Last Tuesday, U.S. President Donald Trump discussed the numerous challenges facing the United States. From immigration reform to Chinese trade disputes, from nuclear treaties to U.S. economic growth, the president touched on a steep road ahead.
But one topic that didn’t receive any attention was the rising cost of college and post-graduate education.
This is the second highest level of consumer debt in America after mortgages.
That debt has reduced Americans’ ability to buy homes, start families, and more.
And the crisis is about to get a lot worse with little relief on the horizon.
Today, I want to discuss the broader economic trend, several innovations to address the crisis, and one stock to buy to start profiting from this growing debt pile…
The Harsh Reality of the Student Loan Crisis
Make no mistake. The student loan “crisis” is entirely manmade.
The U.S. government will write a check for anyone who wants to go to college – no questions asked. All you need to do is sign up and fill out a few papers, and you can get access to hundreds of thousands of dollars in loans for an education you might not have needed in the first place.
Solutions to the crisis haven’t presented themselves in bulk. The federal government has provided forgiveness to students who work in the public sector. Democrats are pressing for greater levels of student loan forgiveness ahead of the 2020 election.
But for any of that to happen, it would require Democratic control (a supermajority) in Congress and the White House. Plus, you can expect a jammed-up court system over such legislation.
The reality is that we would be at least four to six years away from that possibility. In the meantime, innovation in the private sector will take precedent on how to address the student loan crisis.
One idea came recently from Purdue University. The school will allow students to get an education – and then sign over a part of their salary for the next 10 years. It’s a start, but it’s unclear if the school will aim to promote higher-paying STEM degrees or not.
That means the status quo could remain in place for the broader sector.
And if you want to make money trading on the ever-growing demand for college capital, we have the perfect stock for you to buy today.
This Dirt-Cheap Stock Can Help You Profit from the Student Loan Crisis
The company to watch today is Navient Corp. (NASDAQ: NAVI), which is the largest student loan servicer in the country. The company was initially spun off by Sallie Mae. It has 12 million customers and services about $300 billion in loans.
Make no mistake: This isn’t a popular company. Investing in the student loan industry is like buying into sin stocks.
Right now, this stock is dirt cheap. The reason is simple: Several states have sued the firm over the company’s business practices. Illinois, Washington, and Pennsylvania allege that the company gave loans to borrowers who were at a high rate of default. The Consumer Financial Protection Bureau continues to beat up the company any time that the issue of student loans is brought up.
The charges are not for the faint of heart. But there is a lot to like. The stock’s price to free cash flow is mind-bogglingly low at just 3.35.
When I’m screening stocks, I am typically looking for something that is trading at a price-to-FCF of 10 and below.
A 3.35 figure is a great starting point.
What else: Its 5.55% dividend is safe and reliable.
And the stock trades at a price-to-tangible-book value of just 1.04.
But there’s more here. The company has been increasing its book of refinanced loans as interest rates continue to rise thanks to the U.S. Federal Reserve. It will not be able to expand operations with the expiration of a non-compete agreement with the nation’s largest private student lender – SLM Corp. (or Sallie Mae).
Its new focus on refinancing loans will make it a stronger player in the space – and allow customers to lower payments and remedy their economic plight.
Finally, the stock has a perfect VQScore of 4.75. That puts Navient right in the “Buy Zone.”
There’s a turnaround story for Navient. And the numbers say that the stock is a buy.
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Source: Money Morning