Navient (NAVI) Q1 2022 Earnings Call Transcript

Navient (NAVI -0.98%)
Q1 2022 Earnings Call
Apr 27, 2022, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to Navient's first quarter 2022 earnings call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your speaker today, Mr.

Nathan Rutledge, head of investor relations. Sir, please go ahead.

Nathan Rutledge -- Head of Investor Relations

Thanks, Renz. Good morning, and welcome to Navient's first quarter 2022 earnings call. With me today are Jack Remondi, our CEO; and Joe Fisher, our CFO. After their prepared remarks, we will open up the call for questions.

Before we begin, keep in mind our discussion will contain predictions, expectations, forward-looking statements, and other information about our business that is based on management's current expectations as of 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, adjusted tangible equity ratio, and various other non-GAAP financial measures derived from core earnings. Our GAAP results and description of our non-GAAP financial measures and a full reconciliation to GAAP can be found in the first quarter 2022 supplemental earnings disclosure and is posted on the Investors page at navient.com. Thank you, and I'll now turn the call over to Jack.

Jack Remondi -- Chief Executive Officer

Thank you, Nathan. Good morning, everyone, and thank you for joining us today and for your interest in Navient. Our year is off to a strong start, and we are excited to share with you the results of another very successful quarter. For the quarter, we earned $0.90 in adjusted core earnings, ahead of our forecast and consensus.

Our earnings were driven by strong across-the-board performance. For example, net interest income, provision for loan losses, fee revenue, and operating expense, all outperformed our forecast and contributed to this quarter's results. Our ability to deliver consistently strong financial performance is a direct result of our focus on profitably building our growth businesses, actions we have taken to minimize exposure to interest rate volatility, our focus on generating high-quality assets and maintaining strong reserves for future credit losses, our constant efforts to improve operating efficiency, and our disciplined capital allocation. Our earnings generated a very healthy 21% core return on equity this quarter, demonstrating our ability to consistently generate and deliver value for investors.

With a very strong start to the year, our success in managing a volatile interest rate environment, and demonstrated agility in capturing opportunities for growth, we're raising guidance for full year earnings to $3.20 to $3.30 per share. In consumer lending this quarter, we originated just under $1 billion in new student loans. Since the start of the year, higher-than-expected increases in interest rates have decreased the potential value of refinancing. In addition, the Biden administration extended the 0% interest rate period on federally owned loans, again, increasing borrower perception that this waiver will continue and that loan balances may be canceled.

These recent developments have and will continue to significantly reduce the overall demand for student loan refi products in 2022. We do expect demand for refi loans will rebound once direct federal loans return to repayment. We believe in the value and the long-term potential of our refi products, which provide qualified borrowers with the ability to reduce their interest rate, save thousands in interest expense, and realize their financial goals as they pay off their loans faster. We will remain disciplined in our focus on originating high-quality loans that meet our return targets.

Our outlook for in-school volume is getting stronger. We now expect faster growth as we deliver high-value products to students and families. Our updated forecast for a combined new refi and in-school loan volume is $3 billion for the year. In our BPS segment, we are also more optimistic about our growth opportunities this year as we leverage our pandemic-related experience to secure new business, and we are seeing steady growth in our traditional services.

Our results this quarter provide a good example of our ability to leverage this experience to grow revenue and deliver high value for our clients. Credit performance has been stronger than our forecast at the start of the year. The pandemic led to an unprecedented pause in federally owned student loans, helping people navigate the challenges created during the pandemic. We also offered relief programs to our federal and private loan borrowers based on need.

As our programs ended, we plan for elevated delinquency and default trends compared to pre-pandemic levels. To date, these rates have remained below those pre-pandemic levels. While we have retained our prior higher loss forecast as we monitor the future impact of the end of the federal payment pause, portfolio performance to date and our outlook are very positive. We successfully reduced operating expense by 14% versus the fourth quarter.

The reduction is the result of our ongoing business simplification efforts and the transfer of our Department of Education Loan Servicing business. We expect to realize ongoing operating expense reductions as the transition services we are providing end over the course of 2022. Also contributing to this quarter's results and our outlook is our ongoing focus on operating efficiency. Our capital management and allocation approach has delivered strong capital ratios and the capital needed to support our growth.

As of March 31st, our adjusted tangible equity ratio was a very healthy 7%. Consistent with our capital allocation plans, we returned $139 million in capital to investors, $22 million -- $24 million in dividends and $115 million in share repurchases. We plan to complete an additional $285 million in share repurchases in 2022. Our highly predictable capital generation will allow us to continue to meet our capital ratio targets while we fund the projected growth in our business and complete our share repurchase plans.

We are off to a very strong start to the year. Our focus is on profitably building our growth businesses, successfully managing interest rate volatility, generating high-quality assets, improving operating efficiencies, and our disciplined capital management is delivering value for our customers, clients, and investors. I am pleased with our strong financial performance, and I am excited and confident in our ongoing ability to continue to produce strong results. I want to thank my colleagues for their efforts and contributions in a challenging environment.

Their commitment, passion, and agility helps Navient deliver for our customers, clients, and investors. Before I turn the call over to Joe, I'd also like to acknowledge board member Kate Lehman, who is not standing for reelection due to changing professional responsibilities. Kate has been an outstanding Board member, and I thank her for her guidance and support to me, the management team and the Board. And earlier this month, our board nominated Ed Bramson, partner of Sherborne Investors, our largest shareholder, to the proxy slate.

I look forward to Ed joining the board subject to his election by shareholders. With that, I'll now turn the call over to Joe for more details on the quarter, and I look forward to your questions later in the call. Thank you.

Joe Fisher -- Chief Financial Officer

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 first quarter results for 2022. I will 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 first quarter GAAP EPS of $1.67.

First quarter adjusted core EPS of $0.90, originated $966 million of Private Education Loans, reported BPS revenues of $94 million, while exceeding our high teens EBITDA margin targets, increased our adjusted tangible equity ratio to 7% while returning $139 million to shareholders through dividends and repurchases. I am pleased to report that the continued success across all of our business lines contributed to the strong quarterly results. As a result of this quarter's performance and our revised outlook, we are increasing our EPS guidance to a range of $3.20 to $3.30 for the full year. This guidance includes using a rate scenario that is based on the forward curve as of April 14th, which implies a Fed funds target of 225 to 250 basis points by the end of the year and assumes that the CARES Act is extended to the end of 2022.

Let's move to segment reporting, beginning with Federal Education Loans on Slide 5. Net interest margin increased seven basis points from the year-ago quarter to 104 basis points. As a reminder, our FFELP assets are primarily earning off of a daily reset index and are funded with liabilities that are largely reset monthly. In this rising rate environment, the benefit of this mismatch contributed to both the increase over the prior quarter and prior year and partially offset the loss of unhedged floor income.

As expected, FFELP delinquency rates increased to 13.5% and forbearance rates declined to 12.9% from the year-ago quarter with charge-off rates of seven basis points. Fee revenue in this segment declined $20 million from the fourth quarter. This was attributable to our October transfer of the Department of Education Servicing contract. This decline in revenue was more than offset by $24 million reduction in operating expenses in the segment.

Let's turn to Slide 6 and our consumer lending segment. In the quarter, we originated $941 million of private education refi loans. This quarter saw a decline in demand with the extension of the CARES Act and higher interest rates on new refi volume. The most recent extension of the CARES Act now provides a 0% interest rate for borrowers through August 31st, 2022.

While this latest extension is scheduled to end in August, our guidance anticipates the CARES Act will be extended for an eighth time through the end of the calendar year. Since its enactment in March of 2020, borrowers of federally held loans have not been required to make any payments. From this combination of factors, we expect to see quarterly refinance origination for the overall market that are about half of the first quarter's. We are well-positioned to continue to hold our market position while maintaining our target margins and expect to refi approximately 50% lower quarterly volume compared to the first quarter's originations, as borrowers with federal loans delay refinancing decisions until after the extension ends and the rates on current loans moved from 0% to their higher original stated rate.

The expiration of the moratorium should be a significant tailwind for the refi origination backdrop, even as rates rise. The loss of expected net interest income in the year from this volume is offset by the benefit of the expected decline in the provision for new loans. As a reminder, we reserve for expected loan losses at origination. So for every dollar of new refi originations, we reserve approximately 1.25%.

This quarter's net interest margin of 280 basis points was four basis points higher than the fourth quarter primarily as a result of the decrease in interest reserve for late-stage delinquencies as fewer borrowers entered late-stage delinquency compared to the prior period. While credit trends continue to exceed our expectations, with total delinquency rates below pre-pandemic levels, we expect charge-off rates to rise back to more normalized levels that are in line with our guidance of 1.5% to 2% for the full year. Our life of loan allowance reflects the uncertainty related to the potential negative impact to the portfolio from the end of various payment relief and stimulus benefits that recently occurred or that we currently forecast to end in 2022. 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.

Let's continue to Slide 7 to review our business processing segment. First quarter revenues totaled $94 million with increasing revenue from our more traditional government and healthcare BPS services, partially offsetting the expected wind down of revenue from pandemic-related services in the quarter. We continue to provide dynamic solutions that meet emerging market demand and maintain a positive outlook on our ability to secure opportunities in the space. Our ability to leverage our existing technology-enabled platform and infrastructure contributed to the 20% EBITDA margin in the quarter, exceeding our high-teen targets.

Let's turn 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, returning $139 million to shareholders through share repurchases and dividends while increasing our adjusted tangible equity ratio to 7%. At today's price, our planned repurchases for the remainder of 2022 of $285 million would reduce our outstanding share count by an additional 11%. During the first quarter, we issued $952 million of private education refinance loan ABS.

While spreads have widened across all asset classes, we continue to see strong demand for our ABS due to the high quality of the underlying assets. We mitigate the risk of rising rates on our refi portfolio by hedging our expected loan volume origination and issuing fixed-rate securitizations, locking in margins for the life of each loan. These actions have benefited us in recent quarters as rates continue to rise, allowing us to achieve our mid-teens return on equity targets in a volatile environment. Let's turn to GAAP results on Slide 9.

We recorded first quarter GAAP net income of $255 million or $1.67 per share, compared with net income of $370 million or $2 per share in 2021. Turning to our outlook for 2022 on Slide 10. Our continued focus on efforts to simplify the business while improving efficiencies in the face of a challenging macroeconomic environment allowed us to achieve an overall efficiency ratio of 51% and core return on equity of 21% in the quarter. The updated 2022 adjusted core earnings per share guidance of $3.20 to $3.30 is an increase of 6% compared to our original expectations.

This updated outlook excludes regulatory and restructuring costs assumes no gains from loan sales or debt repurchases, reflects a continued rising interest rate environment and the extension of the CARES Act through December 31st, 2022. Before I turn to questions, I'd like to welcome back the thousands of Navient teammates who have returned to the office and recognize all of my teammates whose efforts to serve our customers throughout a challenging environment contribute to the continued success and positive results in the quarter. Thank you for your time, and I will now open the call for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] We have our first question from the line of Mark DeVries with Barclays. Your line is open.

Mark DeVries -- Barclays -- Analyst

Yeah. Thank you. Maybe a question for Joe. Both your FFELP and private NIM margins are tracking higher than kind of your full year -- your old full year guide.

Can you just give us a little more color on how you're thinking about that trending over the course of the year?

Joe Fisher -- Chief Financial Officer

Yes. So certainly, it's just one quarter, so we didn't update our targets for the full year, even though we did update the full year EPS. We feel very confident about the results we just delivered and our ability to meet or, in some instances, exceed the expectations of the guidance that was laid out through the beginning of the year. I would say that the rising rate environment and the mismatch that I described on the FFELP portfolio that we do have that benefit as rates rise, we pick up benefit on the assets as they are resetting daily and the liabilities are resetting either monthly or quarterly.

So there is that pickup that we obviously weren't forecasting nine hikes when we came into the year-end earnings that is going to offset the floor income. On the private NIM side, the stability that you've seen and the beat versus where our forecast was that part of that has to do with just a general slowdown that we're seeing in prepayments. The other piece that I would say is that from a delinquency perspective, we saw less borrowers entering into late-stage delinquencies. So you're not putting up a reserve against that interest as they enter into 90-day plus.

So again, that's a pickup in the quarter versus what our expectations were, and that's part of the overall theme that we are seeing credit that is better than our expectations.

Mark DeVries -- Barclays -- Analyst

Got it. And then a question for Jack. With the private student loan originations kind of coming in lower than you're expecting at the beginning of the year, just given the extension of the CARES Act and what's happening with rates, how should we think about how you're going to deploy kind of the capital that, that frees up?

Jack Remondi -- Chief Executive Officer

Yeah. So certainly, as we -- the pause that has occurred in the federal direct loan portfolio, we kind of looked at 0% interest rates as being a challenge to compete with when it was temporary. And as the perception changes and actual actions have kind of extended that indefinitely, it makes it even a little bit -- it makes it much more challenging. This year, we -- the impact is relatively modest, but we would certainly look at our capital ratios, where they expand, what we expect loan volume to be in future periods and then make decisions about where best to allocate that capital.

Certainly, the last thing we would want to see is that it would sit on the balance sheet underutilized, right? And so we will revisit that as our forecasts and expectations for loan volume in both '22 and '23 begin to materialize to take shape.

Mark DeVries -- Barclays -- Analyst

OK. And does the commentary you provided on kind of expectations for repurchases for the remainder of the year already kind of contemplate this dynamic?

Jack Remondi -- Chief Executive Officer

Well, they contemplate the extension of the CARES Act through the end of the year, and this perception that we'll end up with the 0% interest rate will continue. As you know, the Biden administration extended it through the end of August, we're assuming it's going to continue through the end of the year. And there is this growing perception that loan balances from borrowers are going to be transferred from the student borrower to taxpayers, right? And that is definitely out there as well.

Mark DeVries -- Barclays -- Analyst

OK. Got it. Thank you.

Operator

Thank you. Our next question is from the line of Sanjay Sakhrani with KBW. Please go ahead.

Sanjay Sakhrani -- Keefe, Bruyette and Woods -- Analyst

Thanks. Good morning. Jack, could we just touch on that point you just made? Could you just talk about this loan forgiveness potentially? There's some big numbers being thrown out there. How does that impact your business?

Jack Remondi -- Chief Executive Officer

Well, the biggest place and what they're proposing here is effectively transferring the loan balances that are outstanding from student borrowers to taxpayers in general. And there are no specific proposals on the table. There's just this concept and perception. You certainly have certain members of Congress proposed making certain recommendations, but there's no statutory proposed legislation or nor has the administration issued any specific plan there as well.

So this is more of a perception issue. And what it does is it causes borrowers, who have graduated and may have looked to refi their loans to sit and pause while they wait and see what the administration may or may not do here. So that's the biggest driver that we see. Obviously, the 0% interest rate and the fact that that keeps extending is a competing factor.

It's a large competing factor as well in terms of impacting overall demand for refi loan volume and not just at Navient, but across all of the industry here.

Sanjay Sakhrani -- Keefe, Bruyette and Woods -- Analyst

And I guess when we think about potential pay downs of balances if there is forgiveness, I mean, how does that affect your pull effect as a whole?

Jack Remondi -- Chief Executive Officer

Again, there are no proposals. So it's a little hard to know exactly what would happen. Most of the administration's activities to date have focused on loans owned by the Department of Education directly. And so it's not clear what would happen to portfolios of federal loans or private loans that are outside of that sphere.

But -- obviously, there'd be no -- this debate as to whether or not this is capable of being enacted by administrative via or whether or not it needs to go through some form of legislative process. It does seem a bit ironic that a single individual could choose to spend, I don't know, hundreds of billions of dollars -- of taxpayer dollars without oversight from Congress, but I'm not a constitutional lawyer.

Sanjay Sakhrani -- Keefe, Bruyette and Woods -- Analyst

Yeah. There's never a dull moment there. Just one follow-up. Jack, you also mentioned Sherborne representative potentially joining your board.

And obviously, they've amassed a sizable position in the company's shares. Could you just talk about any intentions that they've stated on your part?

Jack Remondi -- Chief Executive Officer

Well, I think the -- specifically, you probably would want to -- I don't want to speak for Ed or for Sherborne here, but all of the dialogue and activities to date have been extremely positive and constructive. I would say they see the opportunities in a very, very similar way that this is a company that has -- that generates a significant amount of capital. We see significant opportunities for growth in some of our -- certainly in the core areas that we have identified of loan origination and BPS and how can we best execute that. I think there's definitely a share -- also a shared view that capital reinvested in the business generates more value for shareholders in the long run than does capital return.

But obviously, we follow a disciplined approach of -- our first priority is being able to reinvest capital that we generate back into the growth opportunities that we see. To the extent that those are not available, we want to, of course, need to support our dividend and then any additional capital that remains is returned to investors through share repurchases. But our first interest is, of course, reinvesting it at attractive returns in the business.

Sanjay Sakhrani -- Keefe, Bruyette and Woods -- Analyst

OK. Thank you.

Operator

Our next question is from the line of Moshe Orenbuch with Credit Suisse. Your line is open.

Moshe Orenbuch -- Credit Suisse -- Analyst

Great. Thanks. I guess given the uncertainty, both around debt forgiveness and the moratorium, which may not be a moratorium, maybe a removal of interest payments, how should we think about the refinance business in 2023, also given two other factors you'd be at a higher level of kind of market interest rates and I know you talked a little bit about the -- still ability to access the ABS markets given the high-quality nature of the collateral, but spreads are wider also? So could you just talk about from both standpoints, the level of demand and the industry's ability to -- given the changes in the financing markets, how that might impact the refinance market in 2023?

Jack Remondi -- Chief Executive Officer

Sure. So if you look at the -- we look at the universe of what is the potential opportunity for borrowers to refinance. It comes from primarily the federal direct student loan portfolio and more likely than not, those students who have borrowed under either the Grad PLUS program or unsubsidized Stafford loans where the interest rates are higher. Our big benefit in that business is new volume is generated every year.

And it's generated at market rates. So as interest rates rise, new supply is being generated in that space. And as those students move through school and graduate and obtain employment, they create opportunities that they have earned to lower their interest rate by their better credit and income capabilities. The other area is private student loans.

The in-school student lending marketplace is priced very differently than the refi marketplace for good reasons. The two biggest risk factors are unknown at this point. Will the student graduate and will their income be sufficient to service their debt? In the refi space, you know both -- you know the answers to both of those questions. And so you're able to, again, return a lower rate to the borrower based on the fact that they've earned it through obtaining their degrees and getting the job they need to support their -- and service their debt.

So we -- the long-term outlook here is, in our view, very positive. If this was just an interest rate-related issue, we would definitely see some ebbs and flows in demand. But the big impact that we're seeing here is driven more by policy positions that are not economic driven and more politically driven at this point. And we'll have to see how that unfolds between now and the midterm elections probably in November.

Moshe Orenbuch -- Credit Suisse -- Analyst

And the other side of that in terms of the increase that you would expect to see in your own cost of funds to access that market?

Jack Remondi -- Chief Executive Officer

Well, certainly, I mean, all of those factors come into play, right, rising interest rates. Most refi loans are fixed rate -- are offered as fixed-rate loans. And so certainly, the rising -- a rising rate means the coupons that we need to charge for two refinance borrowers is certainly higher than it was a year or two ago. And that, to a lesser extent, if credit spreads widen here and they have widened in the beginning part of this year, that gets translated into higher coupons as well.

If you look at our credit performance in our portfolio, however, I think what you're seeing is the opposite trends is that credit performance is extremely strong. And with that strength and the ability to persist in that strength and kind of more challenging economic environments, we think the product is going to -- will be well received by -- is a good asset for us and then also well received by our ABS investors. And I'll just point out, Moshe, in the past, this refi business is not something that's completely new to Navient. Years ago, we offered private loan consolidation opportunities for borrowers.

And so we've got 40 years of history of how consumers who have graduated from school with a degree with an income, how they have performed in different rate environments and different economic environments. And the performance there has been consistent and outstanding, and that's really reflected in the capital that we allocate to this business, the loss forecast that we assume, and the rates that we offer to the consumer.

Moshe Orenbuch -- Credit Suisse -- Analyst

Got it. Separately, you were able to extract expenses this quarter given the changes in the servicing. Just maybe any plans over the balance of the year? Anything we should be aware of something on the expense front? Thanks.

Jack Remondi -- Chief Executive Officer

Yes. Well, operating expenses actually declined from the fourth quarter really across the board. So if you look at this, they declined by almost $33 million, about $12 million of that was related to the Department of Ed contract. The balance came from other areas of the company as we gained operating efficiencies and the different business and volume mix that's going on.

First quarter is also a seasonally high expense month for us as all of the -- some of the costs associated with some of the compensation plans that take place after year-end are booked in the quarter due to vesting issues and things of that nature. So we would expect operating expense to continue to be -- to outperform our expectations that we laid out at the beginning of the year. Certainly, the lower loan volume will be a contributor to that as well. But I did mention as well that there are some transition services that we are providing to our -- to the entity that took on the Department of Ed contract and those will wind down during the course of the year.

Moshe Orenbuch -- Credit Suisse -- Analyst

Thanks, Jack.

Operator

Thank you. Our next question is from the line of Bill Ryan with Seaport Research Partners. Please go ahead.

Bill Ryan -- Seaport Research Partners -- Analyst

Good morning. A couple of questions. Just with the curtailment and the refi outlook, and I believe SoFi made an announcement a few weeks ago as well about, I hope, their expectations. Are you seeing any additional efforts in the in-school channel? And again, thinking back to SoFi, I believe they are trying to make some inroads into the in-school channel in light of the curtailment of refi activity.

And then secondly, you mentioned that the volume reduction outlook that you provided was a combination of higher rates versus the payment -- and the payment moratorium. I don't know if there's any way to kind of distinguish the reduction in the outlook between those two factors. Thanks.

Jack Remondi -- Chief Executive Officer

So on the in-school side of the equation, we view -- these are very different markets. One you're marketing to new college students and families and the other, you're marketing to graduate school students. So we run them separately with different product managers and different campaigns of that sort. What we are excited about is really the opportunity to continue to leverage the origination flow process that we've developed, which we think is easier for both students and families, particularly as you invite a cosigner into the loan.

But we've also been building capacity and other areas that help students and families kind of better finance their higher education objectives. This means minimize the amount that they have to borrow. We offer, for example, through one of our subsidiaries, the opportunity to apply for scholarships that are -- and it's the only scholarship platform that's both nationwide and local-related scholarships. It has an application that allows students and families to simplify the completion of the FAFSA form, which is a pretty complex federal form on its own.

And then more recently, we've began offering an opportunity for families to load the information that they receive from their schools, their offer letters, if you will, for acceptance that detail out how much it's going to cost and how the school expects them to pay for it to be able to compare those offers from one school to an X on a more of an apples-to-apples basis. Schools don't package all of that information in the same way. And so it is -- can be a complex task for folks. Those combination of activities are driving an expectation that we will see higher demand for our in-school loan products in this upcoming academic year of 2022-2023.

So we're very optimistic about that. As to your second question, it's a little hard because, I mean, at the end of the day, consumer is deciding not to pursue a refi loan. It's hard to know whether -- how much of it is rate. But as I said earlier in the call, 0% is tough to compete with.

And that's what we're looking at here at 0%. So as long as that continues to get extended, I think that's going to continue to be the biggest barrier we see in refi demand.

Bill Ryan -- Seaport Research Partners -- Analyst

All right. Thanks, Jack.

Jack Remondi -- Chief Executive Officer

Yeah. Sure.

Operator

Thank you. [Operator instructions] Our next question is from the line of Rick Shane with J.P. Morgan.

Rick Shane -- J.P. Morgan -- Analyst

Good morning, everybody. Thanks for taking my question. I want to look at the guidance a little bit and the underlying metrics. When you look at them, obviously, you haven't changed at this point any of the key assumptions, but you've raised guidance.

I suspect some of this is confidence versus the previous metrics because of how strong Q1 results were. But I'm also curious, can you talk a little bit about attribution? How much of the differential in increasing earnings guidance is a reflection of lower provision expense due to lower volume?

Joe Fisher -- Chief Financial Officer

So I'll take that, Rick, and good questions. I think I'll answer your last question first. So in terms of the provision, as I said in my prepared remarks, I would anticipate -- as a reminder, we reserve 1.25% for all new loan originations on the refi side. So if you think about for every $1 billion, what that represents roughly $12.5 million in terms of provision.

The lowered expectation is then offset by the fact that we aren't going to be earning the net interest income off of those loans. So over the course of the year based on the timing of when we were expecting those loans, they roughly offset one another for the full year. And then for the rest of the guidance, while it is certainly, I would say, we are in a very good position. It is a challenging environment that we're looking at over the next year in a volatile environment, but we feel very confident based on what we saw from first quarter results that we've moved to really that 6% EPS range is a reflection of being more confident in hitting sort of those higher-end ranges to either meeting or exceeding.

Also, this was a beat across the board, so this isn't pointing to just one specific item to raise that target guidance. So I really feel that it's a reflection of the confidence in front of this challenging environment.

Rick Shane -- J.P. Morgan -- Analyst

Great. It's a great help. Thank you.

Operator

Thank you. Our next question is from the line of Kwaku Abrokwah with Goldman Sachs. Your line is open.

Kwaku Abrokwah -- Goldman Sachs -- Analyst

Hi, guys. Congrats on the quarter and thanks for taking my call. With respect to capital allocation, can you guys help us understand sort of the time line of when or how you intend to deal with the upcoming 2023 unsecured maturities? I'm just trying to get a picture of sort of the cadence as we approach 2023. I know there's quite a bit of time between now and then.

Joe Fisher -- Chief Financial Officer

So we have $1 billion of maturities coming due here in January. We are well-positioned from a liquidity standpoint to meet that with cash on hand and future cash generated. So as you've seen in the past, we have been opportunistic in terms of buying back debt early if it makes economic sense. So to the extent those opportunities present themselves, we would take advantage of that.

But we do not have any debt repurchases in our planned guidance here for the remainder of the year.

Kwaku Abrokwah -- Goldman Sachs -- Analyst

Perfect. Thank you so much for that color. And just as a follow-on, what are the puts and takes? I saw that the FFELP 30-plus day delinquencies picked up a bit on a quarter-over-quarter basis. It's just the fact that you were able to get borrowers out of the forbearance and some of them slipped into the DQs?

Jack Remondi -- Chief Executive Officer

Yes. So when we -- when the pandemic hit, like the Department of Ed, we offered payment relief options to borrowers. And so the borrowers did use -- take advantage of those nonpayment periods. And as we -- as the pandemic ended and the economic environment continued to improve, we work with borrowers to return them to repayment.

If you look at our delinquency rates in both our federal and private loan portfolios, private are clearly below pre-pandemic levels. The federal, if you look at historic averages, we're right in line with where you typically see delinquency and default rates in the federal book over a normalized period of time. So nothing unusual. They just look like they are significant increases because they're coming off artificially suppressed levels.

Kwaku Abrokwah -- Goldman Sachs -- Analyst

Yeah. That's what I thought. And given the fact that you're basically at steady state, we shouldn't expect any sort of big variation on a go-forward basis?

Jack Remondi -- Chief Executive Officer

That's right.

Kwaku Abrokwah -- Goldman Sachs -- Analyst

Perfect. And moving on, I saw that there was like a $20 million sort of decline in the FFELP's other revenue. Is that sort of also related to the novation of the Department of Education contract? And obviously, your cost -- your underlying opex also declined by a significant amount. Is that fair to say?

Joe Fisher -- Chief Financial Officer

So I would say roughly half of that is related to the novation of the contract, and you can see that in the other income line on the federal education segment. The other piece is the decline in the asset recovery section within federal education loans from 12 to 3. And that's just mainly a function of the extension of CARES Act as we've seen a decline in third-party collections on FFELP loans, which is baked into our guidance that assumed run rate of roughly $3 million.

Kwaku Abrokwah -- Goldman Sachs -- Analyst

Got it. Got it. And final question here --

Joe Fisher -- Chief Financial Officer

So I mentioned your second part, right? So we reduced expenses associated with both of those activities and exceeded the revenue that we lost in terms of the total expenses that we removed.

Kwaku Abrokwah -- Goldman Sachs -- Analyst

Absolutely, I saw that. And I just wanted to clarify on it. And lastly, in terms of the expenses on a go forward, I guess, you guys are signaling that you still have more expenses that can potentially come out given that first quarter is the highest expense quarter. Is there a way to kind of quantify the cadence or the magnitude of the potential opportunity here in the cost outs over the next three quarters?

Joe Fisher -- Chief Financial Officer

So not getting that specific, but we do expect it to be lower with each quarter here. As Jack had said in his earlier comment that the first quarter is historically high, but we would anticipate continued reductions throughout each quarter to end of the year.

Kwaku Abrokwah -- Goldman Sachs -- Analyst

Thank you so much, guys, and have a great rest of the year.

Joe Fisher -- Chief Financial Officer

Thank you.

Operator

Thank you. Our next question is from Giuliano Bologna with Compass Point. Your line is open.

Giuliano Bologna -- Compass Point Research and Trading -- Analyst

Good morning. I guess coming back to a little bit of a topic that's come up in a couple of times already. But thinking about the origination guidance, you've obviously taken the volume down roughly $4 billion. If I run that 1.25%, that comes up to an after-tax number around $38.5 million credit.

There's probably some in-school loans in there as well. But yes, the question with that is, so what you're effectively saying is the offset there because you should get the benefit of not having a provision on those loans, what should be offset by -- or would have been offset had you originated those loans by the NIM in the year? And then the next question is, how do you kind of adjust for that going into '23 because obviously your portfolio will be a little bit smaller going into '23, and you're probably having a push off in originations that will be creating kind of similar impact or kind of the opposite impact in '23? Can you return more capital in the near term or using your capital to kind of offset some of that impact?

Joe Fisher -- Chief Financial Officer

Sure. So that's the right way to think about it for 2022 in terms of the offset from the NIM versus the provision. And obviously, we'd rather have these loans on our books and hold them for a longer period of time. I think to Jack's point, the great unknown is when does the 0% extension actually ends here, and how to think about that is that there would be a significant -- or we believe there could potentially be a significant wave as borrowers move from 0% to a higher stated rate.

So just thinking about that opportunity ahead, that would put pressure on the provision earlier in the year. But the -- I would say the earlier that, that would occur, better the benefit that is to us in terms of net interest income for the full year. So absent of that coming back, I would think about next year's balances or ending this year, I would say, as relatively flat on the private lending side as we would anticipate just naturally prepayments slow in a rising rate environment as borrowers have less of an opportunity to refinance their loans.

Giuliano Bologna -- Compass Point Research and Trading -- Analyst

That's great. And what I was curious about was when I look at the FFELP segment, obviously, our servicing revenues come down a lot. You had $11 million of other income. I'm curious if there's anything that, that's related to or did anything recurring that's flowing to other income?

Joe Fisher -- Chief Financial Officer

No, that $21 million to $11 million is really a reflection of the wind down of the transition services agreement that we have in place, and it relates to the novation of the Department of Education Servicing contract. So that should ultimately go away by the end of the year, and that $11 million is offset by expenses associated with that contract. So those expenses should be removed as well.

Giuliano Bologna -- Compass Point Research and Trading -- Analyst

That sounds good. Thank you very much. I'll get back on queue.

Operator

Thank you. Our next question is from the line of John Hecht with Jefferies. Please go ahead.

John Hecht -- Jefferies -- Analyst

Hey, guys. Good morning. Most of my questions about education lending have been asked. So maybe just a quick moment on the business processing segment.

Understanding you guys have been talking about the kind of runoff of COVID-related services. Maybe give us a sense for the cadence of that. And then you talked about healthcare and other kind of segments within that category doing well. Maybe just give us some update on that stuff, too.

Jack Remondi -- Chief Executive Officer

So you're right. I mean the COVID-related project work that we took on over the last two years has, for the most part, been -- has run off at this point. There's some small components that trailed into the first quarter. But we're really seeing here is an opportunity to replace these with more -- with longer-term arrangements, really driven by the fact that we've been able to demonstrate to our clients the value of what -- of the services that we provide.

And so it's more than just meeting increasing demand. It also helped them -- help provide more or greater insight into different components of their business activities and a view that between the combination of processing efficiency that we brought and data insight, we were actually adding incremental value across a number of different activities. So we are expecting to see and realize new business opportunities as a result of that service experience. And then our traditional businesses, particularly in healthcare, a lot of health institutions also paused in terms of restructuring or taking a look at their business operations to determine what could be more efficient for them during the pandemic.

And as the pandemic has, I guess, waned or maybe become more normalized, those hospitals are now relooking at different opportunities as well as -- so we're winning new contracts in that space, but they're also seeing higher revenue structures as there's been a return to elective procedures, etc., that are driving demand for our services. So we're very optimistic about the outlook in BPS across our different business activities and really are looking forward to continue to demonstrate the value that we bring to our clients from both processing efficiency as well as performance effectiveness side of the equation.

John Hecht -- Jefferies -- Analyst

Great. Thanks for the color.

Operator

Thank you. I'm showing no further questions at this time. Mr. Rutledge, please continue.

Nathan Rutledge -- Head of Investor Relations

Thanks, Renz. We'd like to thank everyone for joining us on today's call. Please contact me if you have any other follow-up questions. This concludes today's call.

Operator

[Operator signoff]

Duration: 54 minutes

Call participants:

Nathan Rutledge -- Head of Investor Relations

Jack Remondi -- Chief Executive Officer

Joe Fisher -- Chief Financial Officer

Mark DeVries -- Barclays -- Analyst

Sanjay Sakhrani -- Keefe, Bruyette and Woods -- Analyst

Moshe Orenbuch -- Credit Suisse -- Analyst

Bill Ryan -- Seaport Research Partners -- Analyst

Rick Shane -- J.P. Morgan -- Analyst

Kwaku Abrokwah -- Goldman Sachs -- Analyst

Giuliano Bologna -- Compass Point Research and Trading -- Analyst

John Hecht -- Jefferies -- Analyst

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