Uh-Oh. What the Extended Student Loan Pause Means for SOFI Stock.
There’s a one-two punch of unfavorable news for SoFi Technologies (NASDAQ:SOFI), courtesy of the U.S. government. First of all, President Joe Biden’s administration is extending the moratorium on federal student loan repayment requirements. Also, a group of senators sent a letter to SoFi, requesting to review the neo-banking firm’s cryptocurrency-market dealings. These developments make it extremely difficult to recommend SOFI stock.
SoFi Technologies is a disruptive financial business that operates a cryptocurrency exchange known as SoFi Digital Assets. So, whenever there are disruptions in the crypto market, SoFi Technologies’ investors might be impacted by the ripple effects.
On top of that, an announcement from the White House is likely to cause problems for SoFi’s student loan refinancing business. Due to these developments, SoFi Technologies investors could face steep losses this and next year.
What’s Happening With SOFI Stock?
Speaking of steep losses, SOFI stock already declined from $15 at the beginning of 2022 to less than $5 recently. There were quick price bumps along the way, but they didn’t last long.
Does this mean there’s a prime dip-buying opportunity here? Caution is essential here, especially in light of a game-changing announcement from the Biden administration.
As you may recall, the U.S. government halted requirements on federal student loan repayments in March 2020. That was, by and large, a response to the Covid-19 crisis.
There were extensions of that halt, and now the White House is extending it as far out as June 30, 2023. That’s great news for students who can’t afford to repay their federal loans right now. For SoFi Technologies, however, it’s bad news, because the company generates revenue by helping people refinance their loans.
A Senate Inquiry Is Problematic for SoFi Technologies
In case that’s not enough, now the SOFI stock bears can point to a letter from the Senate Banking Committee. The letter seeks to “inquire about SoFi Technologies, Inc.’s (SoFi) progress to conform its digital asset trading activities to U.S. banking law.”
The letter cites “several meltdowns in the crypto market have wiped out trillions in value, including another huge crash last week.” Presumably, the senators are alluding to the FTX bankruptcy.
SoFi Technologies wasn’t directly involved in the FTX debacle. Nonetheless, the Senate Banking Committee is clearly concerned about crypto regulation, and now SoFi is in the senators’ crosshairs.
There’s even a direct accusation in the letter. In particular, the senators refer to “SoFi’s continued impermissible digital asset activities,” alleging that they “demonstrate a failure to take seriously its regulatory commitments and to adhere to its obligations.”
What You Can Do Now
The last thing that anyone needs now is to wager on a company that’s having problems with the government. If some senators are probing SoFi’s cryptocurrency business, this could weigh on the company’s bottom line for a while.
Moreover, it’s not helpful for SoFi Technologies that the government is extending the student loan repayment halt. Therefore, it’s perfectly reasonable to steer clear of SOFI stock for at least a few months until we have more information on the fate of Biden’s student loan forgiveness plan.
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.
