NAVI - Student loan forgiveness to impact Navient more than Nelnet Credit Suisse says

Navient ( NASDAQ: NAVI ) stocks has dropped 8.1% in Monday late morning trading after Credit Suisse analyst Moshe Orenbuch said Navient and Nelnet ( NYSE: NNI ) would be impacted by the federal student loan forgiveness plan if privately held Federal Family Education Loan Program (FFELP) loans become eligible.

Nelnet ( NNI ) shares were down 0.8% .

A New York Times article said FFELP loans would be eligible for consolidation if they were disbursed before June 30. If borrowers consolidate FFELP loans into a federal direct loan, then they're eligible for the student loan cancellation, the NYT reported. The Department of Education is also working with entities that oversee cancellation-ineligible FFEL loans, "with the intention of making cancellation available for borrowers who have those loans," the article said.

"If this is correct, it is likely that loans held by NAVI and NNI would be subject to the forgiveness program, and could even be more extreme, if borrowers consolidate to take advantage of forgiveness — because the companies would lose the entire balance, not just the $10,000 amount forgiven," Orenbuch wrote in a note to clients.

If prepay speeds doubled at Nelnet ( NNI ), cash flows from its securitized FFELP loans would fall 8% to $1.59B and if they quadrupled, cash flows would drop 19%, NNI said in its Q2 10-Q filing .

Navient ( NAVI ) didn't provide any projections in its 10-Q filing . "While this is not a precise representation, we note that FFELP net interest income represents ~37% of Navient's revenue in Q2 compared to ~23% for Nelnet," Orenbuch wrote. "As such, we would conclude (with the limited disclosure provided) that the risk is higher for NAVI than at NNI."

Last week, SoFi Technologies ( SOFI ) stock climbed after the President Biden's student loan forgiveness plan was announced as it provided more clarity for the company's business of refinancing student loans.

For further details see: