Navient (NAVI) Stock: Why It Fell Over 5% Today

By Amit Chowdhry ● Sep 13, 2022
  • The stock price of Navient (NAVI) fell by over 5% intraday today. This is why.

The stock price of Navient (NAVI) fell by over 5% intraday today. 

Why: Navient President and CEO Jack Remondi is planning to address a wide range of impacts on the company from anticipated loan consolidation activity related to the Student Debt Relief Plan announced by the Biden-Harris Administration on August 24, 2022 and the additional information subsequently published on the Department of Education’s Federal Student Aid webpage during a fireside chat at the Barclays 2022 Global Financial Services Conference. 

What does the webpage say: “ED is assessing whether to expand eligibility to borrowers with privately owned federal student loans, including FFEL and Perkins Loans. In the meantime, borrowers with privately held federal student loans, such as through the FFEL, Perkins, and HEAL programs, can receive this relief by consolidating these loans into the Direct Loan program.”

Preliminary review: Navient has conducted a preliminary review of the impact that the possible consolidation activity may have on its portfolio of FFELP loans. And the company’s impact will be dependent upon numerous contingencies including how many of its FFELP borrowers qualify, how many elect to consolidate their loans to obtain the benefits under the Plan, whether and how ED expands eligibility to borrowers with privately owned FFELP loans, or the possibility that the Plan may be subject to litigation or other delays in implementation. At this point in time, the final impact of such possible consolidation will not be known for an extended period of time primarily given that, currently, applications for debt cancellation will be accepted through the end of 2023. 

Impact: The company anticipates that the principal components of the financial items whose recognition would be accelerated through net income as a result of increased loan consolidations will be the amortization of loan premiums and debt deferred financing fees, which will reduce net income. These impacts will be partially offset by the benefit to net income from the release of the related allowance for loan losses and revenue generated from the assessed but previously unrecognized fees. 

As of June 30, 2022, the company’s FFELP portfolio included associated loan premium of $427 million, debt deferred financing fees of $364 million, allowance for loan losses of $245 million, and assessed but unrecognized fees of $125 million. 

In addition, the company had $232 million of goodwill related to the FFELP business on its balance sheet. The goodwill may be impaired depending on the level of loan consolidation activity. The company serviced FFELP loans for its own portfolio of approximately 2 million borrowers.

As an 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 to projected future cash flows would result in an acceleration of approximately $340 million of cash flows and, over the life of the portfolio, a net reduction of approximately $390 million.