On paper, the bullish narrative for financial technology (fintech) specialist SoFi Technologies (NASDAQ:SOFI) couldn’t be clearer. Following the devastation of the Covid-19 pandemic, government mandates designed to mitigate the crisis impacted the personal finance company due to a pause on federal student loan payments. With this break ending, SOFI stock jumped on the return of a viable market. Beneath the surface, though, lies a tricky narrative.
According to Politico, President Joe Biden and House Speaker Kevin McCarthy recently reached an agreement to raise the debt ceiling. However, as part of the deal — called the Fiscal Responsibility Act — the terms called for the termination of the student loan payment pause. Using language from the bill, “[s]ixty days after June 30, 2023,” the suspension of student loan payments and interest “shall cease to be effective.”
While some confusion exists about the policy shift’s language and specific timing, the bottom line is that students burdened with loan debt will likely see no further relief, per Vox. In part, that’s because the U.S. Supreme Court will likely rule against the Biden administration’s student loan forgiveness plan.
Further, the debt ceiling bill prevents future pauses on loan payments and interest without congressional approval. While it might seem like dark days for cash-strapped students, investors anticipate a bonanza for SOFI stock. Still, it’s a tough nut to crack.
SOFI Stock Pops but for How Long?
Theoretically, the eventual resumption of loan payments bolsters SOFI stock because of the reincorporation of a previously impacted revenue segment. Throughout the post-pandemic new normal, personal loan originations surged, making up the overwhelmingly dominant segment of SoFi’s lending business.
However, before investors jump on SOFI stock, they should note that personal loans are generally unsecured. These personal loans could become significant liabilities amid a problematic combination of stubbornly high inflation and record-high household debt.
As for student loans specifically, CNBC reported that the Consumer Financial Protection Bureau (CFPB) warned that roughly one in five student loan borrowers have financial risk factors that may cause them financial hardships when their loan payments eventually resume. Moreover, the CFPB has found that more than one in 13 federal student loan holders are behind on other payment obligations.
If that wasn’t enough of a problem, more than half of student loan borrowers facing a payment resumption have incurred higher monthly debt-related expenses prior to the debt pause (excluding student debt or mortgage payment).
With several students facing significant financial pressures, the return to normal for debt payments might not be a sustainable panacea for SOFI stock.
Thus, Investors in SOFI stock should keep a close eye on June 30, as it is a significant date that will impact the fintech company’s future fortunes.
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.
