Steve McGarry: So look, the credit card lenders have talked about the seasoning of recent borrowers, what we see in our portfolio. So if you go back and take a look at our disclosure on where losses emerged from — in 2019, you will see that basically 75% to 80% of losses basically come from origination cohorts that are three plus years and older. Half of it from origination cohorts that are five plus years and older, which makes perfectly good sense because with people borrowing while they’re in school and not starting to make full P&I payments until six months after graduation. That is exactly where you would expect our defaults to come from. So if you look at the 2019 cohort, which totaled 1.3% of loans, there wasn’t a high volume of loans in repayment at that point in time.
If you take a look at the 2022 cohorts, obviously, we had some challenges in the organization, total default rates were 2.55%. Obviously, the default on the older cohorts was much higher than our run rate sort of P&I default rates. So if you apply a more normalized P&I rate — default rate to those cohorts across time, you basically could triangulate back to that 1.9% default rate. And I’d be more than happy to offline walk you through those disclosures and show you how I arrived at that number, which I believe is perfectly reasonable. If you look at P&I default rates over time from cohort to cohort, they sort of peaked at 4% and then drop back down into the 3% level. Ours are running much hotter now. Obviously, you can see that in all of our Reg AB disclosures.
What I did was applied the default rates that are stressed compared to what we’ve seen over time to accommodate for the potential for higher default rates from, for example, our forbearance administrative changes. Difficult to describe a spreadsheet verbally on a conference call, but did that kind of make sense for you, Sanjay?
Sanjay Sakhrani: Yes. I guess I’m just trying to think about you guys relative to others in that — in the same space, right, in private student loan.
Steve McGarry: So it’s very important to point out, we have a much higher volume of loans now that are actually in repayment than we did in 2019, in 2018 and 2017. So to try to expect our default rates year in and year out to run at a 1.1% or 1.3% or even a 1.5% rate doesn’t add up with Jon’s illustrative math or what you see in our disclosures when we publish full P&I default rates. So it really is very similar to the seasoning issue that I think half one described on their call where they said, “Hey, we grew the book 18 months ago, and now those defaults are starting to emerge.” Our origination cohorts went from $3 billion and $4 billion — $5 billion to now $6 billion and higher over time. So it really is an issue of seasoning with a little bit of an increase in life of loan charge-offs from both our operational charges that changes that Jon was just talking about and the well telegraphed forbearance changes that we’ve been talking about since 2019.
Jonathan Witter: And Sanjay, it’s Jon. I think the only thing I would add to Steve’s discussion. It’s hard to compare loss rates across companies. There’s different customer strategies, there’s different underwriting strategies, there’s different pricing strategies. And so I’m not sure I’m the right one to sort of try to do the sort of specific crosswalk. I think what is important to me, though, is not the charge-off rate in isolation, but the charge-off rate in the context of the overall ROE on those loans over time. And obviously, there’s a level of charge-off rate that we would be uncomfortable with from a reputational risk perspective and just the impact it has on customers, no matter how much we could price for that loan.
