Bank of America Securities analyst Mihir Bhatia issued a note Wednesday concerning the uptrend in student loan repayments and the beneficiaries of student loan payments.
What Happened: Bhatia noticed that by the end of August, student loan repayments started picking up momentum, and it could spell good news for companies like SoFi Technologies Inc
Here's what you need to know:
The analyst looked at data from the Daily Treasury Statement which showed that Department of Education (ED) deposits for August soared, marking the highest since the "onset of loan forbearance" in March 2020.
Bhatia noted the deposits in the last week of August alone eclipsed monthly collections seen since March 2020.
The question is, what's driving the trend? The analyst gave two plausible theories:
Bank of America said borrowers might be attempting to get ahead, especially with interest set to accrue come September. More likely, though, is the possibility that borrowers are either refinancing their student loans or paying down balances, according to Bhatia.
Given that official repayments aren't required until October, it's a safe bet that refinancing, typically involving larger sums, is driving the uptick.
SoFi stands in a favorable position amidst the changes, as it held 40% of the market share in private student loan refinancing pre-pandemic, and their recent estimates flaunt a 60% dominance. The rise in refinancing activity correlates with SoFi's loan originations for the third quarter, which soared to $1.1 billion, up from the $395 million in the previous quarter, the analyst said.
Bank of America noted a similar trend in 2022. The scheduled end of a moratorium on student loan repayments in January 2022 saw SoFi benefiting from increased refinancing volumes. Subsequent extensions of relief measures saw a dip in both ED deposits and SoFi's refinance activities.
Drawing parallels, the present surge in deposits could be a harbinger for tailwinds for SoFi in the second half of this year.
Bank of America in early August maintained a Neutral rating on SoFi, with an $11.50 price target.
SOFI Price Action: SoFi Technologies shares closed Wednesday down 2.40% at $8.54, according to data from Benzinga Pro.
