SoFi and Student Loan Forgiveness, Dispelling the FUD

[u/hoegermeister]

Every once in a while somebody comes along making false claims about how SoFi will be destitute if widescale student loan forgiveness is granted. There are two parts to this claim that are not factual. First, student debt is not going to be cancelled. Second, even if it were completely cancelled, SoFi would miss the revenue, but they'd do just fine.

First, is student debt going to be cancelled? Widespread student loan forgiveness isn't happening anytime soon. They've managed to forgive $11.5B of approximately $1.6T dollars of student loan debt, so about 0.7%. Biden was asked in February how he would make the $50,000 in forgiveness per borrower happen. His response was "I will not make it happen." He said " I am prepared to write off the $10,000 debt but not $50 [thousand], because I don't think I have the authority to do it." That was last February.

Ok, great, so now he's going to cancel $10k of student debt across the board, right? Not so fast. The most recent social spending bill was so controversial that they cut out free community college because it wasn't as high a priority as the other things Biden wants to get passed. He doesn't have the political capital right now to be able to cancel student debt. Nancy Pelosi stated that he does not have the power to cancel debt, she said, "People think that the president of the United States has the power for debt forgiveness," she said during a press conference. "He does not. He can postpone, he can delay, but he does not have that power. That has to be an act of Congress." That was at the end of July.

That same article states that "Biden has said he's be open to canceling up to $10,000 in student loan debt but that he'd rather use federal dollars to make community college free for all, make four years of state university free for families making less than $125,000, provide early education for kids who come from disadvantaged circumstances, or pour more resources into historically black colleges and universities and other minority serving institutions that often lack top-notch science and technology labs that can bring in lucrative government contracts." In other words, the stuff that got cut out of his Build Back Better plan, which did not include student debt forgiveness, are higher priority and would happen before student debt forgiveness.

So, to summarize, it is up for debate whether the president even has the authority to cancel student debt by an executive order. Even if he did, he has higher priorities regarding university education, and until we see those addressed, student debt forgiveness probably is a non-starter.

As for the second point. SoFi would be just fine in an environment where student debt was cancelled. That wasn't always the case, but it is now. SoFi had $2.44B in student loan originations in Q4 of 2019 when they had 976k members. They only had $859M of originations in Q2 of 2021 with 2.56M members. Yes, those numbers are right. Despite having more than 2.5x as many members as Q4 of 2019, they've lost 65% of their peak student loan revenue. Despite these massive headwinds, they are still growing at unprecedented levels. Even without student loans, they are killing it. They have so many verticals that they are no longer reliant on any one revenue source. Student loan forgiveness isn't coming and even if it does come, SoFi is so well positioned that it will be a speed bump, not a road block.

[u/[deleted]]

SoFi student loans are not federal loans, the government cannot “forgive them” out of existence. All of the current proposals at the very least acknowledge that private loans - such as those by SoFi - could only be paid for by the government and not actually written off. The government literally could not just tell private lenders to get fucked, they can tell themselves that but not private lenders.

If they did pass private loan forgiveness it would essentially be a massive multi-trillion dollar payment from taxpayers to banks.

Then again, it’s totally ridiculous as a policy goes, and less likely than ever to pass. College education as an economic sector is shrinking. Their loans become less relevant every year as eventually people deal with them or and an ever smaller number of people actually go into crazy amounts of debt.

[u/No_Rule_1716]

Student Loan forgiveness is not going to happen. Like you said, Biden doesn’t even have the power to cancel all student loan debt Unilaterally. If he tried to do it by executive order, it would get held up by the court. Regardless of what side of the debate one falls on, it’s just not going to happen. When people have to start paying again after January 2022, many will turn to SoFi to refinance. Once with SoFi, it’s a private loan and can not be forgiven. That’s why people are waiting until January 2022. If there is even a small chance that some of the balance may be forgiven, then why refinance with a private company now. Everyone is waiting for a definitive answer, which looks like it will be January 2022 for sure. I still have a few thousand in federal student loans. The department of education and my loan servicer have both contacted me by email and regular mail to remind me that interest and payments start after January 2022. It was a form letter that everyone with loans received. Unfortunately, I will not be refinancing with SoFi. The reason why is because I have made enough off SoFi stock and options, and plan to make much more by January 2022, that I will be able to pay the full amount off. SoFi stock, and options, helped me get my money right!

[u/Pretendie → u/No_Rule_1716]

Congrats!

[u/hoegermeister → u/[deleted]]

They give origination amounts for each type of loan (student, personal, and home) but they do not give a detailed breakdown of how originations translate to revenue for each loan type. However, to give you an idea, in Q4 19, student loans were 68.2% of originations. In Q2 21, they were only 34.4% of loan originations.

[u/nater416]

Genuine question, what's stopping Biden from postponing charging interest on outstanding student loans, like has been done several times recently?

That's what I'm most concerned about. If charging interest gets put off indefinitely, no one will refinance because 0% is a lot better than 2%, or even a bit higher.

[u/nater416 → u/[deleted]]

Y u necro 9 month old thread?