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Navient is leaving the federal student loan industry. His stock was overwritten.

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Navient shares were down 13.9% on Wednesday.

The time of dreams


the nation’s largest student loan company, has sought government approval to terminate its loan service contract for student loan accounts owned by the U.S. Department of Education. The six million borrower accounts will be transferred to


a government loan service company.

Many of Navient’s loan service employees (symbol: NAVI) will be transferred to Maximus (MMS) to “ensure operational continuity of high quality service,” according to the companies’ announcement on Tuesday. The two companies have worked with the education department to ensure a smooth transition for borrowers and employees of Navient, Navient President and CEO Jack Remondi said in a statement.

Navient shares plunged 13.9% on Wednesday after the news and closed at $ 19.24. Maximus stock gained 1.4% to $ 84.69. the

S&P 500

climbed 0.2%.

This transaction is subject to the approval of the Federal Student Aid Office of the Ministry of Education. The office is reviewing documents from both companies to “ensure the proposal meets all legal requirements and properly protects borrowers and taxpayers,” FSA Director Richard Cordray said in a statement. If approved, the contract transfer is expected to be completed in Q4 2021.

Navient will continue to focus on areas other than servicing government student loans, Remondi said.

Student loan payments have been suspended since the Covid-19 pandemic, but the freeze is will expire next february. President Joe Biden has written off nearly $ 10 billion in student loan debt for more than 563,000 borrowers since taking office, but the vast majority of borrowers – over 43 million of them, with 1.7 trillion loan dollars – still waiting to see if some of their college debt can also be canceled.

Navient is the third company, after the Pennsylvania Higher Education Assistance Agency and Granite State Management and Resources, to announce its intention to end its student loan agreements this year.

Navient’s move is likely a reflection of the relatively small margin in federal student loan management activity, the JP Morgan analyst wrote. Richard shane in a Tuesday note to customers.

Shane estimates Navient will experience a loss of about $ 130-140 million in annual revenue after exiting the federal student loan business, and a 3% to 3.5% drop in earnings per share for 2022 and 2023.

But as the company will face less regulatory and reputational risk, stock market multiples will likely rise to make up for lost profits, Shane writes. He raised his target price for Navient stock to $ 22 from $ 21 and kept his stock rating at Neutral.

Some lawmakers, including Senator Elizabeth Warren (D., Mass.), Have criticized Navient for misleading borrowers with inappropriate marketing and for failing to inform borrowers of their rights.

Maximus, on the other hand, will see an increase in annual revenues of $ 130 million to $ 150 million from the resumption of the contract and an increase in EPS from 10 cents to 15 cents, the KeyBanc analyst estimates. Donald hooker.

There is no upfront cash payment for the transfer, Hooker wrote, but Maximus will be required to pay Navient an undisclosed share of his operating profits for the remaining two years of his contract with the Department of Leasing. ‘education.

Maximus currently generates $ 90 million in annual revenue through his work for the Department of Education, according to Hooker. Much of that has been put on hold due to the Covid-19 pandemic, but he expects it to fully resume in early 2022.

“We are excited to build on our strong track record of supporting the FSA as we expand into the Federal Student Loans service,” said Teresa Weipert, General Manager of Maximus’ Federal Services in the States. United, in a statement Tuesday.

Hooker rates the Maximus stock as overweight and has a target price of $ 110 per share.

Write to Evie Liu at [email protected]

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