President Joe Biden’s move to cancel student loan debt for millions of Americans could spell trouble for Navient ‘s earnings in the near term, according to Barclays. Analyst Mark DeVries downgraded shares of the education loan management company to equal weight as it becomes evident that Federal Family Education Loan Program (FFELP) loans can be included in the forgiveness plan. “The government’s recently announced plan for student loan debt forgiveness poses a material risk to NAVI earnings, as FFELP is more than 70% of earning assets and over 50% of pre-tax earnings,” he said. “That said, the shares remain cheap even factoring lower earnings power.” Last month, Biden announced he will forgive $10,000 in federal student loan debt for most borrowers and up to $20,000 for Pell Grant recipients. While many FFELP loans are now privately held by companies like Navient — making them unlikely to qualify for forgiveness — there are ways borrowers may be eligible. This poses risks to Navient’s business, where these loans account for a large portfolio chunk, DeVries wrote. “As more details emerge, it’s become clear that the administration intends to include FFELP loans in its loan forgiveness plan, effectively through consolidation (i.e. a “backdoor”) into direct loans (DL),” he said. “We estimate a material portion of NAVI’s portfolio (60-80%) could be consolidated away, resulting in 20-28% hit to our EPS estimate.” The firm lowered its price target on Navient to $13 a share, suggesting shares could fall about 13% from Thursday’s close. Shares have already tumbled more than 29% this year. — CNBC’s Michael Bloom contributed reporting
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