Why This SoFi Analyst Sees Headwinds In Biden's Latest Student Loan Payment Pause

Zinger Key Points
  • The Biden administration's student loan forbearance extension will be a headwind for SoFi.
  • "Student loans are SoFi’s most profitable business," Bank of America says.

The Biden administration has once again extended the payment pause on federal student loans, and one analyst said Friday the extension is bad news for SoFi Technologies Inc SOFI.

The SoFi Analyst: Bank of America analyst Mihir Bhatia reiterated a Buy rating on SoFi and cut the price target from $9 to $8.

Related Link: Analyst Upgrades SoFi Technologies, Says Potential Student Loan Refinancing Boom Is Coming

The SoFi Takeaways: The student loan forbearance extension will be a headwind for SoFi, Bhatia said in a Friday note. 

"Student loans are SoFi’s most profitable business, and the moratorium extension is an incremental negative," the analyst said. 

Federal student loan repayments were previously scheduled to resume in January, but the latest extension pushes that resumption out to June 30. The move marks the eighth extension of the pandemic-era student debt relief policy.

The latest extension comes after a federal appeals court issued a temporary national injunction earlier this month on the administration's student loan debt relief program aimed at canceling up to $20,000 in student debt for millions of Americans.

Bhatia said Friday the forbearance extension will continue to weigh on SoFi's earnings through at least the first half of 2023. Yet with the stock down more than 75% in the last year, he said SoFi is attractively valued, assuming student loan origination volumes eventually bounce back to pre-pandemic levels.

In addition, SoFi has said its focus on high-income borrowers somewhat mitigates the negative impact of the student loan forgiveness program.

Benzinga's Take: SoFi is still struggling to turn a profit, so losing out on its student loan business for at least another six months is more bad news for one of the worst-performing stocks in the market.

At this point, it's certainly possible that the payment pause gets extended a ninth time given that the moratorium seems to no longer be tied to pandemic relief.

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