Canceling $50,000 in student loan debt for each borrower could go a long way for tens of millions of Americans.
According to recent data released by the U.S. Department of Education, forgiving $50,000 student debt would completely wipe out loans for 36 million Americans, representing 84% of the borrowers.
But does President Joe Biden have the authority? And will he pull the trigger if he does?
He is on the record for saying he will "not make that happen” at a CNN town hall in Milwaukee in February after an audience member asked if he would cancel at least $50,000 in student loan debt.
However, there has been mounting pressure from progressives and even some corporate Democrats like New York Senator Chuck Schumer since then that have been calling on Biden to spare more than 30 million Americans from their student loans.
Now, it appears that Biden is at least considering the move. Earlier this month, he asked Miguel Cardona, his education secretary if the President has the authority to cancel up to $50,000 in student loan debt.
The president has repeatedly said that he’s prepared to write off $10,000 for each borrower with a stroke of a pen. For some, that might not be nearly enough. According to a recent report posted by upper education expert Mark Kantrowitz, 15 million Americans would see their student debt disappear, as a result of canceling $10,000 for each borrower. In addition, the U.S. federal education debt would fall to $1.3 trillion from $1.7 trillion.
Regardless if it's $10,000 or $50,000, a good chunk of Americans will likely get some if not all relief from student loans. In a sense, forgiving student debt acts like another stimulus package of its own. But forget getting intoxicated on cruise ships, or buying that new MacBook Pro from Apple (Nasdaq: AAPL; giving people thousands of dollars in relief from student loans will give them more long-term financial flexibility.
Below are a few stocks you’ll want to consider buying ahead of Biden potentially forgiving up to $50,000 in student loans.
1. Zillow Group (NYSE: Z)
Market Capitalization: $33.64 Billion
With student loans potentially getting wiped out for many Americans, some might look to become homeowners. As a result, I would take a look at online real estate marketplace Zillow.
Through its platform, the company allows buyers to pick a Zillow-owned home and select a move-in date. The platform also allows people to sell their homes to Zillow; the company typically charges a service fee in the range of 6% and 9% to sellers.
It also offers consumers an online mortgage marketplace that allows them to find the best rates and get pre-approved for their next home purchase.
But Zillow’s stock has been on a pullback in the past couple of months, with many growth stocks slumping on fears of rising interest rates. Plus, fellow real estate platform Opendoor Technologies (Nasdaq: OPEN) posted an abysmal earnings report in early March.
With shares down 15% since early March now might be a good time to buy Zillow.
2. Lennar Corp (NYSE: LEN)
Market Capitalization: $31.75 Billion
In the housing space, I would also take a look at Lennar.
The Miami-based company mainly sells single-family attached and detached homes that target first-time, luxury, active adults, and move-up homebuyers. Most importantly, Lennar is coming off an exceptional first quarter--crushing estimates.
In the quarter (ending Feb. 28), revenue grew 18% to $5.33 billion while earnings more than doubled year-over-year to $3.20 per share. Analysts were calling for revenue of $5.13 billion on earnings of $1.71 per share.
Following the blowout first quarter, BTIG analyst Carl Reichardt lifted Lennar’s stock target to $117 from $104, while keeping a buy rating.
Specifically, the analyst noted that the company’s announcement of a single-family rental joint venture represents a "significant forward step" to grow, monetize assets, enhance returns and achieve a larger valuation.
Also, the stock is relatively cheap, maintaining a PE Ratio under 11. It also pays a dividend, with its yield sitting around 1%.
As of Monday, the stock was trading just under $104 per share.
3. Carvana (NYSE: CVNA)
Market Capitalization: $48.92 Billion
Eliminating a big chunk of student loan debt will also give some people the financial flexibility to look at the auto market. That could pave the way for a spike in demand in online used car dealer Carvana.
According to Carvana, it offers car financing and auto loan solutions to consumers regardless of what their credit status is. The e-commerce platform also likes to separate itself from a traditional dealership; it claims it can save customers $1,400 through its online process compared with dealerships. While Carvana does not make cars, it buys and reconditions them for sale.
Carvana's sales have been growing rapidly. For the quarter, the company’s top line came in at $1.83 billion, up 65% year-over-year and ahead of Wall Street’s expectations. Meanwhile, the company has yet to show a profit. Carvana incurred a net loss of 87 cents per share, much wider than the 47 cents analysts expected.
Morgan Stanley analyst Adam Jonas praised Carvana following the financial report, upgrading the stock to a buy with a $420 per share price target.
“We believe Carvana is uniquely positioned to serve an automotive and transportation [addressable market] that goes far beyond the used car market, driving potentially far higher growth that is not reflected in today’s share price,” he said, as cited by Barron’s.
“In our opinion, describing Carvana as just a ‘used car dealer’ is like describing Amazon nearly two decade sago as just an online bookseller.”
Currently, there’s a buying opportunity in Carvana with shares down 7% since early March.
4. Santander Consumer USA Holdings (NYSE: SC)
Market Capitalization: $9.58 Billion
Given its dividend, Santander might be the most enticing pick on this list.
The Texas-based company focuses on auto financing and third-party servicing, managing more than three million customer accounts. It provides consumer financing for both new and used cars.
For the three months ending December, Santander posted revenues of $2.06 billion on earnings of $1.70 per share. Both figures were ahead of the Zacks Consensus Estimate.
While there isn’t a big dip opportunity on the Santander, the stock like Lennar is pretty cheap, with a PE Ratio of just 11.
Shares of Santander are up 43% year-to-date.
Currently, Santander’s dividend yield sits at 2.80%.