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What an Extended Student Loan Repayment Freeze Means for SOFI Stock

Yesterday, President Joe Biden surprised the nation and SoFi (NASDAQ:SOFI) stock holders by announcing an eighth extension to the federal student loan moratorium. The moratorium was previously slated to end on Dec. 31, with payments expected t…

Yesterday, President Joe Biden surprised the nation and SoFi (NASDAQ:SOFI) stock holders by announcing an eighth extension to the federal student loan moratorium. The moratorium was previously slated to end on Dec. 31, with payments expected to resume the following day. The pause was originally implemented in March of 2020, during the height of the coronavirus pandemic. This is significant for SoFi, as the company derived 13% of its third-quarter origination volume from student loans.

SoFi added in its earnings release, “Third quarter student loan volume of over $457 million was down more than 50% from the average pre-pandemic volume as the moratorium on student loan payments continues to weigh on the business.”

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Biden explained that he delayed the deadline due to the ongoing litigation concerning his student debt forgiveness plan. Earlier this month, a Texas federal judge ruled Biden’s debt forgiveness plan of up to $20,000 as unconstitutional after two individuals backed by a conservative advocacy group argued that the plan “did not follow proper rulemaking processes and was unlawful.”

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SOFI Stock: Biden Extends Federal Student Loan Moratorium

The ruling caused the Department of Education to put a halt on student loan relief applications. This caused the Department of Justice to file an appeal to the 5th U.S. Circuit Court of Appeals. A final decision from the court could take up to several months.

Biden is confident that his plan abides by the Constitution, tweeting, “I’m confident that our student debt relief plan is legal. But it’s on hold because Republican officials want to block it.”

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Now, payments are expected to resume 60 days after the completion of the litigation and when Biden is allowed to resume his forgiveness plan. If the litigation is still ongoing by June 30, 2023, payments will resume 60 days after that, or on Aug. 29.

The eighth extension caused SOFI stock to hit a new 52-week low of $4.57. If the delay is held off until Aug. 29, SoFi could experience almost three more quarters of reduced student loan activity. That would prove detrimental to the company and may result in a more difficult path to profitability.

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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.

Eddie Pan specializes in institutional investments and insider activity. He writes for InvestorPlace’s Today’s Market team, which centers on the latest news involving popular stocks.

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