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3 Reasons Why the Student Loan Decision Didn’t Lift SoFi Stock (and Why That’s OK)

It’s probably not every day that a decision from the Supreme Court of the United States  affects your investment decisions. However, the Supreme Court’s recent ruling on student loan repayments is certainly relevant to SoFi Technologies (NASDAQ:SOFI) stock.

It might seem counterintuitive that the SoFi Technologies share price declined despite an ostensibly favorable SCOTUS ruling. Still, when we look at the factors involved, we can understand the market’s response and then make an informed decision as financial traders.

Not long ago, I recommended waiting for SOFI stock to pull back to $6 before considering a long position. Today, I’m standing by that strategy in light of a major high-court decision. So, let’s delve into the details and determine how all of this might affect SoFi Technologies.

A Signal Event for Borrowers, and for SoFi

Here’s the scoop. Around 44 million people are have federal student loans in the U.S. that they’re expected to repay.

For many months now, there’s been a tug-of-war on Capitol Hill and in the courts as to whether that repayment requirement should be paused or even completely eliminated/forgiven.

Now, here’s a major wrinkle in that story. The Supreme Court just blocked the Biden administration’s plan to authorize federal student loan forgiveness.

It’s hard to know what will happen next, but the Biden administration may have few options at this point. After all, there’s no higher U.S. court than the SCOTUS.

On the face of it, this is great news for SoFi Technologies. That’s because SoFi Technologies generates some of its revenue from helping students refinance their loans.

Thus, the pause on required federal student loan repayments was a serious problem for SoFi. Shockingly, SoFi Technologies’ first-quarter 2023 student loan origination volume plummeted 47% year over year.

Why SOFI Stock Fell Despite SCOTUS Ruling

Let’s back up a bit. Prior to the SCOTUS decision, SOFI stock had already rallied from $5 to $9 in a matter of weeks. This prompted Compass Point Research analyst Giuliano Bologna to describe the stock’s stunning performance as “overdone.”

I fully agree with that assessment, and with Bologna’s no-baloney explanation of how the end of the student loan repayment pause was already priced in:

“The student loan moratorium was already scheduled to end on June 30 with payments resuming 60 days later… Recent events are unlikely to have a material impact on that timeline and the recovery refinance origination volumes.”

JPMorgan analyst Reginald Smith echoed this sentiment, asserting that the “underlying financial impact” of the Supreme Court’s ruling on SoFi Technologies “is fairly insignificant.”

Smith suggested that “just a fraction of borrowers” would actually refinance with a “private lender like SoFi.”

Surely, the market understood Smith’s finding that “very few people actually refinance their student loan debt with private lenders.”

This helps to explain why SOFI stock fell after the Supreme Court’s ruling. The end of the student loan repayment requirement pause was already priced in, and its impact on SoFi Technologies probably won’t be as great as some overeager bulls assumed it would be.

Patience Will Pay With SOFI Stock

Hopefully, you’ve been sitting on the sidelines like I previously recommended. I’m still bullish on SoFi Technologies for the long term, but the share price got ahead of itself in May and June.

So, just relax and be patient. Let events play out as they will. SoFi Technologies is a disruptive neo-bank with a great deal of potential. However, timing is crucial for financial traders.

Therefore, I still believe it’s wise to wait for SOFI stock to pull back to $6. Then, if you’re ready and the narrative hasn’t changed drastically, you can scale into a share position.

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 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) 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.