Mark DeVries: Okay. So just in terms of cadence over the course of the year, should we expect €“ for FFELP, it’s a little more front-end loaded and then for private, it’s a little bit more back-end loaded in terms of where the NIM averages out to?
Joe Fisher: Yes, I’d say just overall, it should be fairly consistent throughout the year within that bands, but that’s a decent way of thinking about it.
Mark DeVries: Okay. Great. Thank you.
Operator: Thank you. And our next question coming from the line of Moshe Orenbuch from Credit Suisse. Your line is now open.
Moshe Orenbuch: Great, thanks. Maybe just, Joe, a little further clarification kind of on the guide. You mentioned that on the FFELP, you expect kind of normal prepays. I mean it’s hard to know exactly what normal is given and especially since they’ve been elevated and elevated beyond your earlier expectations the last couple of quarters. And same sort of thing is like what’s the assumption in the guide for the consumer loan or private loan, given the level of originations now are kind of low?
Joe Fisher: So our overall prepay assumptions for the FFELP portfolio for loans, we tend to think about that as 8% CPR, for consolidation 5%. On the private portfolio, you see our assumptions are 15% for the refi and 10% for our legacy book. Obviously, if you go back a year on the refi side of the equation, it was much higher than that in a lower rate environment. So we are benefiting from the fact that, for our refi portfolio with less incentive to prepay, you are seeing a slowing of those CPRs. And similarly, on the FFELP side, to your point about the last two quarters, we’ve seen a dramatic drop off at the start of this year in terms of just overall consolidation requests. So we would anticipate that, that remains at these historical levels going forward.
Moshe Orenbuch: Okay. Yes. I mean, I guess, the real question is going to be how the borrower perception is with respect to the rule changes in response to the earlier question on IDR and other sorts of things. On the business services, I guess, the 10% growth, what base is that off? Could you just be a little more specific and maybe what actions you have to take to get the margins from where they are to the guidance level?
Joe Fisher: I mean that base is off of $247 million that we achieved for this year in terms of the non-pandemic-related revenues. And just to compare that to 2021, we had $222 million, I would say, more traditional services.
Moshe Orenbuch: Right.
Joe Fisher: I’m sorry, the second part of your question, just the actions that are taken, so this is just some investment in technology that we’ve taken on in the third quarter and fourth quarter in terms of new phone systems, the efficiency initiatives. And some of the restructuring that you saw in this quarter, we would expect to benefit us into 2023.
Moshe Orenbuch: Okay. Thanks, Joe.
Operator: Thank you. And our next question coming from the line of Richard Shane with JPMorgan. Your line is open.
Richard Shane: Thanks guys for taking my questions this morning. Look, you guys have done a really good job managing expenses. You’ve done a really good job of managing capital in the face of a shrinking balance sheet and revenue declines. When we look at the different business units, should we expect this year to by year-end see loan balances in the Consumer Lending segment up on a year-over-year basis? Should we see that inflection this year? Or what would need to happen for that to occur?
Joe Fisher: So yes, it’s from a private side. We would continue to expect a slight decline year-over-year. Just if you think about the CPR assumptions that I just provided in the last question, that book is running off on the legacy side, greater than 10%, on refi 15%. So our originations overall that Jack cited would not make up for the overall just decline in the book.
Richard Shane: Got it. And when we look at the contour of that runoff, as we moved into the beginning of 2022, you were starting to show growth there and then that obviously decelerated with the inflection in rates. Is the big variable there to ultimately sort of drive that growth going to be the opportunity on the consolidation side of what type of rate environment would you need to see that inflection?
Jack Remondi: Well, I think it’s a combination of both the refi opportunities in the in-school side of the equation. Refi obviously is €“ well, historically, has been a greater opportunity in terms of immediate impact because you’re addressing all loans outstanding, whereas in-school, you’re only addressing that students who are actually in-school and borrowing in the private loan segment. So it’s a bit of a smaller opportunity set year-over-year. The difference €“ the other big difference between the loans is the in-school portfolio has a much longer average life. And so a lower prepayment fee compared to refi, which has typically been about a three-year average life portfolio. We are getting closer to the inflection point.
No question about it on the private side of the equation, and it will be a function of what our overall originations are and to your point, how quickly the refi marketplace rebounds. Right now, with the rise in rates, we saw about an 80% decline in what we would say is the addressable market size, which means borrowers that have a coupon higher €“ an existing coupon on their student loans higher than what we would be offering today. Most of that’s in the federal space. In the private loan side of the equation, a significant portion of outstanding inventory is variable rate, and there is an opportunity for us to be able to offer a refinance product to those customers. We made some changes to our products to allow, for example, a cosigner on a refi loan, that would give us the opportunity to target undergraduate in-school borrowings that have a variable prime rate, for example, even in this high rate environment.
So we are working to address some of that and create additional opportunities for borrowers to save money through the refinancing activity. We like this product for what it is. We’ve always said that the two biggest risks in student lending are will the student graduate and will their income upon graduation support their debt levels and refi those risk factors are known are the answers to those questions are known, I should say. And so we continue to be highly focused on driving volume in that area when the opportunities exist.
