On Aug. 24, President Joe Biden signed an executive order addressing student loan debt. As it pertains to student loan stocks to buy, many investors don’t seem to understand the specifics surrounding the situation.
However, the move has some investors wondering if there are now stocks to buy based on the recent action.
The move was somewhat controversial, given citizens’ feelings about who is responsible for student loan debt. Some felt that the debt — or a portion of the debt — should be forgiven. Others felt that the debt was a personal responsibility and should not be forgiven. Complicating matters is the fact that the PPP loans were forgiven.
In any regard, the specifics include:
“The Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education, and up to $10,000 in debt cancellation to non-Pell Grant recipients. Borrowers are eligible for this relief if their individual income is less than $125,000 ($250,000 for married couples).”
Further, the Administration “will extend the pause a final time through December 31, 2022, with payments resuming in January 2023.”
SoFi (NASDAQ:SOFI) was a favorite among growth stocks to buy for investors. The low-priced SPAC saw explosive gains at one point, with shares trying to push through the upper-$20s. However, the stock has lost virtually all momentum.
Not only has a brutal bear market in high-growth stocks kneecapped SoFi’s stock price but continual delays in student loan repayments have created a constant headache.
Worse, it has created uncertainty. Obviously, SoFi is more than just a student loan center; it’s an actual bank with many growth levers to pull on in the years to come. Still, its tie to student loans can’t be denied.
When the company reported earnings, it beat on earnings and revenue estimates and the company provided stronger-than-expected guidance.
“Throughout the last 12 months, we have demonstrated the benefit of having a diversified set of revenue streams and a keen focus on continuing to underwrite high-quality credit,” said SoFi CEO Anthony Noto.
Further, its guidance accounted for the student loan moratorium to last through year-end (which it is). If it were to end sooner than expected, Noto said demand for its student loan product would go through the roof. Now, maybe it will in 2023.
Interestingly, Nelnet (NYSE:NNI) doesn’t seem to be getting much attention despite the recent news. With its $3.1 billion market capitalization, many investors seem to have never heard of this company.
The company is one of the largest student loan providers in the business. That’s particularly true after a deal for Wells Fargo’s (NYSE:WFC) private education loan portfolio. There are some cash flow risks to the student loan forgiveness plans for Nelnet and others, but the specifics are not necessarily certain at this point.
For some investors, that will keep Nelnet from being one of the stocks to buy. However, the clarity surrounding student loans is a massive positive here.
So is the wording in the White House’s plan — to “extend the pause a final time” — suggesting that in 2023, payments will resume. If that’s the case and we return to “business as usual,” Nelnet should be a major beneficiary.
Sallie Mae (SLM)
Lastly, there’s Sallie Mae (NASDAQ:SLM), the $3.75 billion company that has changed dramatically over the years. Originally set up to service federal education loans, SLM has grown to play a larger role in the same arena.
Following the news from the White House, Wedbush Securities analyst Peter Winter had this to say on the matter:
“This could help Sallie Mae as borrowers get some relief from their federal student loan debt… I think that’s also why you saw SoFi rally a bit today, this should improve the loan portfolio’s credit quality and the end of the moratorium ends and student loan payments start up again.”
Sallie Mae is not exactly the hottest stock on Wall Street, but at least it’s forecast to grow in the future. Analysts expect earnings of $2.62 a share this year. Despite forecasts for revenue to fall in 2023, analysts expect earnings growth of 6%. That’s followed by forecasts of 12.2% growth in 2024.
On the date of publication, Bret Kenwell 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.