Navient, the largest student loan servicing company in the U.S., reported fourth quarter earnings last week that fell short of Wall Street’s expectations and was lower on a year-over-year basis, hurt by reduced net interest income and higher costs.
For the fourth quarter of 2016, Navient said net income came in at $129 million, which is lower than the $169 million it lodged a year before. Earnings came in at $0.43 a share, which was a penny shy of what analysts were predicting, according to Zacks Consensus Estimate.
During the quarter, Navient said the Federally Guaranteed Student Loans segment saw a 4.2 percent decline year-over-year – hurt largely by reduced net interest due to amortization of the portfolio. Meanwhile Navient’s private education loan business saw a 26.8 percent decline from a year ago – also hurt by lower net interest income.
Total delinquencies during the quarter increased to 7.4 percent, up 20 basis points from the previous year. As of the end of 2016, Navient had $23.2 billion in total outstanding student loan debt, which marks an 11.6 percent decline from the previous year.
Navient’s results for the fourth quarter comes just days after the student loan servicing company was hit with a scathing lawsuit by the Consumer Financial Protection Bureau. The CFPB alleged Navient, the former unit of Salle Mae, provided borrowers with inaccurate information about paying back their loans, processed payments incorrectly, and did nothing when borrowers complain. The CFPB also charged Navient with cheating borrowers out of lower student loan payments which resulted in them paying more than was necessary in the form of interest. The CFPB is now seeking relief for borrowers that were impacted by Navient’s practices.
In its defense, Navient Chief Executive Officer Jack Remondi explained that problems arising in the student loan servicing industry are due to the lack of understanding and cooperation between the Department of Education and the CFPB. What’s more, Remondi says the student loan servicing industry has requested “clear and consistent” rules for loan services, even offering up recommendations, but to no avail. Navient has vowed to fight the lawsuit.
Though Navient’s results for the fourth quarter cannot be considered strong, Zacks thinks Navient will continue to dominate in the student loan servicing market, partly due to continued acquisitions of federal student loan servicing contracts as well as private student loans from its sister company, Sallie Mae. Still Zacks noted that legal and regulatory problems, such as the CFPB lawsuit, remain a big concern and could weigh on results going forward.
Author: Andrew Rombach
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