President Donald Trump is reportedly considering executive actions to dismantle the Department of Education, a move that could have significant implications for student loan borrowers and financial services companies alike. While this has drawn both praise and criticism, one company stands to benefit if federal student loan programs are scaled back: SoFi Technologies (SOFI).
SoFi, a prominent player in the personal finance and lending space, has long positioned itself as an alternative to traditional federal student loans, offering private refinancing and lending options to borrowers. With the Trump administration doubling down on its stance against government-backed student loan programs, experts believe that demand for private loan servicers like SoFi could surge, as students and graduates may increasingly turn to private lenders.
In this article, we’ll take a closer look at the Trump administration’s plan to dismantle the Department of Education and why experts believe SoFi could be one of the biggest beneficiaries of this shift.
About SoFi Technologies Stock
Founded in 2011 and based in California, SoFi Technologies (SOFI) provides various financial services in the United States, Latin America, and Canada. The company offers financial products, including student and auto loan refinancing, mortgages, personal loans, credit cards, investing, and banking through both mobile app and desktop interfaces. Its market cap currently stands at $16.3 billion.
SoFi’s strategic priorities involve expanding its product offerings and utilizing vertically integrated platforms to boost member engagement and extend its market reach. By obtaining bank status, the company gains from lower loan funding costs and the flexibility to retain loans longer, allowing it to generate more interest income.
Shares of the fintech-focused lender have soared 84% over the past 52 weeks. However, SOFI stock is down 4% year-to-date.
Trump Administration’s Plan to Shut Down the Education Department Could Provide a Tailwind for SoFi
Trump is reportedly exploring executive actions to dismantle the Department of Education, a move that could have significant implications for SOFI stock. The Wall Street Journal recently reported that officials are considering an executive order to shut down non-statutory functions of the Department of Education or reassign them to other federal agencies, ultimately aiming to abolish the department entirely. The possible dismantling of the Education Department would mark a major step toward fulfilling Trump’s campaign pledge to eliminate the agency, minimize federal involvement in education, and transfer authority to the states.
Among the department’s responsibilities is the management of the government’s $1.7 trillion student loan portfolio. With that, the student loan industry is one of the most closely monitored areas in light of potential changes. It is important to note that the vast majority of student loan debt is federal, and private lenders like SoFi accounted for less than 10% of the market in 2023. Students often take out private loans to supplement public ones, fund graduate degrees, or refinance existing loans at lower interest rates.
Experts anticipate that abolishing the Education Department could benefit the private student loan market. Consequently, private lenders such as SoFi Technologies, which specializes in student loan refinancing, may see increased demand if federal loan programs are scaled back.
Recent News for SOFI Stock
On Feb. 11, SoFi Technologies introduced over eight new benefits to SoFi Plus, providing its members with more than $1,000 in annual value. SoFi Plus, the company’s premium financial membership, now offers exclusive access to preferred pricing on products and services, free financial planning, rewards, and special events. SoFi members can access SoFi Plus for $10 a month or for free with direct deposit, without any minimum balance requirement. With that, the company continues to innovate and introduce new offerings that will likely help it attract new members.
“With the new offerings from SoFi Plus, SoFi has created America’s most rewarding financial membership—one that’s more than just about products and services,” said SoFi CEO Anthony Noto.
On Jan. 15, SOFI stock climbed nearly 7% after William Blair analyst Andrew Jeffrey initiated coverage of SoFi Technologies with an “Outperform” rating. The firm believes that alternatives to traditional consumer finance and bank cards will become more popular as younger demographics pursue better and more transparent financial experiences.
“While many fintechs compete in this broad category, we consider Affirm and SoFi to be leaders, and see these companies possessing three critical distinctives: 1) superior digital UX; 2) accessible, easy-to-understand consumer finance products with instant credit decisions; and 3) flexible payment options with transparent pricing, no late fees, and clear disclosure,” said the financial services firm.
How Did SoFi Technologies Perform in Q4?
On Jan. 27, SoFi Technologies reported better-than-expected Q4 results. However, the stock plunged more than 10% after the lender provided below-consensus Q1 and FY25 earnings guidance.
SoFi’s revenue grew 19.3% year-over-year to $734.13 million, beating Wall Street’s consensus by $51.93 million. Its adjusted net revenue stood at a record $739 million, up 24% year-over-year and 7% sequentially. This growth was primarily driven by strong demand for the company’s core Lending and Financial Services products.
One of the most notable trends in the fourth quarter and throughout 2024 was SoFi Technologies’ success in attracting more customers and integrating them into the fintech’s platform. The online bank gained over 785,000 new customers in Q4, enabling it to exceed the significant milestone of 10 million members for the first time in its history. This strongly attests to the company’s value proposition and the growing adoption of digital financial applications.
SoFi also posted a record 1.1 million new products in Q4, increasing its total products to 14.7 million, up 32% year-over-year. Growth in members and products contributed to a record adjusted EBITDA of $198 million. Its adjusted EPS came in at $0.05, topping expectations by a penny. This marked the fintech’s fifth consecutive profitable quarter and its first profitable year. With that, SoFi’s growth narrative is not only compelling but also increasingly profitable.
Looking ahead to Q1, SoFi Technologies expects adjusted net revenue between $725 million and $745 million, adjusted EBITDA of between $175 million and $185 million, and an adjusted EPS of $0.03. For FY25, management projects adjusted net revenue to be between $3.20 billion and $3.275 billion, adjusted EBITDA between $845 million and $865 million, and adjusted EPS ranging from $0.25 to $0.27. The market had anticipated a slightly higher profit figure, which contributed to a post-earnings overreaction. Still, the company’s key operating metrics are gaining positive momentum, and there is no doubt that SoFi will continue to boost these metrics and likely outperform its own guidance.
SOFI Valuation and Analysts’ Estimates
According to Wall Street estimates, SOFI’s EPS is expected to grow by 73% year-over-year to $0.26 in FY25. At the same time, analysts project a 22.25% year-over-year increase in the company’s revenue to $3.19 billion.
In terms of valuation, SoFi stock does not look cheap after a stellar 2024. The stock is currently trading at 59.64 times forward adjusted earnings, a significantly higher figure when compared to the sector’s median of 11.82x. However, I believe this premium is somewhat justified considering the company’s growth trajectory and earnings potential.
Options Market Sentiment on SOFI Stock
Examining the option chain for March 21, 2024, the $15.00 CALL option shows a bid/ask of $0.85/$0.97, and the $15.00 PUT option has a bid/ask of $1.04/$1.13. Keep in mind that this option strike is the one closest to the current stock price. We can now calculate the expected price move using the mid-prices of these options:
1.09 (15.00 put) + 0.91 (15.00 call) = 2.00/14.77 = 13.5%
Given the current prices and using the long straddle strategy, the options market indicates that SOFI stock might move approximately 14% by the March options expiration from the $15.00 strike price. That would place the stock in a trading range of about $12.80 to $16.80.
Notably, at the $15.00 strike price, open call options outnumber open put options by just 1.2 to 1, with 17,455 open calls compared to 14,975 open puts. This indicates a neutral sentiment in the options market, suggesting that traders are divided about the stock’s direction in the near term.
What Do Analysts Expect for SOFI Stock?
Wall Street analysts maintain a cautiously optimistic view on SoFi Technologies stock, as indicated by a consensus “Hold” rating. Among the 18 analysts covering SOFI stock, five rate it as a “Strong Buy,” one as a “Moderate Buy,” eight recommend a “Hold,” three suggest a “Moderate Sell,” and one assigns a “Strong Sell” rating. Notably, the stock trades at a premium to its mean price target of $13.83, but the Street-high target price of $20 suggests upside potential of 35.4%.
