- Navient (NAVI) stock price fell more than 5% during the day today. That is why.
Navient (NAVI) stock price fell more than 5% during the day today.
Why: Navient President and CEO Jack Remondi expects to address a wide range of business impacts from expected loan consolidation activity related to the student debt relief plan announced by the government. Biden-Harris administration on August 24, 2022 and additional information subsequently posted on the Department of Education’s Federal Student Aid webpage during a fireside chat at the World Conference on Barclays financial services 2022.
What the webpage says: “ED is evaluating whether to expand eligibility to borrowers with private federal student loans, including FFEL and Perkins loans. In the meantime, borrowers with private federal student loans, such as the FFEL, Perkins, and HEAL programs, can take advantage of this relief by consolidating those loans into the Direct Lending Program.
Preliminary examination: Navient has conducted a preliminary review of the impact that potential consolidation activity may have on its FFELP loan portfolio. And the company’s impact will depend on many contingencies, including how many of its eligible FFELP borrowers, how many choose to consolidate their loans to obtain plan benefits, whether and how ED expands eligibility to borrowers with private FFELP loans, or the possibility of the plan being subject to litigation or other implementation delays. At this stage, the final impact of such a possible consolidation will not be known for a long time, mainly given that currently requests for debt cancellation will be accepted until the end of 2023.
Impact: The Company expects that the main components of financial items that will be accelerated to net income due to the increase in loan consolidations will be the amortization of loan premiums and deferred financing costs on debt, which will reduce net income. These impacts will be partially offset by the benefit to net income from the release of the related provision for loan losses and revenue generated from fees assessed but not previously recognized.
As of June 30, 2022, the company’s FFELP portfolio included an associated loan premium of $427 million, deferred financing costs on debt of $364 million, provision for loan losses of $245 million and assessed but unrecognized charges of $125 million.
Additionally, the company had $232 million of goodwill related to the FFELP business on its balance sheet. Goodwill may be impaired depending on the level of loan consolidation activity. The company managed FFELP loans for its own portfolio of approximately 2 million borrowers.
For example, the company currently estimates that if 10% of the 2 million FFELP borrowers were to immediately consolidate their loans under the Plan, the impact on projected future cash flows would result in an acceleration of approximately 340 million in cash flow and, over the life of the portfolio, a net reduction of approximately $390 million.