And so, as we’ve really done the analytical work that I talked about earlier, we’ve gotten very deep into understanding these kind of layered risk pockets. I think we understand now where that risk is coming from. By the way, as I mentioned earlier, those are the kinds of populations that we have tried to build explicitly into our loss forecasting methodologies going forward. So we know that these are things that maybe in the past we didn’t have to pay as much attention to, but we need to now. And we’re developing specific programs, policies, procedures, products to go after those types of customers. So — again, it is not broad, but it is the sort of two and three dimension layered risks where we are starting to see sort of pockets of outsized performance difference.
And I think that really is driving a meaningful part of our forward-looking credit outlook.
Michael Kaye: So I just want to make sure I understand that you’re saying the pockets of weakness of these borrowers that have higher relative payments and that they’re earlier in the life cycle of their repayment. Is that right? Why is that? What’s happening? Like why are you seeing that weakness there?
Jonathan Witter: Yes. I think, Michael, it makes a lot of sense. If you’re a brand new out of college and maybe you haven’t fully grown income-wise into your full payment and inflation is going up 7% or 8% a year. So, again, when you think about that person’s individual income statement and balance sheet, it’s a thinner income statement and balance sheet. On top of that, maybe they have some other variable rate loans, you can all of a sudden see very clearly why that small sub-segment of customers might be very different than someone who has the exact same payment but three years later in their post-graduate journey. And so I do think we see a pretty direct correlation between the sort of layered risk segments and the broader economic environment.
And the way that I would sort of describe it to you, I don’t think we believe that there is a broad recessionary environment out there today. Again, that’s why we don’t see the stress in the portfolio as a whole. But I do think we have places where there are, for lack of a better analogy, sort of some scattered showers where this economic environment is hitting certain borrowers harder. And I think that’s really what we’re tracking and trying to manage with those borrowers to help them return to financial health.
Michael Kaye: Okay. Thank you so much.
Jonathan Witter: Yes. Thank you, Michael.
Operator: Our next question comes from Sanjay Sakhrani with KBW. Your line is open.
Sanjay Sakhrani: Thank you. Good morning. I wanted to follow up on some of the previous questions. Jon, can you maybe just talk about what specifically went wrong with the process element of it and what’s been done over the fourth quarter to remediate that? Maybe we could just do a little bit of a case study there?
Jonathan Witter: Yes. I mean — great question, Sanjay, and sort of thank you for that. And we would probably need an hour to do justice on all the diagnostics and analysis that we’ve done. I think at the end of the day, the simplest thing that I would say is, I think it all starts with our historical modeling of the portfolio. And I think at the end of the day, these types of layered risk segments that I talked about before are exhibiting in this economic environment, very different patterns than we have seen them exhibit in the past. And I think we needed to see some of that experience to sort of retrain our analytics and to retrain our approaches. I think the most important question is like what are we actually doing about it and what are we changing?
