The Supreme Court is expected to make a decision on President Joe Biden’s student loan forgiveness plan tomorrow. Unveiled last August, Biden’s plan seeks to reduce the debt load for Pell Grant recipients by $20,000, while borrowers earning less than $125,000 per year are eligible to see a reduction of $10,000. However, the plan received heavy opposition in the form of litigation from Republican states, which put it on halt.
During the first quarter, student loans accounted for $525 million, or approximately 15%, of SoFi’s (NASDAQ:SOFI) total origination volume. The passage of Biden’s plan would harm SoFi’s student loan and student loan refinancing business by reducing loan volume.
SOFI Stock Short Interest at Year-to-Date High
Meanwhile, SoFi’s short interest has ballooned to a yearly high of 16.2% based on the latest available data. That’s equivalent to 132.45 million shares sold short that would take 2.7 days to fully cover. SoFi’s short interest, compared to its last reading of 14.2%, has risen by 19.9%. Furthermore, SoFi is experiencing its highest short interest since the reading of 16.8% last August. Generally, a short interest above 10% is considered high, while a short interest above 20% is considered very high.
At the same time, SoFi’s cost-to-borrow (CTB) fee has remained steady for the past two weeks and currently tallies in at just 0.41%. The average CTB fee for a stock ranges between 0.3% and 3%. A higher CTB fee indicates increased short seller demand, while a lower fee signals the opposite. A higher fee could also influence short sellers to sell out by buying shares of the underlying stock in an attempt to escape the high fee.
These two figures are likely to swing dramatically following the Supreme Court’s student loan forgiveness decision.
On the other hand, SoFi will be a recipient of a positive catalyst once student loan payments are resumed as a whole in October. The moratorium, which began at the height of the coronavirus pandemic, will resume billions of dollars of payments.
So, has this news already been priced in? It’s certainly possible, as SOFI stock is up by about 100% this year.
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.
