BUSINESS
01/07/2016 09:09 pm ET Updated Jan 08, 2016

Wall Street Is Pummeling The Nation's Largest Student Loan Company

Investors flee Navient Corp. as concerns mount.
Globe Newswire

Student loan giant Navient Corp. plunged on Wall Street Thursday to an all-time low that for the first time was less than the company's book value.

Navient shares fell 6 percent to $10.27 as an influential progressive group urged states to crack down on the student loan servicing industry. Navient's most recent book value, an estimate of how much shareholders could fetch if the company were liquidated, was $10.73 per share, suggesting that investors now believe the company is worth less than the value of its assets.

Until Thursday, Navient stock had never closed below book value. A year ago, Navient traded at twice its book value.

More than 12 million student loan borrowers, or about one in four, have a relationship with Navient, making it the nation's largest student loan specialist. The company, formerly known as Sallie Mae, also is a major U.S. Department of Education contractor.

Navient shares have plunged 53 percent over the past year, and are down about 40 percent since the company spun off from Sallie Mae in 2014 and began trading independently.

Patricia Christel, a Navient spokeswoman, didn't respond to a request for comment.

The company is contending with a variety of woes, from a possible lawsuit from the federal Consumer Financial Protection Bureau over allegations it cheated student loan borrowers, to investors' concerns that the company will struggle to meet its obligations.

The Education Department last year declined to renew Navient's lucrative debt-collection contract after finding that it had been misleading borrowers, which the company disputes. Last month, President Barack Obama signed a law that may significantly reduce the number of new loans the company services on the Education Department's behalf, and Standard & Poor's downgraded Navient’s senior unsecured debt further into junk territory.

On Thursday, a new threat emerged after an advocacy organization with close ties to the Obama administration recommended that state governments toughen oversight of the student loan servicing industry, or the business of collecting borrowers' payments and counseling them on their repayment options.

Generation Progress, an arm of the Center for American Progress, urged states in a report to consider enacting new laws designed to protect student loan borrowers and to specifically task state officials with helping borrowers resolve complaints against student loan companies.

The organization also recommended that state officials require student loan servicers to obtain licenses before they could do business in the state, a key step that would enable regulators to yank a dodgy company's ability to collect borrowers' monthly payments in their state.

"The student debt crisis requires immediate relief," Anne Johnson and Maggie Thompson wrote in the Generation Progress report. "Cleaning up the student loan servicing industry," they said, "will ultimately provide substantial relief to borrowers."

Connecticut recently enacted many of the reforms Generation Progress is pushing.

"Our national conversation on student loans should reflect deeply and vigilantly upon the residential mortgage servicing practices that exacerbated the depth of the mortgage crisis or, at the very least, delayed our economic recovery," Bruce Adams, general counsel at Connecticut's banking regulator, said in a July letter to the federal consumer bureau.

Pointing to student loan delinquency figures, Adams said, "This is not deja vu. We have been here before."

With more than 90 percent of the nation's $1.3 trillion student loan tab either owned or backed by the Education Department, the report's recommendations serve as an indictment of the department's lackluster efforts to police its own contractors. The department uses contractors, such as Navient, to collect borrowers' payments, giving it unparalleled ability to reform an industry the federal consumer bureau said in September was plagued by "widespread failures."

Concerns about customer service have been mounting over the past few years as total student debt has exploded. Outstanding student loans have more than doubled since 2008, according to the Federal Reserve. The average debt load for borrowers with federal loans has risen 51 percent over the same period, Education Department data show.

Distress has increased alongside total indebtedness. Americans now are more likely to be at least 90 days late on their student loan payments than on any other form of household debt, according to the Federal Reserve Bank of New York.

The federal consumer bureau said in September that borrowers often are treated unfairly by their servicers. Many have been pushed into default, alarming federal regulators and Treasury Department officials. The CFPB is developing new rules to end abusive loan servicing practices.

New consumer protection rules and more intense oversight could increase costs for companies such as Navient. 

Winfield Crigler, executive director of the Student Loan Servicing Alliance, a Washington group that represents servicers, didn't respond to a request for comment.

Dorie Nolt, an Education Department spokeswoman, declined to make Undersecretary Ted Mitchell, who oversees the department's loan division, available for an interview. In response to questions about the department's efforts to police its loan contractors, Nolt emailed links to past news releases, which promised the department would do a better job.

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