William Ryan: Good morning. Thanks for taking my questions. First, just going back to the high level question investors have been asking if I buy the shares of Navient, what exactly do I own? You’ve kind of outlined your commitment to Earnest and adding some new products, details somewhat forthcoming. But thinking about the sale of BPS and adding the products and services to Earnest, our acquisitions or bolt-on acquisitions and the thought process of maybe using some of the proceeds from BPS.
David Yowan: This is Dave. Thanks for the question. Look, I think it’s too soon in the process to talk about that. Again, the strategy that Ernest has had and will continue to execute against this year is to continue to build engagement with students through the financial counseling platform. That includes things like, for example, student loan manager, which is a capability that helps students that have federal loans to determine what the best payment and refinancing options are for them. At the same time, we’ll be, as I just indicated, growing our loan originations by almost 40% this year, while we’re looking at the different product lines, et cetera, that we might be able to build off that engaged user base when we find a set of products and services that we think we can offer.
There’s a variety of ways that we might do that. It could be through acquisition, it could be through an organic build, it could be through affiliates. I think you’ve seen all those models work in financial services. And I would say all those things would be on the table if we go down that route.
William Ryan: Okay. And one follow-up just on the FFELP margin guide. I know that the floor income contracts are running off, et cetera, and the interest rate environment is going to be a little bit more adverse to the margin. But for Joe, it’s kind of thinking is as you exit 2024, you guided obviously to the margin being low 70s for the full year. Is the margin going to be lower as we exit 2024 or fairly steady over the course of the year?
Joe Fisher: So it’s going to be lower as you get into the back half of ’24, just from the margin pressure component of it. So as the — using the four cut scenario that we’re projecting here, that pressure itself, we would estimate contributes about 10 basis points of pressure throughout the year, but more so in the back half as those rates and objective is early in the front half of the year. So we should see that impact back at the floor component. You’re going to start to see that early in the first quarter, and you’ve already started to see that this quarter. There was about five basis point contribution this quarter versus last quarter from the floors rolling off. That goes to about 15 basis points as you get into the first quarter.
William Ryan: Okay. Thank you for that color.
Operator: Thank you. One moment for our next question, please. Our next question comes from the line of Sanjay Sakhrani with KBW. Your line is now open.
Sanjay Sakhrani: Thank you. Good morning. I want to go back to slide nine because to me, it seems like that’s the most critical part of the story going forward. And it seems like the name of the game should be trying to optimize the flow through of all these cash flows. And I know that’s sort of what you’re working on with all of these initiatives. David, maybe you could just help us think about dimensionalizing how much can flow. It doesn’t seem like there’s a lot that flow through if you have the current cost structure. But obviously, the adjustments you’re making, as you’ve indicated, substantially free up the flow through. But maybe you could just talk about the aim over the next five years and beyond sort of how much of that flow through we can get? Because obviously, that’s a big part of the thesis where the market cap is lower than these cash flows. Thanks.
David Yowan: Yes. Thanks, Sanjay. Good morning. So there’s a couple of pieces to that. I’d say I just — one piece is just the financial implications of the three strategic actions that we took that I ran through the financials a bit earlier, so I’d call you back to that. That clearly in that scenario, reduces expenses by more than the revenue that would no longer be present in the company. I think the second thing is that moving to a variable servicing model has some pretty powerful leverage for us relative to where we are today. We don’t project for you our servicing costs out over the remaining life of the loan. But I think you can think about that in terms of we have a fixed cost base and we have a variable cost base. And so as loans pay off and the portfolio amortizes as it has done on a net basis for all but one year in Navient’s history, when we originated $6 billion of refi loans in 2019.
So in that amortizing scenario, you’ve seen the variable costs come out as the loan count goes down. But at some point, that fixed cost base doesn’t go down as rapidly as the loan count going down. And so the variable cost model, we think produces significant not just operational flexibility, but significant substantial financial benefits as and if the loan portfolio continues to amortize that’s very different than the model that we have today. And I think the third piece is just the financing piece and the cost of that, both unsecured and secured liabilities and we have — the team has done a terrific job over the years of optimizing and reducing that. We think there are some other opportunities that give us some optionality and flexibility that we’re going to be looking at over the coming months.
