SOFI - White House weighs options for potential loss on student loan forgiveness - report

2023-06-08 10:43:26 ET

The White House is discreetly considering how it will proceed if the Supreme Court strikes down President Joe Biden's student debt cancellation program, according to a media report.

The nation's highest court is expected to issue its decision later this month on the proposal to wipe out an estimated $430B in federal student loans. In the oral arguments in February, the conservative justices, making up a majority of the court, appeared skeptical that the Secretary of Education has the legal authority to cancel as much as $20K in federal student debt per borrower. The plan applies to those who earn less than $125K per year, which would cover millions of borrowers.

While White House officials publicly express confidence that the court will uphold the program, internally they have been considering policy options to help borrowers who are at risk of not getting the loan forgiveness as planned, the Wall Street Journal reported, citing people familiar with the talks.

It's unlikely that the Biden administration will formulate another large-scale plan to cancel student debt using a different legal authority, the people told the WSJ . Rather, they're looking at more targeted ways to help borrowers after paymnts had been suspended for three years. No decisions have been made yet on a post-Supreme Court strategy, they said.

The Education Department is considering plans to forgive loans for more specific borrowers such as the disabled, those in public service, and/or those defrauded by for-profit schools.

Part of the plan is also to highlight proposed changes to income-based payment options, which are scheduled to be finalized later this year. That, however, may not occur until after the loan payments restart.

Those advocating for borrowers see another legal path that could prove useful — the Department of Education's "compromise and settle" authority, the WSJ reported . The head of the department has "considerable discretion under the [Higher Education Act] to compromise and settle claims arising out of the federal student loan programs," Justice Department contended in a December legal filing.

With or without the debt cancellation, borrowers will be required to resume their monthly payments starting Aug. 29, 2023. The moratorium will officially end on June 30, but there will be 60 more days before repayments begin. As part of the restart process, the Biden administration is planning to put in place a three-month transition in which borrowers who miss payments won't be classified as delinquent, people familiar told the WSJ .

Shares in SoFi Technologies ( NASDAQ: SOFI ), which is known for refinancing student loans, gained 2.8% i n Thursday trading. During the past three years, SOFI stock has dropped 26% , compared with the S&P 500's 32% increase. With the assurance that student loan repayments will restart in August under Congress's debt ceiling bill , the stock has gained 28% since May 30.

Other student loan related stocks include: Navient ( NAVI ), -0.3% , Nelnet ( NNI ) -0.8% , and SLM Corp. ( SLM ) -0.6% .

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More on Biden's Studen Loan Forgiveness Program:

• SoFi: The End of the Student Loan Moratorium
• Student loan consumers likely to defer buying soft goods as debt repayment resumes
• Republican senators seek to overturn student loan forgiveness program
• Court keeps block on student loan forgiveness in place
• Student loan forgiveness program to cost over $400B, CBO says

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