For more than 40 million people, the bill is due, again. After more than a three-year hiatus, those who are part of the more than $1.7 trillion in outstanding student loan debt now need to resume payments that were halted. (This is not to be confused with President Biden’s just-announced plans to cancel an additional $9 billion worth of student debt.) The grace period is over. And that has implications for the banking sector, and the stocks within it.

While some financial institutions do not have much exposure to the student loan market, others have been active in providing loans. And, with many students likely to seek to refinance their existing loans, these banking firms may again be able to count on additional revenue from what has recently been a fairly dormant segment of their business. Here’s how we got here, and a short list of stocks that may be attractive based on the resumption of student loan payments.

When Are Student Loan Repayments Beginning?

Interest payments started to accrue again on September 1, 2023, and monthly payments resumed on October 1. This ends a three and a half year saga that began when those payments were halted at the onset of the pandemic. Both the Trump and Biden administrations have extended that grace period multiple times.

There were attempts by the U.S. government to forgive a portion of the payments for some borrowers but the Supreme Court rejected Biden’s forgiveness plan in June. However, things are back to normal in this area, and that means a return to business as usual for borrowers and lenders.

If it’s dividend income and growth you’re looking for, there are other undervalued yet higher-yielding stocks that put cash in their investors pockets much more than these bank stocks. The Forbes Investment team has identified five of those in Five Dividend Stocks To Beat Inflation, a special report from Forbes’ dividend expert, John Dobosz.

How Are Banks Impacted By Student Loans?

That long time gap may have contributed in part to the dramatic underperformance of the bank stock sector the past few years. From March 1, 2020 through the end of last month, an index of bank stocks, Invesco KBW Bank ETF (KBWB), lost 4% including dividends, while the S&P 500 Index returned 54%.

While some student loans are issued by the U.S. government, others are privately-arranged, through financial companies like banks. Investors should be aware that in most cases, student loans are just one part of a much bigger banking entity. So, while the ebb and flow of the student loan market has some impact, it is not a pivotal force, particular in the case of the largest banks, who make many types of loans.

4 Top Banks Stocks As Student Loan Payments Restart

With economic uncertainty high, especially for consumers, some of the more attractive stocks in the banking sector are those that rely on size and strength. Or, if they are involved in the student loan business, they are efficient specialists in that area. Here are four stocks worth considering. As with any investment, be sure to do your due diligence before you put your money to work.

1. Navient (NAVI)

Of the four stocks mentioned in this, Navient is the one that stands out as a potential winner among the public companies that devote a significant portion of its business to education loans. Navient is a $2 billion market cap company, and its dividend yield of 3.9% and P/E ratio of only 6 are favorable metrics. NAVI’s revenue has declined 4.7% annually for the past five years, and as with many of its smaller peers in the financial services sector, it has had to rely on cost control and operating efficiency in a tough environment. While companies in this sector have a host of headwinds, NAVI appears to have a stronger chance than most to continue its leadership in the student loan business, especially with the resumption of payments that has just occurred.

2. JPMorgan Chase (JPM)

Fifteen years after the Global Financial Crisis, JPM is as close as it gets to “too big to fail.” Its $415 billion market cap and membership in the Dow Jones Industrial Average is a testament to the power and strength of its operations, and its stability over the decades. JPM has worked with the U.S. government to take on failing banks, and with financial markets and the banking sector still stinging from the March, 2023 near-failure of Silicon Valley Bank, investors may be better off on this side of the transaction. JPM is not involved in student loan payments to any great degree so it is shielded from much of that uncertainty. Trading at 9.3 times trailing 12-month earnings and yielding 2.9%, JPM makes the list here.

If it’s dividend income and growth you’re looking for, there are other undervalued yet higher-yielding stocks that put cash in their investors pockets much more than these bank stocks. The Forbes Investment team has identified five of those in Five Dividend Stocks To Beat Inflation, a special report from Forbes’ dividend expert, John Dobosz.

3. Goldman Sachs Group (GS)

GS, the other major financial institution in the Dow Jones Industrial Average, is a $100 billion market capitalization stock that, similar to JPM, is likely to land on right side of any financial chaos that ensues from a combination of student loan repayment concerns, credit card debt topping $1 trillion, and other current financial system risks. It yields 3.6%, and sells at 13.6 times earnings, a premium to JPM given the more growth and trading-oriented business mix it has versus, JPM’s greater reliance on traditional banking.

4. State Street (STT)

Forbes’ readers have likely started to learn more about exchange-traded funds (ETFs), which are gradually replacing mutual funds for many investors (see How To Build An ETF Portfolio for more). STT is one of the biggest players in that field with nearly $1 billion in assets and offering more than 130 ETFs, and is a leading operator in investment administration and custody for investment managers. That segment of the economy appears to have more visibility than what appears to be an increasingly stressed consumer banking market, making STT an alternative to traditional bank stocks. Its dividend yield of 3.4% and reasonable valuation of under 9.8 times trailing 12-month earnings, in addition to the stock’s 13% decline this year, make STT a value stock consideration.

Bottom Line

The resumption of student loan payments is good news for the U.S. government, which backs all such loans, makes the majority of those loans, and thus can expect to regain a source of revenue that has been lacking since March, 2020. It is less compelling for the borrowers who now need to resume payments at a time when inflation and other economic pressures are rising.

Some businesses in the bank sector will thrive in this reversion to the pre-Covid era student loan market structure. However, with all the ways that banking has changed over the last decade, the best stocks may be found in the form of more diversified businesses, including the four highlighted above.

If it’s dividend income and growth you’re looking for, there are other undervalued yet higher-yielding stocks that put cash in their investors pockets much more than these bank stocks. The Forbes Investment team has identified five of those in Five Dividend Stocks To Beat Inflation, a special report from Forbes’ dividend expert, John Dobosz.

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