Although financial technology (fintech) stalwart SoFi Technologies (NASDAQ:SOFI) has been a Wall Street darling this year — especially with its ambitions to become a full-service institution — recent challenges are taking their toll. Earlier Wednesday, President Joe Biden announced that he would cancel $9 billion in student loan debt. Subsequently, SOFI stock absorbed a modest impact.
According to a CNBC report, the debt relief — earmarked for 125,000 Americans — represents the Biden administration’s fixes to several programs, including the income-driven repayment plans and Public Service Loan forgiveness.
Specifically, more than $5 billion of the aid will go to 53,000 borrowers who have worked in public service for 10 years or longer. As well, another $2.8 billion will be allocated for 51,000 borrowers enrolled in income-based repayment plans. Finally, another $1.2 billion will benefit 22,000 borrowers with disabilities.
Given the timing of the announcement, it’s difficult to avoid the political implications. “Biden has forgiven more student loan debt than any previous president,” higher education expert Mark Kantrowitz told CNBC.
Still, not everyone is resoundingly enthusiastic. While praising the news, Astra Taylor, co-founder of the Debt Collective, emphasized the need to do more. “If the Department of Education can cancel this amount, it can cancel it all,” Taylor said.
SOFI Stock Already Feeling the Heat
On paper, the latest development in student loan forgiveness presents a headwind for SOFI stock. As a Seeking Alpha report pointed out, in June, the U.S. Supreme Court struck down Biden’s plan to cancel up to $20,000 of student loans per borrower (for those earning less than $125,000 per year). Experts say that the plan would have cost more than $400 billion.
Fundamentally, the diminished total addressable market represents another unwanted challenge for SOFI stock. Since the beginning of this year, shares have gained over 60% of equity value, a testament to the underlying enterprise’s efforts and ambitions. However, in the trailing one-month period, SOFI fell heavily.
Much of the pain centers on the disappointing initial public offering (IPO) of Instacart (NASDAQ:CART). Prior to the public debut, SoFi made news because it took on the role of helping to underwrite the IPO. The move represented SoFi’s first endeavor in the traditional IPO underwriting process.
Worryingly for SOFI stock, experts pointed out that it’s possible SoFi accepted a higher risk load to take part in the new listing. Therefore, the stumbling market launch of Instacart raises concerns about absorbing losses.
Why It Matters
Analysts still rate SOFI stock as a consensus hold, with the average price target largely unmoved at $9.83. However, the options market has seen an uptick in potentially pessimistic action. For instance, Fintel reports a huge big block trade for bought $10 puts that expire on Jan. 17, 2025.
On the date of publication, Josh Enomoto did not have (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.
