Q3 2022 Navient Corp Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Good day, ladies and gentlemen, thank you for standing by and welcome to <unk> third quarter.
Earnings Conference call at this time, all participants are in a listen only mode. After the speaker.
Jill will be a question and answer session to ask a question. During this session you will need to press star. One one please be advised that today's conference maybe recorded.
Now like gender conference.
Jennifer.
Relations. Please go ahead.
Thank you Olivia good morning, and welcome to Navient third quarter 2022 earnings call.
With me today are Jack on Monday, Navi, and CEO and Joe Fisher that'd be it the CFO .
After their prepared remarks, we're going to open the call up for questions.
Before we begin keep in mind that our discussion today will contain predictions expectations forward looking statements and other information about our business 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 are derived from core earnings our GAAP results and descriptions 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 Navient Dot com.
There is also a full reconciliation of core earnings to GAAP results included in the disclosure.
And now I will turn the call over to Jack.
Thanks, Ken Good morning, everyone and thank you for joining us today and for your interest in Navient.
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 <unk> 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%.
Our 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 and operating efficiency of particular note is the 53% decline in adult 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 like our portfolio.
Are not eligible for the forgiveness program.
Regardless of the outcome, we will continue to work with our customers to make loan payments manageable.
Supporting our decade 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.
For the belt hours eligibility rules changed.
You will see that the financial impact of this quarters incremental consolidation activity, which reduced earnings per share by five.
What's consistent with the guidance, we provided last month.
Well, 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 and our goal is to build a value creating franchise that serves students and families are out there planning and paying for college journey.
We offer families tools that make it easier to complete the past the search and apply for scholarships and compare financial aid to award packages.
All of these services are available for free through are going married platform.
For those who are getting the task of completing the past, but this season.
Encourage you to visit going Mary Dot com or our fastball 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.
Okay.
We also help families pay for college with private loans and after graduation, we offer a refinancing option. So graduate 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 that 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 had been very successful with 85% of customers electing to make payment 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, a 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 grow with our market leading products and services when these conditions improve.
And bps, we provide workflow processing omnichannel communication and revenue management services to clients in 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 ability leverage the skills, we developed and utilized each day and loan servicing.
While total bps revenue this quarter declined as our pandemic related contracts wound down as expected revenue from core services increased 14%.
And felt 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.
Bill develop 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 we see 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 bell and $15 million for private.
To build on our defensive position.
Anticipation of the deteriorating economy.
Our commitment to operating efficiency continues.
Particularly noteworthy that our operating efficiency improve 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.
Current trends.
Dissipation 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.
Thanks.
Our results this quarter the product of artwork and a solid strategy.
The Navient team is focused and committed group and we are eager to continue to create value for our customers and investors.
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.
Thank you Jack and thank you to everyone on today's call for your interest in Navient.
Yes.
During my prepared remarks, I will review the third quarter results for 2022.
I'll be referencing the earnings call presentation, which can be found on the company's website in the investors section.
Key highlights from the quarter beginning on slide four include third quarter, GAAP EPS and adjusted core EPS of <unk> 75.
Both of which included a <unk> <unk> reduction from incremental belt consolidation activity.
Help NIM of 94 basis points.
Pivot NIM of 290 basis points in.
And originated $447 million private education loans with $216 million from in school originations.
A 41% increase from a year ago.
Toward a dps revenues of $79 million.
And increased our adjusted tangible equity ratio to seven 8%.
Returning $117 million to shareholders through dividends and repurchases.
As a result of the solid earnings this quarter and including the <unk> 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 on the quarter and our outlook by segment, beginning with federal education loans on slide five.
Belt results this quarter were impacted by an incremental level of consolidation activity for loan forgiveness proposals.
He used overall pretax income by $10 million or <unk> per share.
The principal components of the <unk> reduction are consistent with the potential impacts we highlighted in our 8-K filing on September 13.
The incremental consolidation activity reduced net interest income in the quarter through the acceleration of premium and deferred financing fees, a $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.
Belt delinquency rates increased to 18, 6% in the charge off rate increased 12 basis points, primarily from borrowers that are fully returned to repayment after pandemic relief.
While we released $13 million of provision related to the incremental consolidation activity.
Fully offset this release, given our defensive expectation with deterioration in the economy.
This resulted in a stable allowance ratio, 0.5% and 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 and our consumer lending segment.
Yes.
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 continued to be below pre pandemic levels, we're seeing charge off rates that are in line with our guidance of one 5% to 2% for the full year.
$28 million of provisions in the quarter.
Included $13 million related to new originations 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 $260 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.
Continue to slide seven to review our business processing segment.
Third quarter revenues totaled $79 million, and then a 16% EBIT margin.
Revenue from our traditional government and health care 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 teen EBITDA margins.
Turning to our financing and capital allocation activity that is highlighted on slide eight.
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 seven 8% at.
At quarter end, we had $685 million of share repurchase authority remaining.
No unsecured debt maturities until the first quarter of 2023.
Let's turn to GAAP results on slide nine.
We recorded third quarter GAAP net income of $105 million 75 per share compared with net income of $173 million or $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 was primarily a result of reducing our facilities footprint and severance expense.
Just another example of how we identify opportunities for long term savings.
The 2022 adjusted core earnings per share guidance of $3 35 to.
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 restructuring costs assumes no gains or losses from future loan sales or debt repurchases includes the five cent loss from incremental consolidation activity reflects the continued rising rate environment and the expected exploration of the cares Act on December 31 2022.
Thank you for your time and I'll now open the call for questions. Thank.
Thank you, ladies and gentlemen, as a reminder to ask a question you will need to press star one on your telephone keypad one moment. Please for our first question.
Now first question coming from the line of.
Mark Davis with Barclays. Your line is open.
Yes, 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 deal consolidation from eligibility can you just discuss what the sources of the uncertainty or is it is it mainly the $1 billion that's applied for consolidation.
Joe referenced in.
In his comments 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 hasnt yet implemented the actual program guidelines on how this will be carried out for loans that are eligible.
They have we have the court related issues that are in play here.
And the last piece I would add in the probably the piece that's most relevant to our portfolio is the department Zack comment that it is continuing to look for ways to.
<unk>.
Allow loan forgiveness to be applied to telephones Theres no specific proposal there.
Not aware of any action or discussions that are taking place on that front, but it is a comment that.
It is in place and just to remind folks the.
The prohibition or the gain eligibility of help loans came about through a <unk>.
Q comment.
Versus a specific.
Policy statement and a dear colleague letter.
Okay. That's helpful.
And then on a related topic, what are you seeing from refi demand. Thus far in <unk> has there been a pick up since the announcement.
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 once and as interest rates have risen here.
Whereas with existing loans at rates below what we can offer in the refi space are clearly have no incentive to do so so our total the total addressable market has declined significantly.
Significantly.
And then along with that.
Freezing guests of activity, particularly for those with direct loans, our focus in the refi space has been primarily on customers with with.
Private student loans and higher costs.
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.
Our limiting the amount of demand that we expect to see in our goal and focus areas to be.
Originating continue to focus on originating high quality loans that make sense for us and be ready for when market conditions improve care returned to growth.
Okay got it thank you.
Okay.
Thank you our next question now next.
Next question coming from the line of.
Bill Ryan with Seaport. Your line is now open.
Thanks, and good morning.
A couple of.
A couple of questions on first one on credit obviously.
You had some elevation in delinquencies and forbearance rates on the.
<unk> portfolio.
Could you maybe elaborate on is that economic or maybe hard to distinguish between the two but economics fares versus the debt.
Debt forgiveness program that people may have just stopped making payments until they get some clarity on what's going on.
And then I will go ahead and ask the follow up question is just on the adjustments you made to the reserves going back to the reserve rate if I remember it correctly, it's like one 3% on consolidation loans.
And I believe 6% on Ensco lines is there any adjustment that youre, making to those.
Cumulative loss reserve assumptions as a result of the change in economics.
Conditions that you discussed on the call.
Thanks, Yeah. Thanks, Paul This is Jack on the on the top side of the equation certainly delinquency and default rates are up actually they are up on both segments of the portfolio.
But both are rising.
Levels that are below what we would have expected as.
Previously delinquent accounts.
We took advantage of payment relief options during COVID-19.
Now back in repayment.
So as I shared roughly 40% of borrowers that are in a 91 day delinquency status or has defaulted during the quarter. They were 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 return.
Turn to repayment and have been moving and have moved back into delinquency status. As that's had I mean, we are seeing very positive results. So.
The majority of customers, who were delinquent and took advantage of those programs are still not still making payments and are performing well, particularly on the private side of the equation. So where we think it was a good program overall, but it did shift defaults and delinquencies from 2020 one into 'twenty two and.
And we will see a little bit of a tail of that into 'twenty three so nothing unusual there.
Our increase in our provisions is purely a function of what we expect will get.
As a result of the declining economic outlook, particularly into into 2023.
On your second question in terms of <unk>.
Targeted levels, we have not changed our assumptions on that front. This is.
Again purely a defensive move for us on both the alpha in 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.
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 mantra for our next question and our next question coming from the lineup from Jason <unk> with Keybanc W. 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 build 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 help in private loan book, but certainly as inflation continues to rise where we're hearing comments about depletion of customer savings and checking accounts.
And an expectation of the base.
Of a potential recession, which we are in that camp.
It is as I said, a purely defensive move for us its not based on any current trends in the portfolio. It's based on an anticipation of trends performance getting deteriorating.
Deteriorating in 2023 so.
We will take a look and make it pay attention to this but our view here is is that.
Particularly on our Calvin 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 <unk>.
Student loan payment pause that's going to expire early next year, how should we think about credit from that perspective.
Well certainly if if if.
As accounts return to repayments, that's going to put additional pressure on the direct loan portfolio customers too.
<unk> are not are not our customers protect direct loan borrowers.
We don't even service those accounts any longer.
They will have additional pressure on their pocketbooks shifts in terms of having to make an additional payment, but as we've seen.
The point that we would make we return.
Our customers to repayment.
Already.
Both developed and the private portfolios, we've seen performance from those portfolios be better than expected and in particular better than what they were pre COVID-19. So.
We're not overly worried about that particular thing it just one more piece and the inflation and high rate environment.
Got it thanks for taking my question.
Thank you.
Our next question and our next question coming from the line of.
Moshe Orenbuch from credit Suisse. Your line is open.
Great. Thanks.
I guess the.
The U S.
As you guys talk about the impacts on the refinance business.
In the past you've talked about what rates you would be able to offer borrowers given the current rate environment could you give us a little more detail what rates could you offered today, how does that compare to where the majority of these loans are and how much would they have to haul to be back to you.
Where you had.
Market on there on the Grad side. Thanks.
Yeah. So I mean, obviously the rates that we offer are highly dependent on the turn.
The duration of the loan that the customer is looking for in their particular credit, but if you think about on average being somewhere in the high sixes low sevens as a rate about 65% of that kind of federal student loan balances.
Get kind of knocked out if you will on.
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 nines and tens in 12.
That's been our primary target target audience recently in our refi product we just.
Launched the ability to add a cosigner.
Two are.
So 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.
Our lending in the private loan side, 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.
Stepson hedging activity on the film.
<unk> the business.
Could you talk about what that is and if you were to think about.
Where your margin is going to end up once the fed stops tightening and you no longer enjoy the benefit prices will have a higher rate environment can you talk a little bit about where that will end up versus where it started pre the rate cycle.
Well I'll talk a little bit just about the hedging and Joe can describe a little bit more about the direction, but one example would be on.
You know we have a floor option embedded in some of our coal portfolio. So 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 <unk>.
Liabilities and so as interest rates have risen.
That has created.
Obviously, FX liability costs, which has been the benefit to the company, but Jeremy exam.
Example of that would just be in our last securitization is 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 terms of the direction that we see so I got into the fourth quarter of 105 to 115 basis points 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 getting 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 the $1 billion of consolidation activity.
Clearly whats for the moment assume that.
Federal government continues its practice of not including privately held <unk> 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 now that that has already started to tail off. So we are seeing that it's certainly in the early weeks share, but positive signs from that standpoint in terms of the speed on our overall portfolio. So when I referenced the $1 billion 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.
Our next question and our next question coming from the line of Rick Shane with Jpmorgan. Your line is open.
Hey, good morning, It's Rick I Hope you guys are well.
I just wanted to make sure I understand the commentary about.
Building our reserves on the quarter when we looked at it.
Ill just focus on the private portfolio.
It looks like the reserve.
Decreased from 921 million to $852 million and the reserve rate went from about $4 47 to $4 26.
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 lifecycle here the reserves on that portfolio should be declining right, because youre, not adding new assets to it and as defaults occur.
Sir your your loss expect 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 Joe provided 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.
<unk> added to the reserve levels, but.
We are clearly looking at the portfolio of both <unk> and private.
<unk>.
A combination of new originations and existing loans and certainly as defaults occur.
All else being equal if you don't change your outlook, you would expect reserve levels to be declining.
And on a dollar basis.
The portfolios mature.
Understood.
We're seeing the portfolio decline and Thats part of the reason why I asked the question in the context of the reserve rate, which went down 19 basis points.
No.
Are you, saying that the quality of the new loans.
He is newly originated is so much higher so that is those are added they have a lower reserve rate so theoretically.
The portfolio mix, the reserve rates going up even though the reserve ratios actually going down.
Absolutely, yes, particularly on refi loans.
A material difference in life of loan loss expectations.
Okay.
Thank you.
Thank you one moment with Brian next question.
Next question coming from the line of Jonathan <unk> with Bank of America. Your line is now open.
Hey, good morning, guys. Thanks for taking my questions.
Just wanted to ask you guys, obviously have the $1 billion of notes maturing in January .
Next year.
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.
Current market access, especially in the high yield market might be tighter.
Sorry, so you touched on it a primary liquidity.
Had $1 4 billion of cash on hand to end the quarter to address as you said that $1 billion of 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 in the $150 million of felt unencumbered.
Loans, so we feel very well positioned to address that upcoming maturity and certainly as we've done in the past we'd look to be opportunistic in terms of.
Buying back debt in the future if it makes economic sense for us.
When we take a look at the January maturity you also have to factor in the swap associated with that and just from an accounting perspective, if we would see that today that loss would be roughly about $6 million. So those are things that we take into account and it's not part of our current guidance.
Thank you and then I guess.
You mentioned the swaps associated.
You have any.
Could you give or quantify the amount of <unk>.
Potential losses for some of your longer dated lower dollar bonds.
The magnitude that's going to fluctuate.
That's been a very certainly a buy bonds. So that's not something I have Andy deal by deal, but as we look at January .
6 million takes into account the impact of this one.
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 application given the outstanding CFPB lawsuit.
Maybe timeline or updated thoughts there. Thanks.
So that cases in a different.
Circuit, and where our case is being heard.
In our case. Unfortunately is in the exact same position. It has been for the last two years, which is were waiting for.
The judge.
The 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 they're in our favor the cases would be dismissed.
All are in part.
If not we'd be prepared to start trial at some point to based on again the judges calendar.
Okay, great. Thank you guys.
Thank you as a reminder, ladies and gentlemen to ask a question you will need to press star one one.
Please for our next question.
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 Wang on the credit this quarter.
Just wanted to understand in terms of the board look at that is that something that you expect will.
Roll off over the next couple of quarters.
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 they will roll off on both the felt in the private portfolios over time.
More like you are going to more likely see it roll off faster in private credit versus felt given the.
The sell portfolio generally takes a well over a year for a borrower to move from zero days past due to default.
But when we look at like trends for example.
And our and our private loan portfolio of about $3 $8 billion worth of loans took advantage of.
Covid related pandemic.
Relief programs that we offered during the pandemic and today that portfolio, 60% of those loans are current.
Which is better than what we.
We had expected and frankly reserved for so we're looking at better performance, which is 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 the 91 day delinquencies and defaults in our federal and private portfolios this quarter.
Our 91 days plus delinquent before the beginning of the pandemic so.
Thats that is whats driving the numbers here.
And again, all as expected although 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 dollars of accelerated consolidation this past quarter.
Just wondering if thats the right comparison to be thinking about.
How quickly that billion Kennedy processes take time, a year or can it be done in three months.
Sure. So just in terms of the elevation in the actual quarter that impacted that.
The ending balance was 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 $1 billion can be processed so again thats being processed by the department of education, and I would say standard would be somewhere between two to four weeks.
There is always potential for delays, but something that we've already taken the impact in that $10 million in <unk> reduction into account for this quarter.
Got it and then just one last one for me on the in school lending you saw some really strong originations growth there.
I think one of your competitors in this space had alluded to maybe <unk>.
Increasing their prices pulling back a little bit just wondering what youre seeing in the competition, there and whether you think that the.
Tam was growing or shrinking Miss this year, given some of the commentary out there that comp college enrollments continue.
Declined post pandemic.
Yes so.
Certainly.
Interest rates rising interest rates do.
Have an impact on demand, but I would I would say at this point, we were seeing that at the margin.
Our focus in our in school originations is in a smaller site isn't a subsegment of the entire higher education marketplace.
So we're very focused on.
Higher quality.
Borrowers and higher quality educational institutions and so what are you seeing some of the more significant declines in enrollment.
Our particularly and Eric and schools, where we are not present as a lender.
Those would be and they are generally not big private student loan borrowers to begin with like community College students for example, where the cost is.
It doesn't drive a whole lot of demand there and nor should it.
Great. Thanks for taking my questions here.
Okay.
Thank you and our next question coming from the lineup.
Courtney Waldman 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 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.
Yes, I think so we continue to look for opportunities that may make.
It makes sense for us.
I would describe our our interest.
We're interested 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.
The one thing we have avoided in the past and will continue to avoid is kind of that roll up type of strategy, that's not in our playbook.
But I think the things that we see that are positive here is the organic growth rate and what we call. Our traditional are kind of the core businesses.
PFS and that revenue grew 14% this quarter year over year.
We see particularly strong opportunities in health care, where.
We're the <unk>.
A cycle I guess, probably has a lot more clarity to it the government space.
As a function of a lot of rfps and bid protests and things that create a little bit less 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'm showing no further questions at this time I will now turn the call back over to Jennifer <unk> for any closing remarks.
Thanks, so much.
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Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
Yeah.
The conference will begin shortly to raise Johan during Q&A, you can dial star one one.
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Okay.
Okay.