Navient, the Sallie Mae spin-off created in 2014, this week made public that they bought student loan refinancing company, (Earnest) for 155 million dollars. This is a major step for Navient, which previously has focused on servicing and collecting federal or private student loans. The acquisition now allows them to start originating loans in addition to servicing them. The market seem to of had a lukewarm reaction by evidence of its stock, NAVI, dropping 14% the day this was announced.
Backed By A Behemoth
Earnest has been a large player in the student loan market. According to Forbes, Earnest has so far raised $321 million in debt to fund refinancing student loans.
To put how big Navient is in perspective and comparison, Navient currently services $300 billion in student loans, compared to the ~$1 Billion in total by Earnest. Navient has been in the business of servicing student loans since 2014. Now with this acquisition, Navient via Earnest can start to originate loans and possibly give more options for refinancing these loans.
The Other Big Players In Student Loan Refinance
SoFi is currently the largest student loan company that specializes in refinancing. Last year alone, they originated almost a billion dollars in student loans. This year, it is expected that the company will cross the billion dollar threshold for amount of student loans originated in a single calendar year.
SoFi has been teaming up with Intuit (TurboTax) and Credit Karma to help advertise their loans. As of 2016, SoFI to date has funded over $12 Billion in student loan refinancing.
The Future Of Student Loans
Navient entering into the origination and refinancing business, I think is a huge sign of potential changes to come. After this transition, I suspect that Navient will focus on trying to boost Earnest to possibly the largest businesses in student loan refinancing over time.
My hope is that the consumers and individuals with student loans will end up benefiting. Lower interest rates, vertical integration, and costs savings all point towards a possibly better environment for loan repayment. Having the backing of a business as large as Navient will also provide more resources for Earnest.
However, there are some potential downsides. Navient could easily benefit from fees charged from these services or refinancing. With public student loan forgiveness, there is also a potential that this acquisition may lure people into longer repayment plans. Instead of the government forgiving the amount of loans, Navient could potentially advertise to have the loan refinanced through Earnest to opt out of student loan forgiveness plans. This would keep the borrower on the hook until the entire balance is paid in full.
While there is no evidence that these negative things may happen, there is always a downside potential. I like Earnest. I currently recommend it to people refinancing their loans. As the dust settles after this purchase, I’ll definitely be keeping a close eye on the companies to see what will be happening in the future.
What do you think about Navient acquiring Earnest?