A federal appeals court has cleared the way for automatic student loan relief to reach more than 170,000 additional borrowers, expanding the scope of the long-running Sweet v. McMahon case. The ruling now covers over 450,000 individuals and more than $23 billion in federal student debt, according to the Project on Predatory Student Lending.
The average relief per borrower is estimated at roughly $51,000, though this figure is a broad calculation rather than a guarantee of individual payouts. The settlement exclusively addresses federal loans; private education loans remain untouched by this decision. However, the removal of federal debt from servicers' books could still lead to account and balance reductions for companies that manage those loans.
The broader investment landscape shifted on July 1, when new regulations ended Grad PLUS loans for new borrowers and imposed caps on federal graduate lending. These changes could create funding gaps that private lenders are poised to fill, making companies like SLM Corporation (NASDAQ:SLM), SoFi Technologies, Inc. (NASDAQ:SOFI), and Nelnet, Inc. (NYSE:NNI) attractive to investors seeking exposure to this trend.
Recent trading activity reflects the market's reaction. SLM shares climbed 7.0% in the week ending July 31, closing at $26.00 with a market value of $4.95 billion and a trailing P/E of 7.3. SoFi slipped 0.9% to $16.31, valuing the company at $22.48 billion with a P/E of 36.2. Nelnet gained 1.9% to $135.87, with a market cap of $4.90 billion and a P/E of 11.8.
SLM appears to offer the clearest policy read-through, given its graduate loan product. In the second quarter, graduate originations surged 29%, with their share of total originations rising to 23% from 18%—growth that occurred before the federal caps took effect. The company reported $716 million in Q2 private originations, overall growth of 4.5%, and graduate growth of 29%. However, credit metrics show some strain: delinquencies stood at 3.72% and annualized net charge-offs rose to 2.95% from 2.36%.
SoFi's headline growth is more dramatic, with Q2 student originations reaching $2.7 billion, a 170% year-over-year increase. Its annualized student-loan charge-offs fell to 0.61%, a sign of improving credit quality. Yet, SoFi's disclosure provides only an aggregate student-loan figure, making its direct link to graduate policy changes less precise. CEO Anthony Noto described the quarter as a "clear inflection point."
Nelnet, which services $525.7 billion for 15.5 million borrowers, reported Q1 servicing revenue growth of 5.9% and segment net income of $15 million. The company faces the most immediate test, as it reports second-quarter results after Thursday's market close. Investors will scrutinize servicing balances, borrower counts, and segment margins.
To put the settlement in perspective, the $23 billion in relief is 6.7 times the combined latest-quarter student originations of SoFi and SLM—a comparison that underscores the scale of the federal action relative to private lending activity.
The settlement's implementation has been uneven. The Education Department processed only 60,000 of over 250,000 post-class applications by the deadline, leading to the latest automatic relief. Spokeswoman Ellen Keast called the deadline "unrealistic," but the Ninth Circuit upheld the lower court's refusal to extend it. PPSL President Eileen Connor said "the work isn't over," noting that more than 1,000 class members still await required relief.
Other federal relief programs remain active, including Public Service Loan Forgiveness, which requires qualifying employment and 120 payments, and borrower defense discharges for school-related misconduct. These avenues could continue to affect loan servicers and lenders.
Looking ahead, the week's catalysts include U.S. markets reopening Monday, with attention on whether SLM can extend its 7% weekly gain. Nelnet's earnings on Thursday will be a key test for the servicing sector. Throughout the week, the pace of settlement discharges, refunds, and account removals will be monitored for broader implications.
Risks remain, including the possibility that private demand may not offset tighter underwriting standards or weaker enrollment. SLM's rising charge-off rate and delinquencies highlight credit concerns. The investor split is sharp: SLM offers the clearest graduate-loan upside but carries higher credit risk; SoFi promises faster growth at a premium valuation; Nelnet faces the most immediate servicing test.
