The Biden administration announced Wednesday the cancellation of $10,000 in federal student loan debt. An analyst expects the move will be a negative for loan providers
President Joe Biden announced his student loan debt plan on Wednesday. The cancellation includes $10,000 in federal student loan debt for each borrower with an income cap of $125,000 or couples making less than $250,000 a year. Those who receive federal Pell Grants and make less than $125,000 a year are eligible for total forgiveness of up to $20,000.
Biden also extended the suspension of debt payments to Dec. 31.
“I made a commitment that we provide student debt relief, and I’m honoring that commitment today,” President Biden said during a press briefing Wednesday afternoon.
“I believe my plan is responsible and fair. It focuses the benefit on middle class and working families, and helps both current and future borrowers, and will fix a badly broken system. And these actions build on my administration’s effort to make college more affordable in the first place,” Biden said.
Nelnet (ticker: NNI) and
(NAVI) are two publicly traded student loan providers and collectors. Both stocks have declined this year, with Nelnet down 12% and Navient down 23%. They both were trading flat on Wednesday.
Ed Groshans, an analyst from Compass Point Research, wrote in a research note that 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.
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
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 deleveraging of student borrowers.”
Write to Angela Palumbo at [email protected]