and now has a national banking charter. But investors have been unimpressed, despite revenue growth of 195%, because SoFi continues to lose money. The company currently expects to bring in $2 billion this year and earn a small profit in the fourth quarter.
SoFi’s suit claims it has lost $400 million to the moratorium. Like many administration critics, it argues that the pause has no legal basis. The moratorium began under the Trump administration, but with the most recent extension by Biden, it has been extended eight times. Because its refinance business is ineligible for the relief given to direct borrowers, it says, “SoFi is being forced to compete with loans with 0% interest rates and for which any ongoing repayment of the principal is entirely optional.”
While the company’s argument may have legal merit, the suit has put SoFi in the political crosshairs. Advocates of Biden’s policy called SoFi CEO Anthony Noto “a financial vulture gorging himself on our bloated and broken student loan system,” tricking debtors into refinancing that costs them more in the long run.
SOFI Stock: What Happens Next?
SoFi long ago moved beyond its student loan base. But the suit won’t help its reputation. It needs to keep going upmarket to grow.
On the date of publication, Dana Blankenhorn held a long position in SOFI. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.