Navient is making more loans. The old ones are holding it back.
New lending rose 77%, but Navient expects elevated credit losses to last longer. Loan-sale gains helped offset the cost, leaving several different views of quarterly profit.
Navient raised its estimate of future loan losses in the third quarter after concluding that elevated defaults and late payments would persist longer than it had expected.
New consumer lending through its Earnest brand rose 77% to about $1.4 billion in the third quarter. Navient nevertheless earned just $3 million on its usual adjusted measure, called Core Earnings, down from $27 million in the previous quarter.
The year-over-year picture improved: reported net income was $15 million, compared with an $86 million loss. A large gain from selling older loans helped absorb the new credit costs.
What changed in the loss outlook
Navient makes new loans while managing portfolios built up over many years. Most of the latest increase in expected losses concerned older private education loans and refinance loans made before its tighter credit policy began in 2024.
Navient recorded $178 million of provisions on legacy private education loans and $33 million on refinance loans. These charges reduce profit when the estimate of future loan losses rises.
The pressure was already visible in August's results, when Navient said defaults and delinquencies remained elevated despite some improvement. November's change was the expectation that those conditions would last longer.
Loan sales softened the hit
Selling older loans and interests in three loan trusts produced a $162 million gain. Of that, $63 million mainly came from removing the trusts' debt and assets from Navient's accounts.
Moving a separate in-school loan portfolio into the held-for-sale category released $42 million of loss reserves. A change in how newly originated in-school loans are valued also added $23 million to earnings.
Those gains remain in Core Earnings. That measure removes certain derivative-accounting effects and goodwill or acquired-intangible costs, rather than stripping out every unusual item.
Navient offered another view in its presentation: 30 cents a share after removing five selected items, versus ordinary Core Earnings of 3 cents. The extra calculation removes the large provisions on previously originated loans along with specified sale gains, reserve changes and an insurance-related benefit. It retains the $23 million valuation gain.
Growth is shifting toward a newer loan book
Refinance originations rose 65%, while in-school lending increased 84%. Management says the new loans target borrowers with stronger credit profiles. That newer business is growing alongside a shrinking portfolio of older loans.
An October reorganization placed Earnest and the legacy loan business under Navient Holdings. Existing shareholders received one holding-company share for each old share, while the older debt obligations remained at Navient LLC.
The next test is whether growth in the newer loans can produce steadier earnings as the older portfolios run down. The size of future reserve charges, the economics of further loan sales and the performance of the newer borrowers will show how quickly that transition is progressing.