Navient - Earnings Call - Q3 2025
October 29, 2025
Transcript
Operator (participant)
Good morning and welcome to the Navient third quarter 2025 earnings conference call. This call is being recorded. Currently, all participants are in listen-only mode. Following the remarks, we will conduct a question-and-answer session. Instructions will be provided at that time. If anyone should require assistance during the call, please press the star key followed by zero on your telephone keypad at this time. I'll now turn the call over to Jen Earyes, Navient Head of Investor Relations.
Jen Earyes (Head of Investor Relations)
Please go ahead. Hello, good morning and welcome to Navient's earnings call for the third quarter of 2025. With me today are David Yowan, Navient CEO, and Joe Fisher, Navient CFO. After the prepared remarks, we will open up the call for questions. Today's discussion is accompanied by a presentation which you can find on navient.com investors. 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 the 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 that are derived from core earnings. Our GAAP results, description of our non-GAAP financial measures, and a reconciliation of core earnings to GAAP results can be found in Navient's third quarter 2025 earnings release which is posted on our website. Thank you. Now I will turn the call over to Dave.
David Yowan (CEO)
Thanks, Jen. Good morning, everyone. Thank you for joining the call and for your interest in Navient. This morning we reported results that highlight our ability to drive high-quality loan growth and reduce operating expenses. Our expected life of loan cash flows increased substantially as our legacy loan portfolios experienced lower prepayment speeds. We also updated default rate, financing, and secured debt service assumptions and incurred regulatory and restructuring charges. Adjusting for these assumption changes and charges, core earnings per share was $0.29 for the quarter. A summary of these significant items can be found on slide two. We're also announcing a new share repurchase authorization of $100 million. This authorization provides additional capacity and flexibility to purchase future value at a discount. Turning to our engine for future growth, for the third straight quarter, Earnest doubled origination volume year over year totaling approximately $800 million in new loans.
This included $528 million in Refi loans, our highest quarterly volume this year, accompanied by credit quality that is among the strongest in our Refi history. In school lending also saw a record peak season with $260 million originated, also the highest quarterly volume in our history. Our strong performance across both product lines demonstrates our ability to attract high quality, high balance customers, many of them graduate students, by offering products and a customer experience that meets their needs and exceeds their expectations. Earnest Refinance business helps high earning early professionals move from managing debt to building wealth. We focus on customers with prime to super prime credit, most earning over six figures and about half holding graduate degrees. We succeed with this segment through a streamlined, transparent application process, advanced underwriting, personalized pricing, and an in house U.S. based client happiness team.
With industry leading Trustpilot scores, borrowers can select from up to 240 term and rate combinations, making ours one of the most flexible Refinance products in the market. Data driven marketing and a mobile optimized process allow us to efficiently attract and serve financially sophisticated borrowers. Our scalable platform supports higher volumes and additional products. We're proud of our momentum and excited about future growth, especially with the backdrop of potential Fed rate reductions and expanded product and market opportunities. Turning to our ongoing effort to aggressively reduce expenses, we're pleased to report that we will exceed our ambitious expense reduction targets ahead of schedule. You'll recall that less than two years ago we shared the ambitious goals related to our strategic initiatives to outsource loan servicing, divest business process outsourcing, and reshape our infrastructure and corporate footprint.
The removal of a large amount of infrastructure and corporate expenses was dependent on the successful completion of the first two objectives. We have now completed our final obligations under the last Transition Services Agreement, the final milestone in our Phase one transformation. This is earlier than both our original timing and the timing we shared last quarter. Team Navient has done a phenomenal job to accomplish this feat. Completing our obligations under the final TSA allows us to accelerate the removal of final expenses that were previously identified for removal. These expenses include $14 million in the third quarter that were supporting the TSA as well as additional expenses that could not be eliminated until all TSA obligations were complete, all of which will further reduce our corporate footprint. These expense removals are already underway and are expected to be completed in the first few months of 2026.
Once complete, we have exceeded our initial goal of $400 million run-rate expense reduction target set in January 2024. We're now on track to remove over 90% of this expense reduction target by the end of 2025. Let me now turn to the cash flows we expect to harvest from our legacy loan portfolios. As you know, a significant portion of our portfolio is comprised of federal education loans and private loans originated over a decade or more ago. Our portfolios have generally been experiencing lower levels of prepayments over the last few quarters. Our ongoing process of reviewing portfolio performance was supplemented by our Phase two review. The trends we are seeing have been incorporated into our life-of-loan cash flow assumptions. The trends are largely driven by changes in public policy and customer repayment behavior.
The result is the increase of projected life-of-loan cash flows by approximately $195 million, all other factors held constant. Two of this quarter's assumption changes had a significant impact on expected future cash flows. First, we lowered prepayment rate assumptions reflecting changes in public policy under the current administration, which has not proposed nor encouraged federal and felt loan forgiveness programs. As a result of these changes alone, expected future cash flows increased by approximately $280 million across all of our outstanding loan portfolios. All of these future expected cash flows, no part of them is reflected in Q3 results. Secondly, we revised default and post-default recovery assumptions across all previously originated loans. These updates reflect slower portfolio amortization, continuation of recent credit trends in customer repayment, and recent recovery trends on defaulted loans. As a result, expected net Life of Loan charge-offs increased by $151 million.
Unlike the increase in expected cash flows from slower prepayment speeds, all of these reductions in future cash flows are reflected as provision expense in Q3 results. In addition, we updated certain financing and securitized debt service assumptions. The net effect of these changes was to increase expected Life of Loan cash flows by $66 million. Collectively, this set of changes increased Life of Loan cash flows by $195 million. As we do each quarter, Life of Loan cash flow projections were updated for actual loan repayments, new originations, and benchmark interest rate assumptions, among other factors. Given our strong origination volume this quarter, these updated volumes further increase expected Life of Loan cash flows. The increase in expected Life of Loan cash flows from these updated assumptions and the actual results provides additional fuel for the growth strategy we have been working on.
In addition, we recently completed our fourth term ABS financing of the year, backed by Refi loan collateral. We continue to experience strong investor demand for these securities and are achieving effective cash advance rates that demonstrate our ability to grow more rapidly with low capital intensity. We have more fuel for our growth strategy, and we are growing in a more fuel-efficient way. We plan to provide an update on the progress of our going forward growth strategy for our Earnest business on November 19th. We look forward to sharing our observations and initiatives at that time. With that, I'll turn it over to Joe.
Joe Fisher (CFO)
Thank you Dave and everyone on today's call for your interest in Navient. In the third quarter we reported core loss per share of $0.84. Adjusting for significant items, we earned $0.29 per share during the quarter. We demonstrated strong loan origination growth in both the Refi and in school lending products, reduced our operating expenses in line with our long-term efficiency initiatives, and increased our reserves. Our reported results include the upfront costs of higher origination volumes along with the following significant items. First, provision of $168 million, of which $151 million or $1.17 per share relates to previously originated loans. While our delinquency rates are improving, they remained elevated and the provision reflects a continuation of both the credit trends and lower levels of prepayment activity we are experiencing.
Second, an interest income benefit of $11 million or $0.08 per share, resulting from the impact lower prepayment expectations have on loan premium, loan discount, and deferred financing fee amortization, and third, regulatory and restructuring expenses of $5 million or $0.04 per share. Our outlook for the fourth quarter is a range of $0.30-$0.35 per share. Our fourth quarter guidance range would place us within the full year guidance of $1-$1.20 a share set at the beginning of the year before the significant items we are announcing this quarter. I'll walk through our results by segment beginning with the Federal Education Loan segment on slide seven. The net interest margin for Q3 was 84 basis points. This is 14 basis points higher than the second quarter.
The increase in the quarter included reduced premium amortization from lowering our prepayment rate assumptions, resulting in a 23 basis point benefit. Prepayments were $268 million in the quarter compared to $1 billion a year ago. In the quarter, we earned $13 million of floor income on $3 billion of eligible loans. With respect to floor income, if rates were on average 50 basis points lower throughout the quarter, floor income would have increased by an additional $4 million. We expect fourth quarter NIM to range between 55 and 60 basis points, which assumes moderately lower rates in the quarter compared to the second quarter. Our total delinquencies declined from 19%-18.1% and the net charge-off rate increased 1 basis point to 15 basis points. The self provision expense is driven in part by the expected extension of that portfolio from continued low levels of prepayments.
Now let's turn to our Consumer Lending segment on slide eight. Total loan originations in the quarter grew to $788 million, an increase of 58% from the year-ago period. This was driven by over 100% growth in Refi originations and 9% growth in in-school originations. The doubling of Refi originations demonstrates our capabilities to attract high-quality prospects and convert them to customers with improved efficiency. The external environment is providing a tailwind as lower benchmark rates coincide with an increase in federal borrowers seeking to lower their rate and payments. A record high quarterly in school originations of $260 million included $119 million of borrowers pursuing graduate degrees. We are raising our full-year total loan originations guidance to be around $2.4 billion or over 30% higher than our guidance provided at the beginning of the year.
Net interest margin in this segment was 239 basis points in the quarter compared to 232 basis points in the second quarter. Unlike FFELP where we have a net loan premium on our books, our private legacy portfolio is on our books at a net discount to par, thus lowering our prepayment rate assumptions. Reduced net interest income in the portfolio by $7 million or 17 basis points. We expect Consumer Lending NIM for the fourth quarter to range between 255 and 265 basis points. When looking at delinquency and default trends over the last year or so, some context might be helpful. In 2024, FEMA declared 90 major disasters in the U.S., a sizable increase when compared to the 30 year average of 55 major disasters. As a result, forbearance balances were elevated and were 2.8% of balances a year ago compared to 1.5% in the current quarter.
As these borrowers exited disaster-related forbearance and returned to repayment, we saw 91+ delinquency rates rise to 3% in the second quarter this year and begin to decline. These events coincided with changes in federal loan policy and broader economic pressures that have influenced repayment behavior. While we are seeing improvement in delinquency rates, they continue to remain elevated. Of the $155 million of private education loan provisions that we took in the quarter, $17 million is related to new originations, and the remainder reflects our macroeconomic outlook and recent credit trends. Our allowance for loan loss, excluding expected future recoveries on previously charged-off loans for our entire education loan portfolio, is $765 million, which is highlighted on slide nine.
The total reserve build in the quarter is driven by a variety of factors, including changes in student loan borrower behavior, elevated delinquency rates, macroeconomic outlook changes, new originations, and the extension of the FFELP portfolio. Slide 10 shows the results from our business processing segment. As of October 17th, we have no further obligations to provide transition services for our government services business. The TSA revenues and expenses from this quarter totaled $7 million and $6 million, respectively, and are reported in the other segment. This final step allows us to begin removing $14 million of shared expenses, primarily consisting of IT infrastructure that was leveraged to support multiple business lines prior to the strategic transformation. Once removed, we will have exceeded our original target of $400 million of expense savings that we outlined in January of 2024.
More detail on total operating expenses can be found on slide 11. Compared to a year ago, our total core expenses for the quarter declined by $93 million-$109 million. This substantial decrease was driven by our focused efforts to significantly reduce our expense base through the divestiture of the BPS business, transition to a variable servicing structure, and reductions in our corporate shared service expenses. Turn to our capital allocation and financing activity that is highlighted on slide 12. This month, we completed our fourth securitization of the year. Year to date, we have issued nearly $2.2 billion of term ABS financing. These transactions were characterized by strong investor demand and high advance rates. Our current cash and capital positions provide ample capacity to distribute capital and invest in strong loan origination growth.
In the quarter, we repurchased 2,000,000 shares at an average price of $13.19, as our shares remain significantly below tangible book value. In total, we returned $42 million to shareholders through share repurchases and dividends while maintaining a strong balance sheet with an adjusted tangible equity ratio of 9.3%. Our quarterly guidance of $0.30-$0.35 per share incorporates continued strong origination growth, boosted by moderately lower interest rates and continued expense reductions. Thank you for your time, and I'll now open the call for any questions.
Operator (participant)
If you have a question at this time, please press the star and one on your telephone keypad. If your question has been answered, you may remove yourself from the queue by pressing star and two so others can hear your questions clearly. We ask that you pick up your handset for best sound quality. We'll take our first question from Bill Ryan with Seaport Research Partners. Please go ahead. Your line is open.
Bill Ryan (Senior Equity Analyst)
Thanks and good morning, Dave and Joe. First question obviously relates to the provision and delinquencies that you noted on the call. You all look back last. I'd say in the last six of the seven years we've seen delinquency rates go up from Q2 to Q3, actually went down both in the 30+ and 90+ this year. Forbearance rates, as you noted, have moved lower as well. I was wondering if you could kind of talk about the decision process to do what looks like, you know, a Q3 cleanup provision. It's obviously very well outsized to what we've seen the last couple of quarters. If you could maybe, Joe, be a bit more specific about the default and recovery assumptions now embedded in the reserve rate and how those compare to current trend line.
David Yowan (CEO)
Bill, thanks for the question. This is Dave. Let me try to step back and provide some context to the changes we've made around default and prepayment rates. I think our situation is distinct because of our legacy portfolios. We first established life of loan loss reserves in January 2020 when CECL replaced the incurred loss model across lending in the U.S. Within a couple of months of recording that CECL reserve, the pandemic began and we, like many other lenders, provided COVID-related forbearance to private loan borrowers. The federal government provided federal borrowers with payment relief and they also provided consumers and small businesses with broad financial support programs. As a result, delinquency rates and charge-offs in our legacy portfolios fell significantly during this period and they remained at historically low levels for some period of time. We didn't release reserves during that period as we expected.
The defaults that we assumed would happen were being deferred, not avoided. Federal loan payment relief programs were in place for an extended period of time. Federal loan forgiveness programs were also proposed. It's only about two years ago that federal loan payments resumed and about a year ago that credit bureau reporting also resumed. As these relief programs were being wound down, we did in fact see over time, as you just pointed out, increases in delinquency rates and charge-offs. These included charge-offs that were deferred from during the pandemic. We also experienced, as Joe indicated, some disaster forbearance volumes which further but temporarily increased our delinquency and default rates. At the same time in recent quarters, we also began to experience incremental defaults. We continue to see those incremental defaults. These are due to a wide variety of factors including changes in borrower repayment behavior and macroeconomic conditions.
The provision expense we recorded this quarter assumes that these incremental defaults will continue. For some time into the future. In recent quarters, we also began to see substantially lower levels of prepayments, especially within the federal education loans portfolio. These have also continued. They're due to a wide variety of factors as well, particularly public policy around federal loan forgiveness. The prepayment assumption changes we made this quarter also assume that these low levels of prepayments that we're experiencing will continue for some time into the future as well.
Joe Fisher (CFO)
Bill, to your question about recovery rate assumptions, think about our portfolio today. Our recovery rate assumption is about 17% on the private portfolio. If you go back five or 10 years, that would have been a higher recovery rate assumption. The reason primarily driven by as these loans have seasoned, we've lowered that recovery rate over the years, but relatively flat over the last couple quarters at 17%.
Bill Ryan (Senior Equity Analyst)
Okay, and then if we could kind of go to the gross default assumption as well.
Joe Fisher (CFO)
Sure. In terms of the net charge-off rate that we've seen, historically, we've given a charge-off rate range of 1.5%-2%. We're trending slightly higher than that over the first nine months outside of our range. When we think about the new originations that we're making today, especially on the Refi side, those are very high quality, as Dave highlighted in his prepared remarks, some of the highest credit scores that we've seen in our history. That charge-off rate assumption is roughly around 1.5% in terms of the new loans that we're making on the Refi side.
Bill Ryan (Senior Equity Analyst)
Okay. Just one quick follow-up, your guide for Q4, you know, $0.30-$0.35. I know you don't want to provide a 2026 outlook just yet, but should we be thinking that range as a potential starting point for moving into next year?
Joe Fisher (CFO)
I wouldn't use it as a baseline, just primarily because obviously we've got a lot of opportunities here in terms of the next year that we'll address during our upcoming investor update, as well as during the next quarter's earnings calls. Depending on interest rate assumptions that you're making, obviously could be a significant tailwind for us as it relates to Refi originations. There's an opportunity, as you know, from the elimination of the Grad PLUS program. As we circle those numbers and look forward to next year, obviously, there's higher provision expense that you take up front in terms of the cost associated with those loans. As we give you better guidance into next year, I would just keep in mind those upfront costs that you take during that time of origination will be a driver that you won't see necessarily in the fourth quarter.
David Yowan (CEO)
Bill, if I could just add to that a bit. If you think about the fourth quarter, we still have some expenses that we're going to take out that we expect to get rid of by the end of the first quarter of 2026. We're not quite at run rate there, operating expenses that will be lower. We're looking for additional opportunities to do that. I think the thing I would just emphasize that Joe just said is, as you think about 2026, we see substantial opportunities to grow, to continue to grow as we have. The key variable in terms of run rate will be the acquisition cost and the upfront cost of additional loan originations.
Bill Ryan (Senior Equity Analyst)
Okay, thanks for taking my questions.
Operator (participant)
We'll take our next question from Mark DeVries with Deutsche Bank. Please go ahead. Your line is open.
Mark DeVries (Senior Equity Research Analyst)
Yeah, thanks. Was hoping to get a better sense of kind of where, within consumer lending, you're seeing the credit weakness and what's driving the reserve build. I mean, it looks like the consolidation loan credit has been relatively stable. It seems like it's the rest of the portfolio. Is the weakness mainly coming from kind of legacy private student loans, or are you also seeing weakness in some of the more recent in-school loans that you've made?
David Yowan (CEO)
Yeah. Hey, Mark, this is Dave. Thanks for the question. If you think back, the first part of my answer to Bill's question, the majority of what we're seeing is focused on the legacy portfolios that we have. That's why I went through the establishment of the CECL reserve, the conditions that have changed since then. That's where the majority of the provision expense has been. The other products, there have been some changes, but they're not as significant as the changes in the private legacy portfolio in particular.
Mark DeVries (Senior Equity Research Analyst)
Okay, and just to clarify, based on the comments you made, is it kind of your observation that the primary source of the weakness now is just kind of the end of some of the more extensive forbearance options that they've been granted under, you know, on other loans that they hold? Is that what's kind of driving the weakness?
David Yowan (CEO)
Yeah, that's certainly, that's one part of it. There's a variety of factors. Macroeconomic conditions have weakened. Part of our reserve increase, not a significant part, is due to weakening of the Moody's economic forecast. That was a contributor to the second quarter as well.
If you think about the primary source of the provision being the legacy portfolios, that's why I go back to when we established the Life of Loan reserves. It was really, I think we can all agree, it was in a very different ecosystem for those loans than exist today as they've come through the pandemic. Part of the lower prepayment speeds, which we're seeing in both FFELP and in private legacy loans that pay off, don't default. Part of the reason we've tried to make sure that you see the relationship between the incremental cash flows from longer portfolios from slower prepayment speeds, that's also a contributing factor to higher provision as well because higher average balances outstanding can create higher charge-offs as well. There's a variety of factors that are at play here.
Mark DeVries (Senior Equity Research Analyst)
Okay. I just wanted to gauge your comfort level with how conservative these revised assumptions are and what kind of risk, if any, is there to further negative revisions.
David Yowan (CEO)
Look, we're responding to what we're seeing with the current trends. Mark, I'm not going to give a live-alone forecast for that. I think we feel we've done the appropriate thing here, obviously, to reflect what we're seeing in the portfolio today. I'll just leave it at that.
Mark DeVries (Senior Equity Research Analyst)
Okay, fair enough. Thanks for the comments.
Operator (participant)
We'll take our next question from Moshe Orenbuch with TD Cowen. Please go ahead. Your line is open.
Moshe Orenbuch (Senior Equity Research Analyst)
Great, thanks. I looked through the cash flow assumption changes and notice that more than all of the increase comes in 2030 and beyond, and from 2026-2029, it's actually almost $200 million less than you had in Q2. What's the driver for that?
Joe Fisher (CFO)
The primary driver is the lowering of the prepayment speeds, Moshe. If you think about the federal portfolio, we lowered our overall CPR from 5%-3%, and we have that going until through 2028, then increasing back to 5%, more historical levels. As a result, that impacts the cash flows that are coming in your earlier periods and increases those cash flows in 2030 and out. Similarly, on the private portfolio, we lowered. On the legacy portion of our portfolio, we lowered our CPR speeds from 10%. That's really the biggest driver of the movement from the earlier periods into the outer years.
Moshe Orenbuch (Senior Equity Research Analyst)
If you've mentioned this already, I missed it and I apologize, but is there an ongoing impact on the private margin from that? You mentioned what the impact was in this quarter, but is there an ongoing impact on the margin from slower prepays?
Joe Fisher (CFO)
We adjust for that every single quarter. Really, the biggest driver in terms of margin impacts, when you look back historically and what’s, I’d say, lowered the margins overall is that as our balance has shifted more towards the Refi portfolio from the legacy in-school loans that we originated, we typically have lower margins on the Refi, albeit at much higher credit quality. That’s the push on the margin in recent years as that has become a higher percentage of our balance.
Moshe Orenbuch (Senior Equity Research Analyst)
The margin going forward on the legacy book would be lower at a slower prepay rate. Right?
Joe Fisher (CFO)
It really shouldn't impact it overall. I mean, you take that charge in the quarter and have the catch up, but assuming that the rate we have in place continues, there really shouldn't be much of an impact to the margin.
Moshe Orenbuch (Senior Equity Research Analyst)
Okay, and then how do you think about, you know, capital needs given the, you know, the potential for significant asset growth, you know, if you have, you know, expanded plans for Earnest?
David Yowan (CEO)
Yeah, look, I think we feel very confident about our ability to finance rapid asset growth. We're doing that today. We've called out in the last two releases. Moshe, as you've seen our ABS issuances, I can't overstate how important that is to our outlook for this business and how we're comfortable with our ability to grow it in a much more, as I call it, fuel efficient way, meaning less capital. We're achieving advance rates in our most recent ABS securitizations that are higher than we have historically achieved.
We're getting a majority of the financing we need to originate those loans from the ABS market, therefore requiring less equity and other sources of risk capital to finance the loans. We've also got other avenues that we haven't exercised levers before, like loan sales, etc. You combine what we're seeing in the ABS market with some of the flexibility that we think we have, and we're highly confident in our ability to finance higher levels of loan originations.
Moshe Orenbuch (Senior Equity Research Analyst)
Just to follow up, I mean, is loan sales or are loan sales kind of a key part of the strategy? Is that something that you're, you know, that you've got a program in place or how do you think about that?
David Yowan (CEO)
Yeah, I think I'm not going to preview our November presentation or our 2026 plan at this point. We've historically been an opportunistic seller of loans. Again, I think we feel confident in our ability on a make and hold basis to continue to originate loans. Make and sell is an option we have and it's good to have that flexibility.
Moshe Orenbuch (Senior Equity Research Analyst)
Great. We'll be listening on the 19th. Thanks.
David Yowan (CEO)
Bet.
Operator (participant)
We'll take our next question from Rick Shane with JPMorgan. Please go ahead. Your line is open.
Rick Shane (Senior Equity Research Analyst)
Hey guys, thanks for taking my questions this morning. Look, a longstanding part of the narrative, is sort of the decline in the reserve rate due to consolidation loans and the relative loan quality. If we look back consistently, the provision is well below charge-offs on any given quarter in the private in the consumer book, have we reached the inflection point? When you think about, for example, fourth quarter guidance, does that assume that the reserve rate is now stabilized in the mid-250s or how should we think about that going forward?
Joe Fisher (CFO)
The way I would think about it going forward, it's going to be a function of also new originations and what we're making. As I said in my earlier response, for the Refi originations, we're reserving at 1.5% in terms of life of loan loss assumptions. For every dollar we're adding there, it's 1.5% which would lower our overall allowance. As that balance shifts, I would just imagine that that allowance would come down more to reflect just the greater percentage of Refi loans to the extent that we are. We see an opportunity here obviously, in the grad plus market and grad opportunity there. Those loans typically are originated with life of loan loss assumptions closer to 6%. That's the balance and the trade-off there. Otherwise, just in a naturally amortizing portfolio where we have life of loan loss expectations, I would imagine that that allowance would come down all else equal, as the portfolio runs off.
Rick Shane (Senior Equity Research Analyst)
Got it. Just to be clear, I don't know if I missed this or not, but you're suggesting that the reserve rate on the consolidation loans was not changed as part of this increase that we saw today.
Joe Fisher (CFO)
For new originations? No, it was not. If you think about the Refi portfolio, as Dave mentioned, very high credit quality, high earners, that's some of the best that we've seen in terms of our history there. The early trends that we've seen over the last year have not given any indication that we would need to change that.
Rick Shane (Senior Equity Research Analyst)
Wait, does that suggest that on the older stuff, not the new originations, that the CECL rate on the consolidation loans did change?
David Yowan (CEO)
On the Refi book, we keep saying consolidation. On the Refi book, yes, we did take up our reserves on the Refi originations primarily as we looked at some of the back book in vintages that were four or five years old.
Rick Shane (Senior Equity Research Analyst)
Okay, thank you.
Operator (participant)
We'll take our next question from Sanjay Sakhrani with KBW. Please go ahead. Your line is open.
Sanjay Sakhrani (Analyst)
Thank you. Just to follow up on some of the credit quality questions, on this provision that you did take, the $151 million, how much of it was credit-related versus just the cash flows extending out because of lower payment speeds? I'm just curious on that. I guess just to follow up on that as well, it sounds like when I look at the slide, you guys, every third quarter, you sort of true up that number and look at the back book. I'm just curious, like, I understand things have changed post-pandemic, but what changed between last year and this year? Was it just the repayment behaviors that changed? I'm just curious what you think drove that because you would have thought the conditions post-pandemic have been fairly stable more recently than they were in some of the years ensuing that. Thanks.
David Yowan (CEO)
Yeah, thanks for the question, Sanjay. If you think about the narrative that I went through with Bill's question, the change in public policy, particularly around the stealth loans, for example, is a new administration policy. Right prior to the inauguration, the prior administration had a very proactive view of loan forgiveness, payment relief programs, etc. The new administration has not exhibited that same appetite for that and in fact has not proposed anything. We're three-quarters into that new administration and we've now both for prepayment and default rates, looked at trends that we're seeing. When you see a trend that occurs over several quarters, we've appropriately stepped back and said let's take a look at if we continue to see these trends both on prepayment and default rates. Here's the impact on lifelong cash flows. The accounting treatment for each one of those is very different.
None of the future cash flows from extension gets booked in the current quarter and all of the provision expense gets booked in the current quarter. Got it. I think in terms of the, I'm not going to try to attribute all the different factors here. We've laid them out. I think we could, you know, turn it into a World Series game of 18 innings. There's a lot of factors going on. The ones we've called out are really the impact of everything that went on in the pandemic related to Covid relief, related to federal loan forgiveness, the macroeconomic conditions that we've seen. This is a distinct portfolio for us, just given the age of this. The majority of the provision we're taking again is on loans that originated a decade or more ago.
That's distinct from certainly from the loans that we're booking today and distinct from maybe other players that have a different story to tell this quarter.
Sanjay Sakhrani (Analyst)
Of that $151 million, is there a breakdown of that, like how much of it is credit, how much of it is extension of duration?
David Yowan (CEO)
Yeah, I'm not going to. There are so many factors involved. We don't have that attribution. Sanjay.
Sanjay Sakhrani (Analyst)
Okay, got it. One last one. It seems like the delinquency rates aren't necessarily showing the same type of deterioration that the charge-offs are. Should we expect that severity of loss, the roll rates, to be higher on a go-forward basis? I'm just curious, Joe, as we think. About where this all falls out.
Joe Fisher (CFO)
Yeah, they should be lower. A big driver, obviously of just the charge-offs in this quarter is the timing of those borrowers coming out of the various disaster relief programs and forbearances. To your point, we're seeing early stage delinquencies that are improving and late-stage delinquencies for that matter, on the consumer lending side. From that standpoint, we would expect lower charge-offs going forward and we are seeing improving roll rates.
Sanjay Sakhrani (Analyst)
Sorry, I lied. I have one more question. You know, you hear a lot about high levels of unemployment among graduate students. I'm just curious if you guys are seeing anything in your portfolio or that you've accounted for any of that in this provision increase. Thanks.
Joe Fisher (CFO)
No, we are not seeing that. Certainly, when you look at the originations that we've been making, we've been doing that since 2020. They've predominantly been to, I should say, more than half have been to graduate students. We're just not seeing that in terms of those that have graduated here in their early terms. There's not been the impact that you're seeing in the headlines.
Sanjay Sakhrani (Analyst)
Got it. Thank you.
Operator (participant)
We'll take our next question from Mihir Bhatia with Bank of America. Please go ahead. Your line is open.
Mihir Bhatia (Equity Research Analyst)
Hi, good morning, and thank you for taking my question. I apologize up front. It's another question on the provision and just trying to understand the moving pieces. You mentioned the $155 million increase in provision in the consumer segment. $17 million was due to new originations. Is there a way to break out the remaining $138 million between the macro policy changes and just higher delinquencies even? I guess we're just trying to understand the moving pieces, how much is coming from macro assumptions and policy assumptions changing, how much is coming from actual like delinquency because the delinquencies don't like the trends in delinquency. I think as some of the previous analysts also mentioned, don't seem that bad. I mean, I understand they're higher than earlier, but just trying to understand the moving pieces. Thank you.
David Yowan (CEO)
Yeah, I appreciate the question. The macroeconomic condition piece this quarter is relatively small. The rest of it is the trends we're seeing in the portfolio and our assumption and expectation that those trends are going to continue. Again, go back to the narrative that I used to answer Bill's question up front. I think you really have to look at the private legacy portfolio, look at the establishment of the reserve back in 2020. Think about the five years since then. See what we're seeing now. That's what we're responding to. There's a variety of factors on that very seasoned portfolio that we're responding to here. That's the majority of the story of the 151.
Mihir Bhatia (Equity Research Analyst)
Okay. Maybe just on the Refinance side, as you've had some more time to digest some of the changes that are going on on the graduate side. Maybe just a question like both on the in-school opportunity for new loans and then just on the Refinance side even, is there something for us to be thinking about with all the policy changes going on there, where there could be some type of Refinance benefit also?
David Yowan (CEO)
Yes, thanks for the question. You're seeing in our results today, I think the opportunity in Refi and our ability to capitalize on it. I mentioned at last quarter's release one of the things that, again, not to keep going back to 2020, but prior to the pandemic, our Refi originations were roughly 50% coming from federal loan borrowers. During the pandemic period, which also coincided with a period of higher benchmark interest rates and volumes lower, roughly 20% of our Refi origination volume was coming from federal loan borrowers.
In the first half of the year, roughly 40% of our borrowers were coming from consolidating out of federal loans. This quarter, 50% were consolidating out of federal loans. The impact of federal public policy, federal loan public policy on payment relief programs, etc., has made the federal loan value proposition to borrowers less attractive than it once was and therefore the private loan, the Refi loans, becoming more attractive. We think that's what's driving a part of the increase in the growth in Refi that we're seeing. We would expect that to continue. Lower benchmark interest rates only further increase the addressable market there. If you look at the interest rates on federal loans, I think it's over. There's over $100 billion federal loans originated in the last six years that have above 7% coupon.
That's a significant and substantial opportunity, not all of which meets our targeted customer base. The Refi opportunity is significant and substantial. The grad plus piece is still. We don't know what, I don't think anyone knows for sure what that's going to look like. We feel confident in our ability, demonstrated this quarter again, to attract high credit quality, high balance borrowers, predominantly graduate students. When those students present themselves and are looking for a gap to help finance their education, we're confident in our ability to meet them, meet their needs, and exceed their expectations.
Mihir Bhatia (Equity Research Analyst)
Understood. Thank you for taking my questions.
Mark DeVries (Senior Equity Research Analyst)
You bet.
Operator (participant)
We'll take our next question from Ryan Shelley with Bank of America. Please go ahead. Your line is open.
Ryan Shelley (Analyst)
Hey guys, thanks for the question. Most of mine have been answered. I just wanted to ask about your outlook on competition going forward. Obviously, with changes to federal policy. It sounds like there's going to be Greenfield. I know you just said it's hard. To exactly size that, but big picture sounds like there will be more opportunity. How do you see that changing the competitive landscape and any commentary around what you're doing to prepare yourself to more effectively compete? Thank you.
Joe Fisher (CFO)
I think that we've done a good job in terms of our entrance into the market over the last several years here, positioned ourselves very well to take advantage of the opportunity. When we look at our competition as it relates to new in-school graduate loan originations, just looking at public data, we're roughly over $200 million in terms of graduate originations. When you look at last year, we estimated that market to be between $1 billion and $1.4 billion. If you look at some of our competitors and what they suggest is the market, that's fairly consistent. So roughly a 20% market share there.
I think that the product suite that we offer is very attractive in the early stages of what we've seen here, and just really with some of the reforms that have taken place. We've had a number of financial aid offices reach out. We've been able to add in terms of the percentage of the top 200 schools that we participate in over the last two quarters here, so call it an additional 9%-10% increase there. Certainly we're taking advantage of the opportunity here that's in front of us. The normal competitors in that place are obviously the largest player in the market, who still has a significant share there. We haven't yet seen new entrants that have made a significant impact. On the Refi side, there's a significant opportunity for growth there as obviously rates fall.
That's predominantly just us and one other larger competitor in the market. We don't see other players stepping in yet, like we did five years ago, where there were more diverse players in the Refi space. Today, I'd say it's really a two-person race in terms of Refi originations, and we're not seeing any changes in really outsized coupons that are changing or pressure on rates that are being charged to borrowers at this stage. We feel good about where we are and well-positioned for all of 2026.
Ryan Shelley (Analyst)
Got it. Very comprehensive. Thank you.
Operator (participant)
As a reminder, if you'd like to ask a question today, please press the Star and one keys on your telephone keypad. We'll take our next question from Jeff Adelson with Morgan Stanley. Please go ahead. Your line is open.
Jeff Adelson (Analyst)
Hey, morning. Thanks for taking my questions. I know it's already been asked. Just in terms of the potential grab plus opportunity here, is there any more work you've done over the past quarter to try to better ring fence the opportunity here? What your work has shown you, and I think one of your competitors has been out there on the in-school side talking about a $4 billion-$5 billion opportunity annually. Is that seen maybe in the ballpark for you, or are there any maybe differences in how you would think about that, or should we be maybe expecting something on this November update around sort of market size opportunity there? Thanks.
Joe Fisher (CFO)
I would think of it as the market share today is $1 billion-$1.4 billion in terms of what the graduate market represents for private players. I would say Grad PLUS as a total is a $14 billion market. I don't view that as just one-for-one replacement that you're adding $14 billion. I know one of our competitors has said $4 billion-$5 billion is the expansion. Another one of our competitors is quoted as closer to $10 billion. From us, we certainly think there's going to be a level of multiples of expansion there, and we're excited about the opportunity. That's where I leave it.
Jeff Adelson (Analyst)
Okay, thanks. That's helpful. Just on the Refi side, I think you had said about 50% is now as of this quarter coming back from the government Refi side of things, more in line with pre-COVID. Do you think there's an opportunity for that to expand even further above even where pre-COVID was, just as sort of rates fall from here and the government policy on forgiveness and repayment plans? After next year is going to get a little bit worse?
Joe Fisher (CFO)
Absolutely. I think there's opportunities when you think about just the rate environment here. I'll just use one example. If I look at the Grad PLUS program going back the last 14 years, there's only been one instance where the rates that are reset every single year have been below 6%. If you look at the last four years, those rates have been at 7.5% or higher, and just two years ago it was at 9%. As rates fall here, I think there's a tremendous opportunity. When you think of the volume of high quality borrowers that have attended and graduated with a graduate degree, I think it's a great opportunity in front of us to increase that percentage and ultimately increase the volume. You don't have to go that far back to see just very high level volumes from us.
Back in 2021, we were close to $6 billion in terms of originations. I think it's fair, really going to be rate driven, and we'll have to see what happens here in the next couple quarters.
Jeff Adelson (Analyst)
Okay, thanks for taking my questions.
Operator (participant)
There are no further questions on the line at this time. I'll turn the program back to Navient CEO David Yowan for any additional or closing remarks.
David Yowan (CEO)
Thank you and thanks for joining us today. Before we close, I'd just like to put into context this quarter's results the way that we see it. I'd actually call your attention to slide three in our slide package. We've included this slide for eight or nine quarters now. It has four elements to it that we're attempting to deliver on. I'll just go through them.
One, maximize the cash flows from our loan portfolios based on the trends that we're seeing today that we have recorded and put into our lifelong cash flow assumptions. Those combined to have a $195 million increase in the lifelong cash flows that we saw. The second thing we said we'd deliver on was enhance the value of our growth businesses. For the third straight quarter, we've doubled our origination volume from prior quarters. We had our highest peak season in in school lending in our history. Credit quality is exceptionally high. Customer satisfaction remains very high. We're positioning ourselves for further growth in market and product opportunities. Contingency, simplify the business and increase efficiency. I'd call your attention to Slide 11 where operating expenses this quarter are roughly 55% of what they were just in the year ago quarter.
We've identified within the amounts we incurred this quarter $14 million of expenses that we know are going to go away. We're in the process of getting rid of those that would bring our operating expenses down to less than half the level they were a year ago. We're committed to continue to look for ways to be more efficient and then, fourthly, maintain a strong balance sheet and distribute excess capital. We have an adjusted tangible equity ratio of 9.3% which remains above our long-term average. We were able to grow loans at the levels we grew at and still distribute $42 million worth of capital for our shareholders. We feel like this quarter is a great example of our ability to check all four of those boxes in a very meaningful way. I hope you can see our results in that same context.
Appreciate your time and attention. We look forward to speaking to you in November.
Jen Earyes (Head of Investor Relations)
Thanks for joining today's call. Sorry, David.
David Yowan (CEO)
Go right ahead, Jen.
Jen Earyes (Head of Investor Relations)
I was just going to offer anybody whose question we didn't get to, please contact me after the call. Happy to have some more conversations. Thank you, David.
Operator (participant)
Absolutely. Thank you all for your participation. You may disconnect at this time.