Text size
SoFi Technologies
stock was falling after the Supreme Court blocked President Joe Biden’s plan for student loan forgiveness.
What’s bad for borrowers could be good for the financial services company, but that wasn’t enough to lift shares higher in Friday trading. The stock fell 2.7% to $8.48 in recent Friday trading, while the
S&P 500
rose 1.2%. So far this year,
SoFi
has gained 81%.
The student loan forgiveness plan was designed to forgive up to $20,000 in student debt for some borrowers, and data from the U.S. Census Bureau said the plan would’ve eliminated balances for 29% of federal student loan borrowers.
Though disappointing for borrowers, Friday’s decision could benefit SoFi (ticker: SOFI). Here’s why: In its most recent quarter, the financial services company saw student-loan originations slide 47% year over year, illuminating an obvious place for growth when loan payments resume and borrowers refinance.
If the loan forgiveness plan had passed, some of that market for refinancing would have disappeared—now that market remains an opportunity.
But the stock’s decline Friday suggests that investors were expecting this decision—indicating it might have already been priced into the stock—or that refinancing won’t be the boost the company expects it to be.
J.P. Morgan voiced such concerns earlier this week. On Thursday, analysts led by Reginald Smith wrote that SoFi might be too optimistic about a refinancing windfall. SoFi management values the multiyear addressable refinance opportunity at around $200 billion, while J.P. Morgan expects roughly half of that, closer to $90 billion.
“We found very few people actually refinance their student loan debt with private lenders,” Smith wrote in a Thursday report. “We note less than 2% of student loans outstanding were refinanced in 2019, despite historically low interest rates.”
Earlier this month, analysts at BofA Securities cut their SoFi rating to Neutral from Buy, writing that student loan payments resuming “is a positive, but was mostly already in numbers.”
Some analysts, however, remain more optimistic.
In a Friday report, Jefferies analysts wrote that “the net impact (magnitude uncertain) should be a tailwind to refinancing volumes” at SoFi, starting in the fourth quarter of this year.
“Per management commentary, this will be primarily individuals who took advantage of the payment moratorium and are now looking to lower their monthly payments through refinancing, even at a higher interest rate,” analysts added.
Of the analysts surveyed by FactSet, 37% rate shares as Buy, 53% at Neutral, and 11% at Sell.
Write to Emily Dattilo at emily.dattilo@dowjones.com