As student loan repayments resume in October following a lengthy moratorium, the stock market is poised to witness winners and losers. The COVID-19 pandemic stimulus packages have gradually wound down, and even the Federal Reserve, which initially slashed interest rates to zero in March 2020, has raised its benchmark rate to the highest level in over two decades.
The student loan moratorium, extended multiple times, was a significant stimulus measure. First initiated by Donald Trump and continued by President Joe Biden, the latter’s attempt to forgive student loans was rejected by the Supreme Court. While the Biden administration explores alternative relief options for borrowers, repayments are set to begin, creating an estimated $100 billion financial challenge for borrowers in the upcoming year, according to a Wall Street Journal report.
Here are the stocks that may experience varying fortunes as student loan repayments commence:
Stocks That Stand to Benefit
SoFi’s Prospects with Student Loan Refinancing
SoFi (NASDAQ:SOFI), a player in the student loan refinancing industry, faced a downturn during the moratorium as borrowers had no immediate incentive to refinance. Notably, SoFi took legal action against the Biden administration earlier this year over the repayment pause. With a strong position in the student loan refinancing sector, SoFi is poised to reap the benefits as student loan repayments restart. Although SoFi stock has outperformed the Nasdaq Composite in 2023, a recent dip may present an opportune moment to invest in this fintech company.
Walmart Stock: Discount Retailers Thrive Amid Economic Uncertainty
In the face of stubbornly high inflation and a broader economic slowdown, many consumers have turned to discount retailers such as Walmart (NYSE:WMT), known for its resilience during economic downturns. According to Jefferies, Walmart, along with TJX Companies (NYSE:TJX) and Costco (NASDAQ:COST), may see increased patronage from budget-conscious borrowers as student loan repayments put pressure on their finances. Additionally, Costco recently reported strong fiscal Q4 2023 earnings, receiving positive ratings from Wall Street analysts.
Stocks Likely to Face Headwinds
Restaurant Stocks in a Challenging Position
The resumption of student loan repayments may negatively affect companies in the consumer discretionary and restaurant industries. A BTIG survey revealed that higher-income borrowers will bear a disproportionate impact, and companies like Starbucks (NASDAQ:SBUX), Shake Shack (NYSE:SHAK), and Chipotle Mexican Grill (NYSE:CMG) are among those with the highest exposure to these borrowers. While consumer behavior may not undergo drastic changes, some individuals could adjust their spending patterns within menus or reduce their visit frequency.
Consumer Discretionary Companies at Risk
Companies like Apple (NASDAQ:AAPL) could feel the pinch if student loan borrowers cut back on discretionary spending. The final quarter of the year is typically strong for Apple due to holiday season sales, but this year, the resurgence of student loan payments may have a dampening effect. Similarly, companies in the consumer discretionary space, including Amazon (NASDAQ:AMZN) and automakers like Ford (NYSE:F), may face challenges as higher interest rates and student loan repayments reduce affordability for some borrowers.
Robinhood’s Uncertain Future
Discount brokerage Robinhood (NASDAQ:HOOD) may also face challenges as student loan repayments resume. The lifting of the moratorium could lead to a further decline in the savings rate among borrowers, potentially reducing the funds available for investment through platforms like Robinhood. While the company has diversified its offerings and cut costs, it might experience lower trading volumes and revenues if the younger cohort on its platform has reduced disposable income.
Conclusion
The resumption of student loan repayments adds another layer of complexity for investors to monitor in October. Following a challenging September for U.S. stocks, the market will now focus on upcoming quarterly earnings reports and assess whether companies observe any notable shifts in consumer behavior as student loan repayments restart.
Featured Image: Freepik @ maksymiv_yura
Author Faith Yakubu