Nelnet rises as Discover says company to service $10B student loan portfolio

During its earnings conference call, Discover Financial (DFS) said that it signed a servicing agreement with Nelnet (NNI) to become the servicer of its student loan portfolio. “It was a competitive process. And certainly, Nelnet showed that there’s a commitment to continue to dedicate resources and service that portfolio at a high level. The next step will be to continue the servicing migration activities. We expect those activities will take around six months. We’re – conservatively it may take a month or two longer. And then, as we’re doing that, our advisor will begin to market the portfolio. So, our expectations are that it will sell in the second half. And the implications for the business are as follows. So, there’s $9.5 billion of receivables. That equates to kind of risk-weighted assets of about $10.8 billion. We expect that, that will be — the exit of that will be — have a positive impact on net interest margin by somewhere between 10 and 20 bps on a full year basis. Charge-off rate could tick up mildly, so under 5 bps. And as of 12/31, we had $858 million of reserves. So, with a successful exit, those reserves will drop. And the sale price, the market will determine that, but we expect it to go above par,” Discover Executive VP and CFO John Thomas Greene said. Shares of Nelnet have gained over 3% to $85.77 in Thursday afternoon trading.