Joe Biden ran on a platform to forgive $10,000 in student loan debt per borrower. Two years into his presidency, this style of broad forgiveness is looking much less likely. Granted, the Department of Education has forgiven $9.5 billion in student loans. But this has only put a tiny dent in the $1.75 trillion debt outstanding. Loan forgiveness was also not mentioned at all in Biden’s 2022 budget proposal. Additionally, in a recent announcement, Biden asked borrowers to “prepare for payments to resume.” As you can see, this makes it tough to decide whether to go long or short on student loan stocks.
Right now, it’s nearly impossible to determine whether broad student loan forgiveness will happen. Want my advice? Your time is better spent elsewhere instead of trying to predict what the U.S. government will do. It could easily take another year for them to decide (or three years… or five). It feels like one week they are preparing to forgive up to $50,000 per borrower. Then the next week the topic is off the table.
In a situation like this, unless your dad is the Secretary of Education, you are probably going to learn about any updates exactly when everyone else does. This means that you won’t have any advantage as an investor. When the White House releases new information, the stock price will almost instantly adjust to reflect this new update. So does this mean that you should stay away from student loan stocks entirely? Not necessarily.
Let’s take a look at how you can make money from student loan stocks.
NOTE: I’m not a financial advisor and am just offering my own research and commentary. Please do your own due diligence before making any investment decisions.
Student Loan Stocks: Do I Short Or Go Long?
Three of the main student loan stocks are Sallie Mae, Navient and Discover. The only problem is that these are private student loan providers. The overwhelming bulk of student loans are funded by the government. According to EducationData.org, 92.6% of student loan debt is federally funded. If Joe Biden decides to forgive student loans, it will most likely not include loans from these providers.
You might be able to find another reason to invest (or short) these stocks. However, it will probably not be related to any type of student loan legislation. Additionally, since these are the main choices for student loan stocks, tons of investors are analyzing them. On the other hand, these two student loan stocks might be flying a little more under the radar.
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I won’t lie. This article was pretty difficult to research. The student loan ecosystem is …….