Student Aid Bill Of Rights: No Impact on SLM, NAVI?

Student Aid Bill Of Rights: No Impact on SLM, NAVI?

President Barack Obama recently signed the “Student Aid Bill of Rights” to ensure strong consumer protections for student loan borrowers. The initiative is part of the President’s vision for an affordable and quality education for all Americans.

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The Student Aid Bill of Rights would also help borrowers manage their debt responsible, improve federal loan student servicing, and protect taxpayer’s investments in the student aid program.

The Student Aid Bill of Rights ensures the following:

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  • Every student deserves access to a quality, affordable education at a college that’s cutting g costs and increasing learning.
  • Every student should be able to access the resources needed to pay college.
  • Every borrower has the right for an affordable repayment plan.
  • Every borrower has the right to quality customer service, reliable information, fair treatment even if they struggle to repay their loans.

According to the White House, Pres. Obama will also sign a Presidential Memorandum instructing the Department of Education and other federal agencies to work across the federal government to implement the following:

  • A state-of-the-art complaint system to ensure quality service and accountability for the Department of Education, its contractors and colleges
  • A series of steps to help students responsible repay their loans including help setting affordable monthly payments
  • New steps to analyze student debt trends and recommend legislative and regulatory changes

Student Aid Bill of Rights: a politically-motivated initiative

James Fotheringham, an analyst at BMO Capital Markets, the Student Aid Bill of Rights is a “predictable, politically-motivated initiative by the Democrats to rally their base.”  According to him, it is a pre-election effort to energize support for the party particularly from younger voters.

Fotheringham added that they expect further pre-election initiatives related to student loan as the election kicks into full gear.

The analyst noted that the Student Aid Bill of Rights proposes the right to discharge student debts, both private and government guaranteed (FFELP) loans into bankruptcy. It also intensifies scrutiny of student loan servicers.

Fotheringham believed that the proposal to grant student borrowers the right to purge debt through bankruptcy would imply potential financial risks to lenders such as Sallie Mae. Given the financial risk to student lenders, he suggested that the proposal is unlikely pass into law.

He noted that FFELP loans have long been exempted from bankruptcy, and the Republican-led Congress recently exempted private student loans.  According to him, “We do not expect the current Republican-led congress to make an about-face on this issue.

Student Aid Bill of Rights has no impact for Sallie Mae, Navient estimates

Fortheringham said the Student Aid Bill of Rights has no impact to their estimates on Sallie Mae and Navient, and maintained his Market Perform rating for the stocks. He did not make any changes to his earnings estimate for Sallie Mae.

According to the analyst, the shares of Navient already declined 10% since the company disclose that it a small servicing contract with the Department of Education. He noted that the loss was more than offset by the acquisition of Gila, government collections business. According to him, Navient already discounted pre-election headline risks.

Fortheringham increased his 2015 earnings estimate for Navient to $2.24 from $2.20 per share. He also raised his 2016 earnings estimate for the company from $2.38 to $2.42 per share.

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Marie received her Bachelors Degree in Mass Communication from New Era University. She is a former news writer and program producer for Nation Broadcasting Corporation (NBC-DZAR 1026), a nationwide AM radio station. She was also involved in events management. Marie was also a former Young Ambassador of Goodwill during the 26th Ship for Southeast Asian Youth Program (SSEAYP). She loves to read, travel and take photographs. She considers gardening a therapy.
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