Why the new debt deal is great news for SoFi investors
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Debt deal would lift pause on student loan payments. That's great news for SoFi.
about 7.8% right now,
Students will need to start paying back their debt for the first time in more than three years as part of the new debt ceiling deal.
The prospect sent shares of SoFi (SOFI), one of the nation's leading student loan lenders, soaring on Wednesday as Wall Street becomes increasingly confident the deal will be signed.
"We view this as an incremental positive for SoFi, as borrowers will need to start making payments again and some may look to extend the duration of their loans through SoFi's student loan refinance product, which has seen lackluster origination volumes since the start of the moratorium in 2020," Wedbush Securities managing director David Chiaverini wrote in a note to clients on Wednesday.
While SoFi had initially planned for the moratorium to be lifted on June 30 as scheduled, the debt ceiling deal could bring finality to a student debt moratorium that had been extended multiple times since the government first paused federal student loans as part of pandemic relief benefits in March 2020.
The extensions materially altered SoFi's business. In the first quarter of 2023, SoFi's student loan volume decreased by more than 50% from pre-pandemic levels, according to a company release. The student loan unit, which represented nearly 30% of the company's loan volume in the first quarter of 2022, represented just 15% in the first quarter of 2023.
"The moratorium on federal student loan payments continues to weigh on the business," the company noted in its first quarter release on May 1.
The student loan moratorium has contributed to downbeat sentiment surrounding shares of SoFi, a technology-focused personal finance company that went public in 2021. After an initial bump in the months following the IPO, the stock tumbled from its November 2021 high.
But the upbeat sentiment in student loans sent shares rebounding on Wednesday as the stock rose nearly 13%.
SoFi CEO Anthony Noto explained during the company's most recent call that he sees SoFi in the student loan business in two ways. The firm provides direct private student loans and also provides student refinancing options.
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