Navient moves to compete with former parent Sallie Mae

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Navient has begun offering education loans to college students following the expiration of restrictions on its ability to compete with Sallie Mae.

Since being spun off from Sallie Mae in 2014, Navient has focused largely on the business of collecting payments from borrowers who have already taken out student loans.

But in 2017, Navient acquired Earnest, a startup lender that specializes in refinancing student loans. And Dec. 31, 2018, marked the end of contractual provisions that barred Navient from competing with Sallie for new student loans.

Navient, of Wilmington, Del., is using technology that was developed by Earnest in its new offering for current students. The Earnest-branded product, which launched last week, will enable borrowers to check their eligibility in two minutes by providing basic school information, school details and an estimated credit score, according to the company.

Earnest’s loan application process is also meant to reduce the awkwardness of asking someone to cosign the loan.

“Today, the process of applying for a student loan is woefully outdated,” Earnest CEO Susan Ehrlich said in an April 16 press release. “Our team conducted over 300 hours of user research with students, cosigners and financial aid offices to re-engineer the student lending process from start to finish.”

Because Navient is not a bank, it has a higher cost of funds than some of the deposit-funded lenders — including Sallie Mae, Wells Fargo, Discover Financial Services and Citizens Financial Group — that it will compete against in private student lending.

Navient may be able to reduce that funding disadvantage by relying more heavily than some competitors on digital marketing, as opposed to direct mail.

Navient CEO Jack Remondi said Wednesday that near-term expectations for the new loan product are modest; the company expects to originate roughly $300 million worth of loans to current students this year. By comparison, Sallie Mae originated $5.7 billion in private education loans last year.

“But we think we can capitalize on our experience, our product innovation and design, and really ramp this product up pretty quickly over the next several years,” Remondi said during Navient’s quarterly earnings call.

Navient reported first-quarter net income of $128 million, up $2 million from a year earlier, as net interest income declined.

The company refinanced $984 million in student loan debt in the quarter, a 97% increase from the first quarter of 2018.

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Student loans Consumer lending Digital banking Navient Earnest