Why SoFi Stock Spiked This Week
Key Points
The Trump administration is exploring the idea of selling some of its student loans to private companies.
SoFi has a significant student loan refinancing business.
Nothing has changed yet, but SoFi investors should pay attention to any potential news.
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Shares of the fintech company SoFi Technologies (NASDAQ: SOFI) jumped this week after Politico reported that the Trump administration is considering selling some of the $1.6 trillion in federal student loan debt to the private market.
SoFi has a large student loan refinancing business and has said recently that if the federal government backed away from student loans it could potentially be a very good thing for its business. As a result, SoFi stock was up by 14.7% this week, as of 10:33 a.m. ET on Friday.
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SoFi wants access to more student loans
The government hasn't made a decision about whether to sell off some of the student loans it owns or to move away from issuing new loans. But SoFi CEO Anthony Noto said on the company's first-quarter earnings call back in April that if the government did so, SoFi would be more than willing to step in and fill the gap. Noto said, "If the government backs away from providing in-school loans, Grad Plus, et cetera, et cetera, we'll absolutely capture that opportunity."
Noto added that if SoFi eventually were able to finance in-school loans -- and not just refinance loans -- it would be "a double bottom line from the standpoint that it's a revenue stream [on] day one, but it's also a member that becomes part of the ecosystem of SoFi." In short, the company could benefit from issuing the initial loan as well as when the borrower refinances.
Don't bet on this just yet
President Donald Trump explored the idea of offloading some federal student loans during his first term, only to eventually abandon the idea. It's entirely possible that the same could happen this time around.
What's more, there are no clear details about this potential move, so buying SoFi stock assuming that the company will benefit from any potential government decision is more than just a little premature. Instead, investors should keep a close eye on any new details that emerge and wait to see how it could benefit SoFi over the long term.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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