Federal Student Loan Forbearance Extended Again; Reducing our FVE for SoFi to $17

The Biden administration has announced an additional extension for the federal student loan forbearance program currently in effect, which was slated to expire at the start of May. With the newly announced extension, federal student loans will not accrue interest or require payment until August 31. This program has been a headwind for SoFi since it was put into place in 2020, as most of its student loan volume comes from refinance transactions. There is less incentive for borrowers to refinance loans that are in forbearance, and SoFi’s student loan origination volume has suffered as a result, with $4.3 billion of student loans made in 2021 compared to $6.7 billion in 2019. SoFi has been able to grow its lending operations despite this decline, owing to success of its strong personal loan and mortgage operations, but the extension is a negative event for the company. However, at the current price we believe the impact of the extension is fully priced into the shares.