Navient Corporation

Today, ladies and gentlemen, thank you for standing by, and welcome to Navient's third quarter 2022 earnings conference call. At this time, all participants are on the listen-only mode. After this speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 1. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker host today, Jennifer Arias, Head of Investor Relations. Please go ahead.

Thank you, Livia. Good morning and welcome to Navient's third quarter 2022 earnings call. With me today are Jaka Mundi, Navient's CEO, and Joe Fisher, Navient's CFO. After the prepared remarks, we're going to open the call up for questions. But before we begin, keep in mind that our discussion today will contain predictions, expectations, forward-looking statements, and other information about our business that is based on management's current expectations as of the date of this presentation. Actual results in the future may be materially different from those discussed here. This could be due to a variety of factors. Listeners should refer to the discussion of those factors on the company's Form 10-K and other filings with the SEC. During this conference call, we will refer to non-GAAP financial measures, including core earnings, adjustable tangible equity ratio, and various other non-GAAP financial measures that are derived from core earnings. Our GAAP results and description of our non-GAAP financial measures can be found in the third quarter 2022 supplemental earnings disclosure, which is posted on the investors page at Naviant.com. There is also a full reconciliation of core earnings to GAAP results included in the disclosure. Thank you, and now I will turn the call over to Jack.

Thanks, Jen. Good morning, everyone, and thank you for joining us today and for your interest in Naviant. Our long-term goals are to create value by growing our loan origination and business processing solution franchises, to effectively and efficiently manage our cash flows from our legacy student loan portfolios, and to reduce our risk. We are continuing to deliver solid results in each of these areas this quarter. Highlights include adjusted core EPS of 75 cents. We increased our in-school loan originations by 41% this quarter. with our full year performance expected to be an increase of 60% or 12 times the overall growth rate of the market. Traditional BPS revenue grew 14% compared to the year-ago quarter. We delivered stable net interest income despite the rapidly rising interest rate environment. We are exceeding our guidance in operating efficiency. A particular note is the 53% decline in felt segment operating expense. And we are defensively positioned in the loan loss reserves and capital for what we expect will be a deteriorating economy in 2023. The environment of rising rates, high inflation, and a declining economic outlook creates challenges. As you can see from our financial results, we are managing these challenges successfully. The recent executive orders on federal student loan forgiveness have created additional challenges. The announcement in August created significant confusion leading to massive increases in customer call volume with questions no one could answer. The recently announced changes in eligibility have added to this confusion. To be clear, as it stands today, commercially held felt loans like our portfolio are not eligible for the forgiveness program. Regardless of the outcome, we'll continue to work with our felt customers to make loan payments manageable, supporting our decades-long track record of 30% better default rates. I'm particularly proud of how our team is working to support customers through this confusing period. As Joe will explain in his remarks, the President's executive orders on loan forgiveness did lead to incremental consolidation activity this quarter. before the FELP eligibility rules changed. You will see that the financial impact of this quarter's incremental consolidation activity, which reduced earnings per share by five cents, was consistent with the guidance we provided last month. While we'd like to be able to provide greater insight on the future of loan forgiveness and its impacts, our crystal ball is a poor predictor of political outcomes. And so we remain focused on managing what we can, execution of our strategy and delivering for our customers and investors. In consumer lending, our goal is to build a value-creating franchise that serves students and families throughout their planning and paying for college journey. We offer families tools that make it easier to complete the FAFSA, search and apply for scholarships, and compare financial aid award packages. All of these services are available for free through our Going Merry platform. For those who are dreading the task of completing the FAFSA this season, I encourage you to visit goingmerry.com for our FAFSA made easier product. These high value and easy to use tools are driving significant growth in new users with over half a million new users added year to date, nearly three times as many as a year ago. We also help families pay for college with private loans. And after graduation, we offer refinancing options so graduates can simplify their loan management journey and capture the value of their college degree. Our in-school loan product is designed to clearly inform families of the value of making payments while in school. Making payments from the start significantly reduces the all-in cost of borrowing. Our efforts to convey this benefit have been very successful, with 85% of customers electing to make payments while in school. In the quarter, in-school originations increased 41% to $216 million. Most importantly, we're well-positioned to continue to grow at above-market rates next year and beyond. Our refinance volume was lower this quarter, the result of higher interest rates which reduces the addressable market, and the prospect of loan forgiveness, which has led potential customers to wait and see. We will be ready to return to growth with our market-leading products and services when these conditions improve. In BPS, we provide workflow processing, omnichannel communication, and revenue management services to clients and government and healthcare. Our technology-enabled solutions leverage data and our broad expertise to help our clients deliver high-quality services and increase revenue. While it may not be obvious, these abilities leverage the skills we develop and utilize each day in loan servicing. While total BPS revenue this quarter declined as our pandemic-related contracts wound down as expected, revenue from core services increased 14%. In FELP, we are successfully managing our net interest margin despite the rapid rise in rates. This is the result of effective hedging and funding strategies put in place ahead of the recent rise in interest rates. Credit performance also continues to be better than expected. Though the FELP and private portfolios' 91-plus delinquencies and defaults are higher than a year ago, approximately 40% of these balances were 91 plus days delinquent prior to the pandemic and received pandemic payment relief before returning to repayment. And consistent with prior quarters, our private loan delinquency and default rates remain below pre-pandemic levels. Still, we added $28 million to our reserves for future losses. $13 million for FELP, and $15 million for private to build on our defensive position in anticipation of a deteriorating economy. Our commitment to operating efficiency continues. It's particularly noteworthy that our operating efficiency improved despite rising interest rates and high inflation. This will remain a key area of focus for the team. Earlier, I stated that we were defensively positioned. Specifically, we added to our reserves for loan losses, not due to current trends, but in anticipation of weaker economic conditions. In addition, we have been building our capital ratios. Our enhanced capital will support our ability to invest in our growth while continuing to return capital to investors. These defensive actions will serve us and investors well in a recession. Our results this quarter are the product of hard work and a solid strategy. The Navient team is a focused and committed group, and we are eager to continue to create value for our customers and investors. I look forward to your questions after Joe provides more details on this quarter's results. Thank you for listening and for your interest in Navient. Joe?

Thank you, Jack, and thank you to everyone on today's call for your interest in Navient. During my prepared remarks, I will review the third quarter results for 2022. I will be referencing the earnings call presentation, which can be found on the company's website in the investor section. Key highlights from the quarter, beginning on slide four, include third quarter gap EPS and adjusted core EPS of 75 cents. both of which included a $0.05 reduction from incremental self-consolidation activity, felt NIM of 94 basis points, private NIM of 290 basis points, and originated $447 million of private education loans with $216 million from in-school originations, a 41% increase from a year ago, reported BPS revenues of $79 million, and increased our adjusted tangible equity ratio to 7.8% or returning $117 million to shareholders through dividends and repurchases. As a result of the solid earnings this quarter and including the 5 cent reduction from incremental consolidation activity, we are maintaining our earnings per share guidance range of $3.35 to $3.45 for the full year. I'll provide additional detail in the quarter and our outlook by segments beginning with federal education loans on slide five. Self-results this quarter were impacted by an incremental level of consolidation activity from loan forgiveness proposals that reduced overall pre-tax income by $10 million for $0.05 per share. The principal components of the $0.05 reduction are consistent with the potential impacts we highlighted in our 8 filing on September 13. The incremental consolidation activity reduced net interest income in the quarter through the acceleration of premium and deferred financing fees by $27 million to $120 million and net interest margin by 21 basis points to 94 basis points. We anticipate a continued rising rate environment and felt NIM to range between 105 and 115 basis points in the fourth quarter. In addition to the incremental prepayments that were processed in the quarter, This impact includes an estimate of an additional $1 billion of loans that have applied for consolidation in response to potential loan forgiveness prior to quarter end, but whose applications have not yet been processed by the Department of Education. Self-delinquency rates increased to 18.6%, and the charge-off rate increased to 12 basis points, primarily from borrowers that have fully returned to repayment after pandemic release. While we released $13 million of provision related to the incremental consolidation activity, we fully offset this release given our defensive expectation of a deterioration in the economy. This resulted in a stable allowance ratio of 0.5% in our government guaranteed portfolio. The decline in fee revenue and operating expenses in this segment compared to the prior year are primarily attributable to the transfer of the Department of Education servicing contract that occurred in October 2021. Let's turn to slide six on our consumer lending segment. Given the current rate environment, we are seeing a slowdown in prepayment speeds in the overall portfolio as borrowers have less of an incentive to prepay, which is benefiting net interest income. Net interest income in the quarter increased $11 million from the second quarter to $153 million and resulted in a net interest margin of 290 basis points and positions us well to exceed our full-year guidance of 255 to 265 basis points. While credit trends continue to be below pre-pandemic levels, we're seeing charge-off rates that are in line with our guidance of 1.5 to 2% for the full year. With $28 million of provisions in the quarter, included $13 million related to new origination, and $15 million related to our $20 billion portfolio, as a result of our forecast for a deterioration in the economy in 2023. We feel confident that we are adequately reserved for the expected life of loan losses given the well-seasoned and high credit quality of our portfolio. In the quarter, we originated $447 million of private education loans. This was comprised of $216 million of new in-school volume, representing a 41% increase compared to the prior year, and $231 million of private education refinance loans. This quarter saw an expected decline in demand for refinance loans due to the higher rate environment and the continuation of the CARES Act. Let's continue to slide seven to review our business processing segment. Third quarter revenues totaled $79 million and earned a 16% EBITDA margin. Revenue from our traditional government and healthcare BPS services increased 14% from the prior year partially offsetting the expected wind-down of revenue from pandemic-related services in the quarter. Our 18% EBITDA margin year-to-date is in line with our full-year targeted high-team EBITDA margins. Turning to our financing and capital allocation activity that is highlighted on slide 8. During the quarter, we reduced our share count by 4% through the repurchase of 6 million shares. In total, we returned $117 million to shareholders through share repurchases and dividends while increasing our adjusted tangible equity ratio to 7.8%. At quarter end, we have $685 million of share repurchase authority remaining and no unsecured debt maturities until the first quarter of 2023. Turn to GAAP results on slide nine. We recorded third quarter GAAP net income of $105 million, 75 cents per share, compared with net income of $173 million, $1.04 per share in 2021 for the same period. Finishing with our outlook for 2022 on slide 10. As we've demonstrated this quarter and past quarters, achieving cost reductions through taking advantage of identified efficiencies is a top priority. Our efforts to simplify the business while improving efficiencies in the face of a challenging environment allowed us to achieve an overall efficiency ratio of 51% year-to-date, which remains better than our original guidance. The $21 million restructuring charge we incurred in the quarter is primarily a result of reducing our facilities footprint and severance expense. This is just another example of how we identify opportunities for long-term savings. The 2022 adjusted poor earnings per share guidance of $3.35 to $3.45 reflects our continued efforts to improve efficiency and is an increase of 11% compared to our original expectations. This reaffirmed outlook excludes regulatory and restructuring costs, assumes no gains or losses from future loan sales or debt repurchases, includes the five-cent loss from incremental consolidation activity, reflects a continued rising rate environment, and the expected expiration of the CARES Act on December 31, 2022. Thank you for your time, and I will now open the call for questions.

Thank you. Ladies and gentlemen, as a reminder to ask a question, you will need to press star 1-1 on your telephone keypad. One moment, please, for our first question. And our first question coming from the line of Mark Devers with Barclays. Your line is open.

Yeah, good morning. Jack, it sounds like you feel like there's still a decent amount of uncertainty around the impact of loan forgiveness, despite the fact that the government has cut off future DL consolidation from eligibility. Can you just discuss what those sources of the uncertainty are? Is it mainly the billion dollars that's applied for consolidation that Joe referenced in his comments, or are there other things that you're focused on?

Well, I think there's still a fair amount of uncertainty on a number of fronts. One is the administration hasn't yet implemented the actual program guidelines of how this will be carried out for loans that are eligible. We have the court-related issues that are in play here. And the last piece I would add, and probably the piece that's most relevant to our portfolio, is the department comment that it is continuing to look for ways to allow loan forgiveness to be applied to felt loans. There's no specific proposal there. We're not aware of any action or discussions that are taking place on that front, but it is a comment that is in place. And I'll just remind folks, the prohibition or the ineligibility of felt loans came about through a a FAQ comment versus a specific policy statement in a Dear Colleague letter.

Okay, that's helpful. And then in a related topic, what are you seeing from refi demand thus far in 4Q? Has there been a pickup since the announcement on loan forgiveness?

So there are two big drivers that are decreasing demand for refi loans. By far, the biggest one is just the level of interest rates. So as interest rates have risen here, borrowers with existing loans at rates below what we can offer in the refi space clearly have no incentive to do so. So our total addressable market has declined significantly. And then along with the freezing, I guess, of activity, particularly for those with direct loans. Our focus in the refi space has been primarily on customers with private student loans and higher cost federal student loans that are in repayment and not eligible for forgiveness. But those two factors, both the rate and the uncertainty, are going to put a you know, are limiting the amount of demand that we expect to see. And our goal and focus here is to be originating, continue to focus on originating high-quality loans that make sense for us and be ready for when market conditions improve to return to growth.

Okay, got it. Thank you.

Thank you. One moment for our next question. And our next question coming from the line of Bill Ryan with Seaport. Your line is open.

Thanks, and good morning. A couple of questions. First one's on credit. Obviously, you had some elevation in delinquencies and forbearance rates on the FEL portfolio. Could you maybe elaborate on is that economic, or I know it may be hard to distinguish between the two, but economic versus the debt forgiveness program that people may have just stopped making payments until they get some clarity on what's going on. And then I'll go ahead and ask the follow-up question. It's just on the adjustments you made to the reserves. Going back to the reserve rate, if I remember it correctly, it's like 1.3% on consolidation loans and I believe 6% on in-school loans. Is there any adjustment that you're making to those cumulative loss reserve assumptions as a result of the change in economic conditions that you discussed on the call?

Thanks, Bill. This is Jack. On the both side of the equation, certainly delinquency and default rates are up. Actually, they're up on both segments of the portfolio. But both are rising or at levels that are below what we would have expected as previously delinquent accounts, took advantage of payment relief options during COVID and are now back in repayment. So as I shared, roughly 40% of borrowers that are in a 91-day delinquency status or have defaulted during the quarter, they were more than 90 days past due prior to the start of the pandemic, took advantage of the payment relief programs that we offered returned to repayment and have been moving and have moved back into delinquency statuses. That said, I mean, we are seeing very positive results. So the majority of customers who were delinquent and took advantage of those programs are still making payments and are performing well, particularly on the private side of the equation. So we think it was a good program overall, but it did shift defaults in delinquencies from 20 and 21 into 22, and we'll see a little bit of tail of that into 23. So nothing unusual there. Our increase in our provisions is purely a function of what we expect we'll get as a result of the declining economic outlook, particularly into 2023. On your second question, in terms of targeted levels, we have not changed our assumptions on that front. This is, again, purely a defensive move for us on both the FELP and the private portfolio.

And Bill, so just a little additional detail. So if you think about the overall provision in the quarter, $13 million was related to new originations. Roughly $10 of that was the in-school, and $3 million was for the new refi volume, which is in line with the numbers you quoted. Okay, thanks very much.

Thank you. One moment for our next question. And our next question coming from the lineup, Sanjay Sukhrani with KPW. Your line is open.

Hi, this is actually Steven Kwok filling in for Sanjay. Thanks for taking my questions. The first one I have was just around the reserve bill that you mentioned on the deteriorating economy. Could you just talk about the health of the consumer and what are you seeing on the borrower side?

Well, so far, we're actually seeing performance that is better than what we expected in both our FELP and private loan book. But certainly as inflation continues to rise, you know, we're hearing comments about depletion of customer savings and checking accounts and an expectation of a potential recession, which we are in that camp. It is, as I said, a purely defensive move for us. It's not based on any current trends in the portfolio. It's based on an anticipation of trends or performance getting or deteriorating in 2023. So, you know, we'll take a look and pay attention to this, but, you know, our view here is that, particularly on our Felton private portfolios, our goal is to be have solid levels of reserves for all potential economic outcomes, and we think we're well positioned for that at this stage in the game.

Got it. And then just as we think about the student loan payment pause that's going to expire early next year, how should we think about credit from that perspective?

Well, certainly if accounts return to repayment, that's going to put additional pressure on the direct loan portfolio customers, which are not our customers, direct loan borrowers. We don't even service those accounts any longer. They will have additional pressure on their pocketbooks just in terms of having to make an additional payment. But as we've seen, you know, I think the points that we would make, we returned our customers to repayment already. Both the FELP and the private portfolios would seen performance from those portfolios be better than expected, and in particular, better than what they were pre-COVID. So, you know, we're not overly worried about that particular thing. It's just, you know, one more piece in the inflation and, you know, high-rate environment.

Got it. Thanks for taking my question.

Thank you. One moment, please, for our next question. And our next question coming from the line of Moshe Orenberg from Credit Suisse. Your line is open.

Great, thanks. I guess the... As you guys talk about the impacts on the refinance business, you know, in the past you've talked about what rates you would be able to offer to borrowers given the current rate environment. Could you give us a little more detail, you know, what rates could you offer today? How does that compare to where, you know, the majority of these loans are and how much would they have to fall, you know, to be back to, you know, where you had, you know, a market on the grad side?

Thanks. Yeah, so, I mean, obviously the rates that we offer are highly dependent on the term, the duration of the loan that the customer is looking for and their particular credit. But if you think about on average being somewhere in the high sixes, low sevens as a rate, about 65% of the kind of federal student loan balances get kind of knocked out, if you will, on a rate basis as a result of those interest rates. Our focus has been primarily in 2022 on borrowers with obviously higher coupon loans on the federal side, and more importantly, borrowers with private student loans who have interest rates in the 9s and 10s and 12s. That's been our primary target audience. Recently, in our refi product, we just launched the ability to add a cosigner to our mix. Previously, all refi loans were really just the graduate borrowing on their own, and so we do think that this will open up an opportunity for further lending in the private loan segment, particularly to those parents who have taken out loans on behalf of their children.

Got it. Thanks. Jack, you had made some comments about taking, making hedging steps and hedging activity on the felt side of the business. Could you talk about what that is? And if you were to think about, you know, where your margin is going to end up once the Fed stops tightening and you no longer enjoy the benefit, but you'll have a higher rate environment. Could you talk a little bit about where that'll end up versus where it started pre the rate hype cycle?

Well, I'll talk a little bit just about the hedging, and then Joe can describe a little bit more about the direction. But, you know, one example would be on, you know, as you know, we have a floor option embedded in some of our felt portfolios, and historically we've hedged that by selling floor contracts into the marketplace. When rates got to some of the extreme lows that we saw, we hedged that instead with fixed rate liabilities. And so as interest rates have risen, you know, that has created obviously a fixed liability cost, which has been the benefit to the company. But, Joe?

An example of that would just be in our last securitization, just increasing the amount of fixed rate debt associated with that. So that was roughly $600 million in that last deal that was entirely fixed rate. In terms of the direction that we see, so I got into the fourth quarter of 105 to 115 basis points. So based on our current outlook going into the end of this year and then into next year, we feel confident of where we are being, like you gave 2023 guidance, but being north of 100 basis points. So certainly better position today than where we were entering last year just based on the current economic outlook.

Great, thanks. And maybe if I could just squeeze one last one in, and that is you mentioned a billion dollars of consolidation activity today. you know, clearly, you know, let's for the moment assume that the federal government continues its practice of not including, you know, privately held felt loans as part of the process. Has that level of consolidation activity started to tail off? Or if not, when do you think it starts to tail off?

And that has already started to tail off. So we are seeing that it's in certainly in the early weeks here, but positive signs from that standpoint in terms of the speed on our overall portfolio. So I referenced the billion dollars. Keep in mind, those are loans that have applied that just have not yet been processed by the Department of Education, so we have a very good outlook in terms of applications that are coming in today.

Thanks, Joe.

Thank you. One moment, please, for our next question. Our next question coming from the line of Rick Shane with KP Morgan, Yolanis Open.

Hey, good morning. It's Rick. Hope you guys are well. I just wanted to make sure I understand the commentary about building reserves on the quarter. When we look at it, and I'll just focus on the private portfolio, it looks like the reserve decreased from $921 million to $852 million last And the reserve rate went from about 447 to 426. And that's consistent with what we're seeing in our model that charge-offs exceeded provision in the quarter. To be honest, I'm just trying to figure out what I, what we're missing here in terms of that commentary.

Well, part of this is mix, right? So we have a, in our legacy portfolio, we would view that as a static pool of loans. that are moving through their amortization and life cycle here. The reserves on that portfolio should be declining, right? Because you're not adding new assets to it. And as defaults occur, your future loss expectation on that remaining portfolio is going to be declining. So when we look at our reserve levels, it is a function of new originations. Joe provided those statistics of what we added for both our in-school and refi portfolios. And our addition this quarter for future economic outlook adjustments was that $15 million that was referenced that added to the reserve levels. But we are clearly looking at the portfolio, both felt and private, as a combination of new originations and existing loans and And certainly as defaults occur, all else being equal, if you don't change your outlook, you would expect reserve levels to be declining on a dollar basis as the portfolios mature.

Understood. So we're seeing the portfolio decline, and that's part of the reason why I asked the question in the context of the reserve rate, which went down 19 basis points. as new are you saying that the quality of the new loans is newly originated is so much higher so that if those are added they have a lower reserve rate so theoretically because of the portfolio mix the reserve rates going up even though the reserve ratio is actually going down absolutely yes

particularly on refi loans, there's a material difference in life of loan loss expectations.

Okay. Thank you.

Thank you. One moment, please, for our next question. Now, our next question coming from the lineup. Shana Ku with Bank of America. Your line is open.

Hey, good morning, guys. Thanks for taking my questions. I just wanted to ask, you know, you guys obviously have the billion-dollar of notes maturing in January next year. You know, obviously you guys have a lot of primary liquidity. Can you just provide us with some additional color on your plans to address that maturity given, you know, current market access, especially in the high-yield markets? It might be tighter.

So you touched on it. I mean, our primary liquidity – We had $1.4 billion of cash on hand to end the quarter to address, as you said, that $1 billion in maturities in January. In addition, we have future cash flow expectations over the quarter, as well as the ability to tap into our $1.8 billion of private unencumbered loans and $150 million of SELP unencumbered loans. we feel very well positioned to address that upcoming maturity. And certainly, as we've done in the past, we look to be opportunistic in terms of buying back debt in the future if it makes economic sense. So for us, when we take a look at the January maturity, you also have to factor in the swap associated with that. And from an accounting perspective, if we were to do that today, that loss would be roughly about $6 million. So those are things that we take into account and is not part of our current guidance.

Thank you. And then I guess you mentioned the swap associated. Do you have any – could you give or quantify the amount of, you know, potential losses for some of your longer-dated lower dollar bonds, the magnitude?

That's going to – right, so – That's going to vary certainly by bond, so not something I have, Andy, deal by deal. But as we look at January, like I said, the $6 million takes into account the impact of the swamp.

Great. Thank you. And then lastly for me, recently there was the ruling against the CFPB funding structure. I was just wondering how we should think about the potential implication given the outstanding CFPB lawsuit on maybe timeline or updated thoughts there. Thanks.

So that case was in a different circuit than where our case is being heard. And our case, unfortunately, is in the exact same position it has been for the last two years, which is we're waiting for the judge to rule on a series of motions. We have no real insight as to when he might issue a ruling on those. Depending on the ruling, if it's in our favor, the cases would be dismissed in whole or in part. And if not, we'd be prepared to start trial at some point based on, again, the judge's calendar.

Okay, great. Thank you, guys. Thank you. As a reminder, ladies and gentlemen, to ask a question, you will need to press star 1-1. One moment, please, for our next question. And our next question coming from the lineup, Jeff Adelson with Morgan Stanley. Your line is open.

Hey, good morning. Thanks for taking my questions. Just wanted to follow back up on the comment with the late stage delinquencies pre-pandemic weighing on the credit this quarter. Just wanted to understand, in terms of the forward look of that, is that something that you expect will roll off over the next couple of quarters? You know, as we think about the private education charge-off rate coming in at the high end of the guidance this quarter, just wondering how we should be thinking about that over the next couple of quarters.

Yes, that's correct. It will roll off on both the FELP and the private portfolios over time. you're going to more likely see it roll off faster in private credit versus FELP, given the FELP portfolio generally takes well over a year for a borrower to move from zero days past due to default. But when we look at trends, for example, in our private loan portfolio, about $3.8 billion worth of loans took advantage of... COVID-related relief programs that we offered during the pandemic. And today, that portfolio, 60% of those loans are current, which is better than what we had expected and, frankly, reserved for. So we're looking at better performance, which is the good news. But certainly it is driving delinquencies and defaults, as you pointed out. And as I shared earlier, roughly 40% of delinquency and defaults in both 91-day delinquencies and defaults in our federal and private portfolios this quarter were 91 days plus delinquent before the beginning of the pandemic. So, you know, that is what's driving the numbers here. And again, all as expected. All as expected.

Understood. And then just to circle back on the consolidation commentary with the $1 billion yet to be processed, how much was actually accelerated this quarter? I know you gave the earnings impact, but it seems like rough numbers. You saw maybe half a billion of accelerated consolidation this past quarter. Just wondering if that's the right comparison to be thinking about and you know, how quickly that billion can be processed. Does it take time, a year, or can it be done in three months?

Sure. So, just in terms of the elevation in the actual core that it impacted, the ending balance is about $1.4 billion that was processed and consolidated away related to, I'll say, incremental consolidation activity. And then in terms of how quickly that billion dollars can be processed. So, again, it's being processed by the Department of Education. I would say standard would be somewhere between two to four weeks. There's always potential for delays, but something that we've already taken the impact in that $10 million and $0.05 reduction into account for this quarter.

Got it. And then just one last one for me on the in-school lending. You know, you saw some really strong originations growth there. I think one of your competitors in the space had alluded to maybe increasing their prices, pulling back a little bit. Just wondering what you're seeing in the competition there and whether you think that the CAM was growing or shrinking this year, given some of the commentary out there that college enrollments continue to decline post-pandemic.

Yeah, so certainly interest rates, rising interest rates do have an impact on demand, but I would say at this point we're seeing that at the margin. Our focus in our in-school originations is in a smaller segment, is in a sub-segment of the entire higher education marketplace. So we're very focused on higher quality education. borrowers in higher quality educational institutions. And so where you're seeing some of the more significant declines in enrollment are particularly in schools where we are not present as a lender. Some of those would be, and they're generally not big private student loan borrowers to begin with, like community college students, for example, where the cost doesn't drive a whole lot of demand there, and nor should it.

Great. Thanks for taking my questions, Jack.

Thank you. And our next question coming from the line of Courtney Ballman with Barclays. Your line is open.

Hi, guys. Thanks for the question. Just real quick for me. On the business processing side, are there any new thoughts with regards to, you know, potential M&A strategy? I know you guys had previously mentioned you'd like to grow the segment mostly organically, but with everything on the table, is there any change in strategy? Thanks.

Yeah, I think there, you know, so we continue to look for opportunities that make sense for us. You know, I would describe our interest, you know, if there were interest in M&A, it would be on things that are incremental or additive to the offerings that we make or the geography that we cover with particular clients. One thing we've avoided in the past, and we'll continue to avoid is kind of that roll-up type of strategy that's not in our playbook. But, you know, I think the things that we see that are positive here is the organic growth rate and what we call our traditional, our kind of, you know, the core businesses of BPS and that revenue grew 14% this quarter year over year. We see particularly strong opportunities in healthcare where the cycle, I guess, probably has a lot more clarity to it. The government space, you know, is a function of a lot of RFPs and big protests and things that create a little bit less clarity there, but we still like that space as well.

That is very helpful. That's all for me. Thank you.

Thank you. I am showing no further questions at this time. I will now turn the call back over to Jennifer Ayers for any closing remarks.

Thanks so much, Livia. Well, we would like to take a moment to thank everybody for joining us on the call today. If you have any other follow-up questions, please don't hesitate to contact me. You can find my contact information on our press releases as well as on our website. Thank you, everybody.

Ladies and gentlemen, that's our conference for today. Thank you for your participation. You may now disconnect.

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