Investor Michael Burry is warning that student debt forgiveness could have “terrible consequences.” Burry gained fame for betting against phony mortgage insurance in what became known as The Big Short before the 2008 market crash.
In a series of since-deleted tweets, Burry said that student loans stemmed from bad choices and forgiving them would send a bad message.
What’s Going on With Student Loan Forgiveness?
President Joe Biden’s administration has offered to forgive up to $20,000 in student loans, after a long Covid-19-based moratorium on payments. However, the plan is being held up by legal action.
This week, the Supreme Court heard a case that could shut down President Joe Biden’s forgiveness plan. The court is likely to rule against the administration.
That could boost companies like SoFi (NASDAQ:SOFI). SoFi’s initial business model was built on refinancing student loans.
More About Michael Burry
Burry has a net worth of about $300 million. He gained renewed fame after joining Twitter in 2020 and slamming the Covid-19 lockdowns.
Recently, he has warned about inflation and predicted a multi-year recession. He has invested in such industries as private prisons and Chinese tech.
What Happens Next?
The whole question of loan forgiveness has become intensely political. Republicans are going after student loans and Democrats are going after PPP after many of those loans were forgiven by the previous administration.
Companies like SoFi are left in the middle. Even if the Supreme Court rules against forgiveness, they will still have a lot of bad debt and angry debtors.
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.