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Why Student Loan Forgiveness Can Take SOFI Stock to the Next Level

The success of neo-banking firm SoFi Technologies (NASDAQ:SOFI) as a business venture will depend, to a certain extent, on recent government actions. In particular, President Joe Biden’s administration just extended the moratorium on student loan repayment again. Furthermore, the administration canceled up to $20,000 of college loan debt per qualified student. This all might sound bearish for SOFI stock, but there are actually reasons to buy the stock now.

I’ll be 100% honest with you. I found SoFi’s $95.8 million second-quarter 2022 net earnings loss off-putting. Furthermore, it bothered me when Softbank (OTCMKTS:SFTBY) revealed plans to sell “some or all” of its 9% stake in SoFi Technologies.

Then, when the White House revealed another student loan repayment pause, I nearly threw in the towel on SoFi. Yet, a closer look at the facts and circumstances actually provides hope of a sustained rally in the shares.

SOFI Stock Traders Should Watch These Numbers Closely

Despite SoFi Technologies’ Q2 earnings loss, the company’s numbers weren’t all bad. As CEO Anthony Noto pointed out, the company posted “record adjusted net revenue, which was up 50% year-over-year, and our eighth consecutive quarter of positive adjusted EBITDA, which doubled sequentially.”

However, here’s where it gets tricky. SoFi Technologies knocked it out of the park with a 91% year-over-year (YOY) increase in personal loans. On the other hand, the company reported a 54% YOY decline in student loans.

That’s unacceptable and needs to be remedied sooner rather than later. SOFI stock traders should monitor closely for improvement (hopefully) in SoFi Technologies’ upcoming student loan origination volume numbers.

Ending the Student Loan Moratorium Should Help SOFI

How can SoFi Technologies improve its student loan origination numbers in future quarters? The company could actually get some help from the government. That’s because college student loan borrowers will presumably have to start repaying those loans in January 2023.

It’s true that the Biden administration just canceled $10,000 of student debt for some borrowers and $20,000 for others. SOFI stock holders might not be particularly pleased with this.

They also may find it problematic that the White House just enacted the U.S. government’s seventh repayment extension for student loans. However, there’s actually potential good news for SoFi Technologies in this.

According to the Biden administration, this student loan payment moratorium extension to Dec. 31, 2022, is the “one final time” that it will be extended. If this is true, then SoFi Technologies should soon be able to earn more revenue from student loan originations.

As Mizuho analyst Dan Dolev put it, this development is “a positive for SOFI … as the ongoing extensions have weighed on sentiment and fundamentals.” In a similar vein, Jefferies analyst John Hecht declared the news “removes an overhang, whereby refinancing volumes were previously impacted by those waiting for an announcement on federal debt forgiveness.”

What You Can Do Now

It’s interesting to consider than an extension of the student loan repayment pause could actually benefit SoFi Technologies. Yet, it’s true if this is actually the final pause.

SoFi Technologies really needs to increase its student loan origination volume numbers. Now, the company has an opportunity to show improvement in this area. With that — and assuming the government doesn’t renege on its “one final time” promise — SOFI stock could move substantially higher. So, a long position today is likely to provide strong returns over the next few quarters.

On the date of publication, David Moadel 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.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.