Navient Corp

NASDAQ:NAVI

Earnings Call Transcript 2022-Q3

[Operator]

Good day, ladies and gentlemen, thank you for standing by. And welcome to Navient Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only-mode. After the peak's presentation, there will be a question-and-answer session. [Operator Instructions] 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 Earyes, Head of Investor Relations. Please go ahead.

[Jennifer Earyes, Head of Investor Relations]

Thank you, Olivia. Good morning, and welcome to Navient's third quarter 2022 earnings call. With me today are Jack Remondi, 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 navient.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.

[Jack Remondi, President & Chief Executive Officer]

Thanks, Jen. Good morning, everyone, and thank you for joining us today and for your interest in Navient. 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 $0.75. 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 and operating efficiency, a particular note is the 53% decline in FFELP 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 FFELP loans like our portfolio are not eligible for the forgiveness program. Regardless of the outcome, we'll continue to work with our FFELP 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 FFELP eligibility rules changed. You will see that the financial impact of this quarter's incremental consolidation activity, which reduced earnings per share by $0.05 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 task [ph] 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 reading the task of completing the task [ph] for the season, I encourage you to visit goingmerry.com for our faster made easier product. These high-value and easy-to-use tools are driving significant growth in new users with over 0.5 million new users added year-to-date, nearly 3 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 health care. 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 FFELP, 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 FFELP 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 FFELP 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?

[Joe Fisher]

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'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 4 includes third quarter GAAP EPS and adjusted core EPS of $0.75, both of which included a $0.05 reduction from incremental self consolidation activity.

FFELP 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 origination, 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 $0.05 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 5.

FFELP results this quarter were impacted by an incremental level of consolidation activity from loan forgiveness proposals that reduced overall pretax income by $10 million or $0.05 per share. The principal components of the $0.05 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 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 FFELP 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 these applications have not yet been processed by the Department of Education.

FFELP 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 relief. 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 6 and 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 are 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 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 $216 million of new install 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.

Continuing to Slide 7 to review our Business Processing segment. Third quarter revenues totaled $79 million and on a 16% EBITDA 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 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 had $685 million of share repurchase authority remaining and no unsecured debt maturities until the first quarter of 2023.

Turning to GAAP results on Slide 9. We recorded third quarter GAAP net income of $105 million, $0.75 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. This is just another example of how we identify opportunities for long-term savings.

The 2022 adjusted core 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 $0.05 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. [Operator Instructions] Our first question coming from the line of Mark DeVries with Barclays. Your line is open.

[Mark DeVries, Barclays]

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 deal consolidation from eligibility.

Can you just discuss what those sources of the uncertainty or is it mainly the $1 billion that's applied for consolidation that Joe referenced in his comments or are there other things that you're focused on?

[Jack Remondi, President & Chief Executive Officer]

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. They have - 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 FFELP 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 just to remind folks, the prohibition or the ineligibility of FFELP loans came about through an FAQ comment versus a specific policy statement in a dear Holy letter [ph]

[Mark DeVries, Barclays]

Okay. That's helpful. And then on 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?

[Jack Remondi, President & Chief Executive Officer]

So the - 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 one, as interest rates have risen here, borrowers 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 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, 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.

[Mark DeVries, Barclays]

Okay. Got it. Thank you.

[Operator]

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

[Bill Ryan, Seaport]

Thanks and good morning. A couple of questions on. First one is on credit. Obviously, you had some elevation in delinquencies and forbearance rates on the FFELP portfolio. Could you maybe elaborate on is that economic or I know it may be hard to distinguish between the two, but economic conditions [ph] 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 is 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/

[Jack Remondi, President & Chief Executive Officer]

Thanks, Bill. This is Jack. On the FFELP 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, return 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 when they took advantage of those programs, they're still not - still making payments and are performing well, particularly on the private side of the equation. So we're - we think it was a good program overall, but it did shift defaults in delinquencies from '20 and '21, into '22, and into – 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 will 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 FFELP and the private portfolio.

[Joe Fisher]

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.

[Bill Ryan, Seaport]

Okay. Thanks very much.

[Operator]

Thank you. One moment for our next question. And our next question coming from the line of Sanjay Sakhrani with KBW. Your line is open.

[Steven Kwok, KBW]

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 deterrent economy. Could you just talk about the health of the consumer? And what are you seeing on the borrower side?

[Jack Remondi, President & Chief Executive Officer]

Well, so far, we're actually seeing performance that is better than what we expected in both our FFELP and private loan book. But certainly, as inflation continues to rise, 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 performance getting or deteriorating in 2023. So we'll take a look and make - pay attention to this. But our view here is that particularly on our FFELP and 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.

[Steven Kwok, KBW]

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?

[Jack Remondi, President & Chief Executive Officer]

Well, certainly, as accounts return to repayment that's going to put additional pressure on the direct loan portfolio customers who - which are not our customers, right, but direct loan borrowers. We don't even service those accounts any longer. They will have additional pressure on their pocket books just in terms of having to make an additional payment.

But as we've seen, I think the points that we would make, we returned our customers to repayment already, both the FFELP 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. So we're not overly worried about that particular thing. It's just one more piece in the inflation and high rate environment.

[Steven Kwok, KBW]

Got it. Thanks for taking my question.

[Operator]

Thank you. One moment. Our next question – and next question coming from the line of Moshe Orenbuch from Credit Suisse. Your line is open.

[Moshe Orenbuch, Credit Suisse]

Great. Thanks. I guess the - 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 to borrowers given the current rate environment. Could you give us a little more detail what rates could you offer today? How does that compare to where the majority of these loans are? And how much would they have to fall to be back to where you had a market on the grant [ph] side? Thanks.

[Jack Remondi, President & Chief Executive Officer]

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 in their particular credit. But if you think about on average being somewhere in the high 6s, low 7s 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. Those are - that's been our primary target - target audience.

Recently, in our refi product, we just launched the ability to add a co-signer 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've taken out loans on behalf of their children.

[Moshe Orenbuch, Credit Suisse]

Got it. Thanks. Jack, you had made some comments about taking - making hedging steps in hedging activity on the FFELP side of 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 [ph] will have a higher rate environment. Could you talk a little bit about where that will end up versus where it started pre the rate hike cycle?

[Jack Remondi, President & Chief Executive Officer]

Well, I'll talk a little bit just about the hedging and then Joe can describe a little bit more about the direction. But as one example would be on - as you know, we have a floor option embedded in some of our FFELP portfolios. So historically, we've hedged that by selling for 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, that has created obviously affects [ph] liability costs, which has been the benefit to the company. But, Joe?

[Joe Fisher]

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 guided to the fourth quarter of 105 to 115 basis points and 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 to give 2023 guidance, but being north of 100 basis points. So certainly better positioned today than where we were entering last year just based on the current economic outlook.

[Moshe Orenbuch, Credit Suisse]

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, let's - for the moment, assume that the federal government continues its practice is not including privately held FFELP 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?

[Joe Fisher]

That has already started to tail off. So we are seeing that. It's 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 $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.

[Moshe Orenbuch, Credit Suisse]

Got it. Thanks, Joe.

[Operator]

Thank you. One moment for our next question. And our next question coming from the line of Rick Shane with JPMorgan. Your line is open.

[Rick Shane, JPMorgan]

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 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 - what we're missing here in terms of that commentary?

[Jack Remondi, President & Chief Executive Officer]

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, you're - 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 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 FFELP and private as 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 on a dollar basis as the portfolios mature.

[Rick Shane, JPMorgan]

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. So as - are you saying that the quality of the new loans is newly originated is so much higher, so that as 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?

[Jack Remondi, President & Chief Executive Officer]

Absolutely, yes. Particularly on refi loans is a material difference in life of loan loss expectations.

[Rick Shane, JPMorgan]

Okay. Thank you.

[Operator]

Thank you. One moment for our next question. And our next question coming from the line of Shawn Ku [ph] with Bank of America. Your line is open.

[Unidentified Analyst]

Hey. Good morning, guys. Thanks for taking my question. I 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?

[Jack Remondi, President & Chief Executive Officer]

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 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 and the $150 million of FFELP unencumbered loans. So 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.

[Unidentified Analyst]

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

[Jack Remondi, President & Chief Executive Officer]

That's going to - that's going to vary certainly by bond. So not something I have any deal by deal. But as we look at January, because the $6 million takes into account the impact of the swap.

[Unidentified Analyst]

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 time line or updated thoughts there? Thanks.

[Jack Remondi, President & Chief Executive Officer]

So that case was 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 2 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, the - if they're 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.

[Unidentified Analyst]

Okay, great. Thank you, guys.

[Operator]

Thank you. [Operator Instructions] And our next question coming from the line of Jeff Adelson with Morgan Stanley. Your line is open.

[Jeff Adelson, Morgan Stanley]

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? As we think about the private education charge-off rate coming into the high end of the guidance this quarter. Just wondering how we should be thinking about that over the next couple of quarters?

[Jack Remondi, President & Chief Executive Officer]

Yes, that's correct. It will roll off on both the FFELP and the private portfolios over time, more like you're going to - more likely see it roll off faster in private credit versus FFELP given the - the FFELP portfolio generally takes 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, in our private loan portfolio, about $3.8 million worth of loans took advantage of COVID-related pandemic relief programs that we offer during the pandemic. And today, that portfolio, you know, 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 in defaults, as you pointed out. And as I shared earlier, roughly 40% of delinquency and defaults in both 91day delinquencies and defaults in our federal and private portfolios this quarter were 91 days plus delinquent before the beginning of the pandemic. So that is what's driving the numbers here.

[Jeff Adelson, Morgan Stanley]

Got it.

[Jack Remondi, President & Chief Executive Officer]

And again, all as expected, all as expected.

[Jeff Adelson, Morgan Stanley]

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 $0.5 billion of accelerated consolidation this past quarter. Just wondering if that's the right comparison to be thinking about? And how quickly that $1 billion can be processed? Does it take time a year? Or can it be done in three months?

[Jack Remondi, President & Chief Executive Officer]

Sure. So just in terms of the elevation in the actual quarter that impacted the ending balance is about $1.4 billion that was processed and consolidated a way related to I'll say, incremental consolidation activity. And then in terms of how quickly that $1 billion can be processed. So again, it being processed by the Department of Education, I would say standard would be somewhere between 2 to 4 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.

[Jeff Adelson, Morgan Stanley]

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 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 TAM [ph] was growing or shrinking this year, given some of the commentary other that college enrollments continue to decline post-pandemic?

[Jack Remondi, President & Chief Executive Officer]

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 seg - is in a sub-segment of the entire higher education marketplace.

So we're very focused on higher-quality borrowers and 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 is – it doesn't drive a whole lot of demand there and nor should it.

[Jeff Adelson, Morgan Stanley]

Great. Thanks for taking my questions.

[Operator]

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

[Courtney Bahlman, Barclays]

Hi, guys. Thanks for the question. Just real quick for me. On the business processing side, are there any new thoughts with regard 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.

[Jack Remondi, President & Chief Executive Officer]

Yeah. I think there - so we continue to look for opportunities that make sense for us. It's - 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.

The one thing we've avoided in the past [Technical Difficulty] we'll continue to avoid as 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 or kind of the core businesses of BPS and that revenue grew 14% this quarter year-over-year.

We see particularly strong opportunities in health care, where the cycle, I guess, probably has a lot more clarity to it. The government space is a function of a lot of RFPs and bid protests and things that create a little bit less clarity there. But we still like that space as well.

[Courtney Bahlman, Barclays]

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

[Operator]

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

[Jennifer Earyes, Head of Investor Relations]

Thanks so much, Olivia. 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.

[Operator]

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