President Joe Biden is expected to announce his student loan debt plan on Wednesday.
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With the Biden administration expected to announce Wednesday the cancelation of an estimated $10,000 in federal student loan debt, one analyst expects the move will be a negative for loan providers Nelnet and Navient .
President Joe Biden is expected to announce his student loan debt plan on Wednesday. It’s expected that he will cancel up to $10,000 in federal student loan debt for each borrower with an income cap of $125,000. Biden also might extend the suspension of debt payments for what would be the fifth time. The current suspension is currently set to expire on Aug. 31.
Nelnet (ticker: NNI) and Navient (NAVI) are two publicly traded student loan providers and collectors. Both stocks have declined this year, with Nelnet down 12% and Navient down 23%.
Ed Groshans, an analyst from Compass Point Research, wrote in a research note that he expects the pause on student loan payments to continue until Dec. 31 or Jan. 31, and student loan forgiveness “would likely be negative for Nelnet and Navient.”
Groshans said Nelnet reported in a recent filing that it services student loans for 15.4 million borrowers. Groshans noted how the company said that $10,000 of forgiveness would decrease the number of borrowers serviced by Nelnet by about 4.3 million.
Groshans also said that “if prepayments speeds were two, four, or 10 times faster than its current projections, its estimated lifetime cash flow of $1.72 billion would decline by $0.13 billion, $0.33 billion, and $0.58 billion, respectively.”
Nelnet said in its filing that “some variability in prepayment levels is expected, although extraordinary or extended increases in prepayment rates could havea materially adverse effect on our revenues, cash flows, profitability, and business outlook, and, as a result, could materially, adversely affect our business, financial condition, and results of operations.”
Groshans also cited a recent filing from Navient in which the company laid out the risks for its operations if student loans get canceled.
“If a broad -based student loan forgiveness plan … is implemented, it will likely result in an increase in prepayments, which could be significant, of our existing education loan portfolio and could materially and adversely impact our profitability, results of operations, financial condition, cash flows or future business prospect,” Navient said.
Nelnet and Navient aren’t the only stocks at risk of feeling the pinch of student loan forgiveness. SoFi Technologies (SOFI) lowered its full-year guidance after the last student-loan moratorium was pushed to Aug. 31. Coming into Wednesday trading, the stock has dropped 61% in 2022.
Not all student loan providers are expected to be negatively affected by the potential student loan forgiveness. Barclays analyst Mark DeVries wrote on Wednesday that SLM ( SLM
) and Discover Financial Services (DFS) “are best insulated given they originate and hold private student loans, which should not be impacted by any forgiveness, though could benefit from a de-leveraging of student borrowers.”
Write to Angela Palumbo at angela.palumbo@dowjones.com
Source: finance.yahoo.com