Wall Street Punishes Troubled Student Loan Giant Navient Corp.

Stock drops to all-time low as investor fears grow.

Investors fled Navient Corp. on Wednesday, sending shares in the nation's largest student loan company to an all-time low as federal consumer regulators prepare a possible lawsuit targeting the loan specialist over its alleged mistreatment of borrowers.

Navient stock closed at $12.16 after falling to $11.97 in Wednesday trading, its lowest price since the company spun off from Sallie Mae last year. Its shares have plummeted nearly 44 percent since the start of the year, making it one of the worst performers in the Standard and Poor's 500 Index. The S&P 500 has tumbled about 5 percent this year, while shares in one of Navient's main competitors, Nelnet Inc., have dropped by 21 percent.

Traders also have pummeled Navient's debt securities as worries spread that the company may not make good on its obligations. The price of Navient's 10-year notes due in 2024 have fallen 13.63 cents over the last three months to 83.75 cents on the dollar, according to data compiled by the Financial Industry Regulatory Authority.

Wall Street is meting out punishment as the Consumer Financial Protection Bureau readies a possible lawsuit against Navient, a major Department of Education student loan contractor, for allegedly cheating borrowers. The consumer bureau sent Navient a letter on Aug. 19 telling its executives that the agency's enforcement staff had found enough evidence indicating that the company violated consumer protection laws, according to an Aug. 24 filing with the Securities and Exchange Commission.

The CFPB has been investigating the company for nearly two years, and in its August letter to Navient, the agency said its senior officials are now considering whether to sue the company in court. A group of state attorneys general led by Washington and Illinois has been probing the company for more than a year, amassing evidence that Navient allegedly harmed borrowers with its practices. State banking regulators also have launched an investigation.

Federal and state regulators have increased their surveillance of the student loan sector as outstanding debts reach $1.3 trillion and borrowers continue to fall behind on their payments despite the improving economy and generous federal plans that allow borrowers to make payments based on their earnings. Officials at the CFPB have repeatedly said they see parallels between how student loan companies process borrowers' monthly payments and counsel them on their repayment options and the way mortgage companies treated borrowers during the height of the recent housing crisis. Millions of Americans lost their homes as a result of mortgage companies' failures.

Navient has previously denied allegations that it acted improperly. In a sign of its confidence, Navient has increased how much it pays Timothy Hynes, the company's chief risk and compliance officer, despite its pending regulatory woes.

Patricia Christel, a Navient spokeswoman, didn't respond to a request for comment.

Consumers have filed thousands of complaints with the CFPB against Navient and its predecessor company, Sallie Mae. A Huffington Post analysis earlier this year found that no company had paid out more money in refunds to aggrieved borrowers with private student loans than Navient.

Analysts who follow the financial services sector have previously noted that refunds to borrowers via the CFPB complaint system could be a sign of company errors, heightening the risk of government fines for alleged wrongdoing.

Still, the company remains one of the Education Department's favored contractors for now.

The department last year renewed Navient's lucrative contract to collect monthly payments on federal student loans. The Education Department also cleared the company of wrongdoing following what Senate Democrats allege was a flawed investigation into Justice Department accusations that Navient intentionally cheated active-duty troops on their student loans for nearly a decade. Navient and the Justice Department agreed to settle the charges in exchange for refunds to allegedly harmed military personnel.