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 over $1.75 trillion debt outstanding. Loan forgiveness was also not mentioned at all in Biden’s 2022 budget proposal. Additionally, in an 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 completely 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.

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.

NerdWallet (Nasdaq: NRDS)

I won’t lie. This topic was pretty difficult to research. The student loan ecosystem is a complicated web of different programs and providers. First, you can apply for direct subsidized or unsubsidized loans. You can also apply for Direct PLUS loans.

The government used to offer a loan called Perkins loans but these ended in 2018. This doesn’t even count the dozens of private providers which all have their own rules. The amount that you can borrow also depends on dozens of factors. For example, which degree you are enrolling in? How much do your parents make? What other financial aid are you receiving?

Once you’ve taken out your loans, the repayment process is equally complicated (assuming you can’t repay in full). There’s also a good chance that your parents applied for your student loans for you. This means that most college students graduate with minimal knowledge of what to do.

In total, StudentAid.Gov offers 8 different repayment plans to choose from. If these repayment plans don’t work for you then there are even more options. If you have different sources of debt, you can consolidate them to try and lower your interest rate. You can also speak to your lender about refinancing. Depending on your situation, you might be able to defer your payments. You could even go into forbearance.

Even for someone who writes about finance, it gets pretty gnarly. Luckily, do you know which site was there to help me along the way? NerdWallet.

Personal Finance Education

Maybe the money isn’t in the loan providers themselves. Maybe the money is in helping people understand their student loans. NerdWallet is a popular personal finance company, and a great addition to your list of student loan stocks. According to its website, it’s “on a mission to provide clarity for all of life’s financial decisions.”

There are approximately 43.2 million post-graduates who owe student loans. These are all people who have a need for NerdWallet’s site to learn about their student loans. NerdWallet also has information about much more than just student loans. It helps people with all sorts of financial topics like credit cards, investing, insurance, mortgages, etc.

Unlike most traditional media companies, NerdWallet doesn’t sell ad space. Instead, it makes money by referring its readers to financial products.

NerdWallet just went public in the fall of 2021. This means that there is limited financial information available about its business. However, in Q2 2022, NerdWallet posted $125 million in revenue. This was a 37% year-over-year (YOY) increase. It also posted a net loss of $9.3 million. Since going public, Nerdwallet’s stock is down approximately 57%.

The more the government kicks student loan forgiveness down the road, the more of a need there will be for financial education. This is great for Nerdwallet.

Sofi (Nasdaq: SOFI)

Note: I own a small position in Sofi.

One of the other best student loan stocks to buy is Sofi. Similar to NerdWallet, Sofi is an online personal finance company. It offers dozens of products from investing, personal loans, credit cards, money management and more. One of its most popular products is student loan refinancing.

In total, Sofi boasts 2.5 million members. It has helped these members pay off $22 billion in debt. For reference, this is more than double the amount that the government has forgiven in student loan debt this year. Similar to NerdWallet, Sofi’s strength is in simplification. Sofi makes it easy to understand the student loan refinance process. It creates value by easily answering questions and being customer-centric.

The Uber of Student Loans

“The Uber of XYZ Industry” is such an overused trope. But, in this case, it rings true. Uber didn’t offer any type of revolutionary service. Paying a fee to get a ride was already a business model that existed. It was called getting a taxi. Uber just made it easier, more reliable, and more affordable (by locking in your fare). Sofi does something similar with student loans.

Government websites tend to be clunky. They are usually difficult to navigate and even harder to decipher. Have a question about your student loans? Have fun calling customer service at the Department of Education. Odds are, you’ll sit on hold for 30 minutes just to get referred back to the website.

Sofi, on the other hand, is incredibly user-friendly. It offers both a website as well as a mobile app. Sofi has simplified the process of refinancing student loans. On top of that, it has live support seven days a week. To back up its marketing, Sofi has competitive rates. It offers fixed rates as low as 2.49% and variable rates as low as 1.74%. It’s no wonder that Sofi has notched several consecutive quarters of 100+% product growth.

In Q2 2022, Sofi reported revenue of $352.4 million. This was a YOY increase of 53%. It also reported a net loss of $95.8 million. Sofi went public in late 2020. Since then, its stock is down approximately 36%.

The Bottom Line on Student Loan Stocks

I hope that you’ve found this article on why you should short student loan stocks to buy valuable! As usual, please base all investment decisions on your own due diligence and risk tolerance.