The Biden administration has introduced a formal proposal to forgive student loan debt, aiming to benefit millions and withstand legal scrutiny. This revised plan focuses on debt accrued beyond original loan amounts for certain low-income earners and cancels unpaid interest for all income levels.
While some investors have turned toward big tech and FAANG as winners as part of this deal, my thesis is centered around the fact that we as consumers tend to spend every dollar we have and then some.
With the potential for increased disposable income resulting from the student loan forgiveness plan, borrowers may be more inclined to seek out additional credit or financial services. This could translate into a surge in demand for loans, credit cards, and other financial products offered by institutions that cater to the younger generation.
The average monthly student loan payment is around $500, and I think it’s very possible that those who are used to paying this amount every month will redirect it to a new form of credit. Alternatively, I also think that these funds will be redirected directly back into the stock market via trading apps.
So here are three under the radar student loan stocks that stand to benefit from Biden’s proposal.
Robinhood (HOOD)
Known for its mobile-first brokerage services, Robinhood (NASDAQ:HOOD) appeals to younger investors with its user-friendly interface and commission-free trades. It’s also the ubiquitous name on trading and stock investing Discord groups and Subreddits.
The primary demographic for Robinhood focuses predominantly on a younger audience. Particularly, the platform is geared towards millennials, with a significant portion of its users being between the ages of 18 and 29.
After recording a surprise profit in Q4 2023, the company aims to drive profitable growth throughout the year. This strategy is underscored by its plan to keep operational expenses and share-based compensation between $1.85 billion and $1.95 billion, a slight increase from 2023 levels
As for its stock performance, following its successful Q4 results, HOOD’s shares surged. Analysts have adjusted their outlook positively, with JMP Securities, for instance, raising their price target to $25 from $23, maintaining an outperform rating.
Affirm Holdings (AFRM)
Affirm Holdings (NASDAQ:AFRM) provides buy now, pay later services, which are increasingly popular among younger consumers looking to manage spending through flexible payment options.
For fiscal year 2024, AFRM has set a positive outlook, projecting a Gross Merchandise Volume (GMV) to exceed $25.25 billion, with an adjusted operating margin over 11%. The company’s focus remains on gaining market share and maintaining robust unit economics amidst an environment of high interest rates.
Bankrate notes that 39% of U.S. adults have used at least one BNPL service, indicating a broad adoption across various consumer segments. This widespread usage supports AFRM’s projection of a significant Gross Merchandise Volume (GMV) growth to exceed $25.25 billion for 2024, as the demand for BNPL services continues to rise.
Gen Z are also key users of BNPL schemes, and I believe that companies like AFRM will see an uptick in sales due to this fact. It’s therefore one of those student loan stocks for investors to consider closely.
Block (SQ)
Block (NYSE:SQ) (formerly known as Square) offers mobile payment solutions that are popular among young adults, with services that cater to both personal and small business financial transactions.
Research shows that people tend to increase spending on large purchases, entertainment, and savings for big life events once their student debt burden is reduced or removed. Notably SQ also offers users a way to buy and sell cryptocurrencies such as Bitcoin (BTC-USD) through its CashApp platform, which is a major draw card for the company.
I think that SQ is then uniquely positioned and somewhat underestimated as one of those student loan stocks to buy.
For SQ, the financial outlook for 2024 appears robust, with a forecasted gross profit of at least $8.65 billion, slightly ahead of the market consensus of $8.55 billion. This forecast was presented in the context of their most recent quarterly results which saw SQ report a profit of 3 cents per share, surpassing analyst expectations by 1 cent.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
