Navient activist investors defeated at shareholder meeting

Karl Baker | The News Journal

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Despite an electoral defeat, a band of activist Navient investors were elated on Thursday following the student loan servicing company's annual meeting in Wilmington.

Rhode Island Treasurer Seth Magaziner called the day's events a "huge success," even as roughly 65 percent of Navient shareholders voted against his proposal, which would have required the company to disclose how it manages risks related to the country's $1.5 trillion student debt market.

"It's unusual for any shareholder proposal to get this level of support when management does not support it," he said.

The Rhode Island pension system holds nearly 7,000 shares with Navient.

Pensioners from Rhode Island, as well as the AFL-CIO and elsewhere, had been encouraging the Delaware company "to do some soul searching about its loan servicing practices," said Magaziner, claiming its collections techniques are too aggressive for struggling student loan borrowers.

Countering those claims at Thursday's meeting, Navient CEO Jack Remondi said risk in the student loan sector is a result of high tuition costs and rules set by Congress.

Outstanding student loan debt increased 33 percent during the past five years, according to data from the Federal Reserve.

"Servicers, including Navient, do not make those loans," Remondi said.

The Delaware-based company, which employs about 800 people at its headquarters along the Wilmington Riverfront, is among the country's largest servicers of student loans, which includes debt collections and setting payment plans.

Magaziner's measure called for Navient's board of directors to issue a report to

investors about the way the company's "financial and reputational risks related to the student loan crisis." Details about how executive compensation is tied to that risk would have been included in the report.

"Elsewhere in the financial industry, you see an increased use of clawbacks in executive compensation," Magaziner said, referencing contract provisions that require officers to pay back salary when companies perform poorly.

The provisions within the measure were opposed by the company's board, which initially had asked permission from regulators to not include it on the shareholder ballot.

The board argued that the proposal would micromanage the company and probe "too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment."

Thursday's vote was the latest front in Navient's ongoing battles with shareholders, borrowers, politicians and regulators who have questioned the company's collection practices amid what many have called a looming student loan crisis.

Citing a ballooning number of delinquent student loans nationally, activists who spoke in Wilmington Thursday claimed Navient had not done enough to place borrowers into income-driven repayment plans. They also criticized the company's spending on lobbying.

Navient and its subsidiaries — Navient Solutions LLC and Navient Solutions Inc. — have paid Congressional lobbyists more than $1.5 million in 2018, according to federal records.

At Thursday's meeting Randi Weingarten, president of the American Federation of Teachers, argued the interests of shareholders mirror those of borrowers. Therefore, she said, Navient should reveal to investors the scripts it provides to call center employees who speak with borrowers.

It is those conversations that has caused the company's reputation to plummet, she said, while speaking as a proxy for NCG Group Trust, which holds about 22,000 shares of Navient.

"Borrowers, who are our future, are thinking that the company is terrible and has treated them awful. Then, ultimately shareholders are going to lose out," Weingarten said.

Navient reported a net income of $126 million for the first three months of 2018, up from $88 million a year earlier. The company holds $113 billion in total assets. Roughly 70 percent are federal student loans and 20 percent are private education loans.

The company services that debt, as well as roughly $200 billion worth of student debt owned by the U.S. government.

Despite strong earnings, Navient's shares have consistently sold for less than the price targeted by analysts.

"We are reiterating our buy rating and $15.50 price target on NAVI following 1Q18 results," Compass Point analyst Michael Tarkan wrote in an April report.

Navient shares sold for $14.59 at the close of the markets on Thursday.

The depressed stock price may be the result of volatility arising from numerous ongoing lawsuits facing the company, including from regulators at the Consumer Financial Protection Bureau and in the state of Pennsylvania.

In early October, Pennsylvania Attorney General Josh Shapiro filed a suit in federal court alleging that Navient harmed "countless" borrowers by "peddling risky and expensive subprime loans that they knew or should have known were likely to default."

Subprime loans are riskier for lenders because their borrowers have lower credit ratings.

While Navient responded to the allegations immediately, calling them unfounded, the company's share price nevertheless fell more than 14 percent after Shapiro filed the lawsuit.

Shareholders, angry over the loss in value, then filed a separate suit alleging Navient had "recklessly" failed to disclose loan operation details that were outlined in Shapiro's filing.

Navient also is the target of a claim filed by the federal Consumer Financial Protection Bureau over allegations that the company cheated borrowers out of their right to lower their payments.

Navient vigorously denies the CFPB charges. Adressing them again on Thursday, Remondi said Navient "has the lowest default rate in the industry."

BACKGROUND:

Student loan company Navient is target of a shareholder lawsuit

Pennsylvania attorney general sues student loan company Navient

Contact Karl Baker at kbaker@delawareonline.com or (302) 324-2329. Follow him on Twitter @kbaker6.