NEW YORK (MainStreet) The spin-off of Sallie Mae's student loan servicing arm from its consumer banking business seemed designed to suggest that nothing drastic was happening. Just as innocuous--or mysterious--is the servicer's new name: Navient. Punch that into a search engine and you'll find that Navient is also a surgical system that lets a doctor peer into a patent's skull while performing ear, nose and throat surgery. It's also the Instagram handle for a dude who digs old cars, among other things.
"Helping our customers navigate the path to financial security is everything we stand for," said CEO Jack Remondi in a February press release. "Our new name, Navient, symbolizes the expertise, experience and dedication we consistently deliver for our clients and customers."
As though there was a critical mass of people not willing to take Sallie Mae's word for what it was doing, the Department of Education's Information for Financial Professionals Website (iFap) Website posted a guidance on the name change along with a Q&A. New loans it originates will continue to be expensive and cost more than similar Federal loans. There's nothing to suggest that its debt collection practices will change.
And the old name lingers as business done by the company known as Sallie Mae collides with the Navient brand. In the Department of Justice's complaint that Sallie Mae violated the Servicemen's Civil Relief Act buy overcharging veterans on its loans, it identified the defendants through the names "Sallie Mae, Inc." and "Navient Delaware Corp." Even though Naveint is publicly traded, there's the risk that it will still being tarred by the Sallie Mae brush.
"Sallie Mae needed a distinct name for the servicing business since they were splitting into two companies," said Mark Kantrowitz, vice president and publisher of Edvisors.com and author of Filing the FAFSA. "The theory was that this would release value for their shareholders because one part of the business was a drag on the other."
Above all, Navient is in business to turn a profit, which is too frequently at odds with the goals of higher education.
"A lot of Sallie Mae's business moves can be interpreted in the context of a belief that the company was undervalued," said Kantrowitz. "For example, the deal with JC Flowers fell through, because Al Lord thought the company was worth more than JC Flowers wanted to pay. In hindsight, he should have taken the money that was offered."
New York City-based private equity firm JC Flowers attempted to take over Sallie Mae, offering $60 per share in April 2007. With Lord calling the shots, Sallie Mae rejected the offer in what became a divisive struggle for this company amid the burgeoning credit freeze that marked the financial crisis.
Sallie Mae eventually settled with its would-be suitors, which included Bank of America and JPMorgan Chase, in exchange for a $30 billion debt refinancing in January 2008. Although Lord is gone, this enterprise, may still be smarting from that undone deal. The two companies are trading separately and their combined share prices for Sallie Mae (SLM) and Navient (NAVI) was $26.44 when the markets closed on Monday.
An ongoing concern is that the new company could change any part of the game that isn't covered under its loan contracts.
"The good news for borrowers is that the contracts, also known as the terms of the loan, remain in full effect," said Michael Lux, an Indianapolis-based attorney and the founder of studentloansherpa.com. "A company re-branding, splitting or selling off loans cannot alter the terms of the agreement as originally agreed upon. This means that Navient can't suddenly double the interest rate of your loans or take any other similar measures not permitted by the terms of the loan."
The downside here is that if Sallie Mae was providing service or perks not specifically mentioned in the loan terms, Navient will be under no obligation to continue them. A Sallie Mae spokesperson could not be reached for comment.
An example of this, Lux wrote in his April 29 blog post, would be the Sallie Mae rate reduction plan.
"Currently, Sallie Mae assists borrowers who have fallen behind on their loans by lowering the interest rates on a temporary basis," he wrote. "This does not appear to be a term of the loan, but rather a program Sallie Mae has initiated to help borrowers catch up on their debut. Or from a Sallie Mae perspective, a way to get people to start making payments who had previously given up."
"It should be no surprise to anyone that Sallie Mae's public image is pretty tarnished," he added. "One of the reasons that they created Navient may have been for a fresh start."
--Written by John Sandman for MainStreet