SLM Corporation (SLM) Q1 2022 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the 2022 Q1 Sallie Mae Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the call over to your host, Brian Cronin, Vice President, Investor Relations. You may begin.

Thank you, Kevin. Good morning, and welcome to Sallie Mae's First Quarter 2022 Earnings Call. It is my pleasure to be here today with Jon Witter, our CEO; and Steve McGarry, our CFO. After the prepared remarks, we will open up the call for questions. Before we begin, keep in mind our discussion will contain predictions, expectations and forward-looking statements. 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-Q and other filings with the SEC. For Sallie Mae, these factors include, among others, the potential impact of the COVID-19 pandemic on our business, results of operations, financial conditions and/or cash flows. During this conference call, we will refer to non-GAAP measures we call our core earnings. A description of core earnings, a full reconciliation to GAAP measures and our GAAP results can be found in the Form 10-Q for the quarter ended March 31, 2022. This is posted along with the earnings press release on the Investors page at salliemae.com. Thank you. I'll now turn the call over to Jon.

Thank you, Brian and Kevin. Good morning, everyone. Thanks for joining us to discuss Sallie Mae's first quarter results. I'm pleased to report on a successful quarter and continued progress toward our 2022 goals. I hope you'll take away three key messages today. First of all, we delivered strong results in the first quarter. Second, we are well positioned to deliver solid results in 2022, recognizing it's difficult to perfectly predict the future given the current macroeconomic and geopolitical uncertainty. And third, we have a resilient business model and strategy that should allow us to continue to perform well even if some of the current rate and inflationary trends continue and/or we eventually see some recessionary forces. Before I review our quarterly results, let me first discuss our loan sale and share buyback plans and performance. In our guidance discussion in January, we stated we expect to sell 1 billion of loans in Q1 and 2 billion in Q3. During the quarter, we changed our plans and executed 2 billion of loan sales in Q2 and expect the final loan sale to take place in Q3. While we have built a reliable loan sale process, it's not unusual for target dates to fluctuate by a few weeks. However, we are pleased that we completed the transaction before this earnings call, so we can discuss the transaction and implications for guidance to help you better model the remainder of the year. Given uncertain market conditions, I am confident our investors will agree that accelerating the sale of the additional 1 billion of volume was the prudent thing to do. As you have seen in our press release, we have not changed our EPS guidance, which confirms that we were able to execute the loan sale at prices consistent with our market analysis before this period of major volatility began. We received a premium that is securely in the low double digits. The buyer of our loans is just beginning their post closing process. Therefore, to protect our buyers' interest, we will not be more specific on the premium execution at this point in time. Our plan is to use the gain on sale and capital release through the sale to aggressively buy back stock at current depressed levels to create shareholder value and minimize the impact of more capital on our NIM. Looking forward, our assets continue to deliver the long predictable cash flows, high yields and low losses that investors are seeking. We believe this demand, combined with a deep pool of well informed loan buyers, should allow us to execute future loan sales at attractive premiums. We expect to sell the last 1 billion of loans this year in the third quarter. Turning to the quarter's results. GAAP diluted EPS in the first quarter of 2022 was $0.45 compared to $1.75 in the year ago quarter. These solid earnings are lower than the prior year quarter, given that we sold 3.2 billion of loans in the first quarter of 2021 that generated 399 million in gains. Private education loan originations for the first quarter of 2022 were 2.2 billion, which is up 6% over the first quarter of 2021. This is a strong start to 2022 and is in line with the guidance for the year. Credit quality at origination was consistent with past years. Our cosigner rate for Q1 of 2022 was 88%, down slightly from 89% in Q1 of 2021. Average FICO score for Q1 of 2022 was 748 versus 751 in Q1 of 2021. In the first quarter of 2022, we continued our capital return strategy by repurchasing 10 million shares at an average price of $18.46. We have reduced the shares outstanding since January 1 of 2022 by 3%. We have reduced the shares outstanding since January 1 of 2020 by 37% at an average price of $15.70. As a reminder, our loan sale and share repurchase arbitrage program is an opportunistic strategy to take advantage of the disconnect between the price of our assets and our low stock price. During CECL phasing, we anticipate maintaining a relatively flat balance sheet and using the proceeds of loan sales for share repurchases. Once we complete the phase-in period, we will look to resume organic balance sheet growth by lowering loan sales and using a combination of organically generated capital and a nominal amount of loan sales to fund what we still expect to be a meaningful capital return program. In addition to organic growth from our core businesses that we are expecting post-CECL phasing, we are also exploring ways to monetize the value of our attractive and growing customer base. We are pleased to report that we officially closed on the Nitro acquisition. You will remember that we were excited about the purchase of Nitro given its customer acquisition and management capabilities. The Nitro team and assets have been successfully transitioned to the Sallie Mae platform, and both legacy teams are working hard to ensure Nitro's success in the upcoming peak season. After peak season, we will look for ways to further integrate the Nitro team and find ways to take additional steps on our journey toward increased organic growth. Steve will now take you through the financial highlights of the quarter. Steve?

Thank you, Jon. Good morning, everyone. Let's start where we usually do with the discussion of our loan loss allowance and provision. The private education loan reserve was $1.25 billion, or 5.3% of our total student loan exposure, which under CECL includes not only the on balance sheet portfolio, but also the accrued interest receivable of $1.3 billion and unfunded loan commitments of $562 million. The reserve rate is up slightly from 5.2% in the prior quarter, but down from 5.4% a year ago. Let's now look at the major variables used to calculate our CECL reserve. Economic forecasts and weightings are a major input to our model. In the current quarter and the year ago quarter, we used Moody's base S1 and S3 forecasts, weighted 40%, 30% and 30%, respectively. We can be expected to use this mix going forward, except during extraordinary periods of uncertainty. A contributor to the small decline in our reserve rate was the improved economic outlook. To put a point on it, the weighted average forecast of college grad unemployment over the next two years declined from 3.2% in Q1 to 2.5% in the current quarter. Model inputs, such as prepayment fees are an important driver as well. However, this quarter there were no major changes to these variables. While the first quarter is a large disbursement quarter for students funding the spring semester, many of these loans were reserved for at the time of commitment in the fall of 2021. Provision for new unfunded commitments was $47 million in the current quarter. We booked a provision for loan losses of $98 million on our income statement this quarter. Let's now discuss our credit metrics, which can be found on Page 8 of the investor deck. Private education loans delinquent 30-plus days came in at 3.5% of loans in repayment. This is up from 3.3% in Q4 and 2.1% in the year ago quarter. This is consistent with the outlook we provided in January. We continue to expect 31-plus day delinquencies to hover in the low 3% range for 2022. Private education loans in forbearance were 1.4%, down from 1.9% in Q4 and 3.7% in the year ago quarter. We have regularly discussed our transition to more stringent forbearance policies over the last year. As expected, we are seeing significant increases in cash resolutions of delinquent accounts in lieu of forbearance. However, there is a population of loans that would have received forbearance in the past and are now entering delinquencies causing increased delinquency rates. I would point out though that if you sum delinquencies and forbearance, year-over-year there was a meaningful decline. Private education loan charge-offs in the quarter were 1.89%, slightly below the forecast of 2% we provided last quarter. We now expect private education loan charge-offs for 2022 to peak in the second quarter at 2.25%, then decrease over the remaining quarters and total just over 1.75% for the full year. As you may recall in the prior quarter, we discussed the segment of loans that left school during the pandemic and just entered full P&I in our November-December repay wave. These loans are demonstrating higher loans to delinquency and are moving through the delinquency buckets more slowly than we had expected, but it is an isolated segment of our portfolio. And we are very well reserved for the outlook we are discussing here this morning. Let's take a look at net interest margin reported on Page 7 of the investor deck. NIM for the quarter came in at a strong 2.59%, up significantly from 4.4% in the year ago quarter. We benefited from the fact that our deposits repriced more slowly than our assets. In addition, the drag on our NIM from our liquidity portfolio declined meaningfully as we invested our cash and medium-term treasuries as interest rates have increased rather than leaving cash on deposit in low yielding Federal Reserve balances. We expect with high confidence that our NIM will remain in the low 5% vicinity for all of 2022. As we look forward to '23, we expect to maintain a similar NIM to what we are seeing this year. The NIM stability is the result of our conservative funding approach, predictable asset performance and consistent origination quality. Because we have raised long-term funding through asset-backed securities and broken deposits, the amount of funding we are required to raise each year is very manageable. Based on our current plan, we expect to raise just $3.5 billion of new funding in each of the next several years. In the upcoming peak season and in successive years, we plan to continue to exercise strong pricing discipline and originations to maintain attractive NIMs and return on equity. Let's spend a minute discussing the loan sale that just closed. As we are all aware, base interest rates and credit spreads have increased significantly since our last loan sale and capital markets have been extremely vulnerable in a difficult economic and political environment. Despite that, the price we received for our assets reflected the underlying market conditions without a significant risk premium. The long track record of consistent performance of our high quality assets through several economic cycles has broadened the appeal and acceptance of our assets in the capital markets. We are very pleased with this execution and believe it validates our loan sale and share buyback strategy. Let's look at OpEx. Operating expenses were $133 million compared to $125 million in the prior quarter and $126 million a year ago. Driving expenses higher was a 6% increase in disbursements, a 9% increase in applications process, which by the way is the biggest increase in applications we have seen in quite a while. Expenses associated with the acquisition of Nitro College and other initiatives spending, primarily in our marketing areas, also contributed. However, if you exclude the $3 million of expenses associated with closing the Nitro purchase, OpEx grew just 4%. So we feel that we are in very good shape to continue to drive servicing and acquisition costs lower on a unit basis. Let me wrap up by discussing liquidity and capital. We ended the quarter with liquidity of 17% of total assets. Total risk-based capital came in at 14.2%, CET1 12.9% and GAAP equity plus loan loss reserves over risk weighted assets came in at a strong 15.4%. It is worth noting that we have now begun phasing in the CECL impact to regulatory capital and made our first down payment of just over $200 million with three more payments to come. We are well positioned to grow our business and return capital to shareholders going forward. Jon, back to you.

Thanks, Steve. Let me wrap up with a few additional comments on the broader environment and a bit about our outlook for the remainder of 2022. Overall, the political environment remains constructive with the administration and Congress focused on the federal loan program, specifically simplifying federal income based repayment programs, increasing Pell Grants, and increasing funding for HBCUs. As discussed previously, we support these types of efforts as they target assistance to those who need it most and are complementary to our business. Recently, the Biden administration extended the federal payment holiday through August 31 of 2022. As we have mentioned in the past, due to the overlap of the federal and Sallie Mae borrowers, we do expect some marginal credit quality benefits from this extension, which would extend to a federal loan forgiveness, if any materializes. We also expect marginal benefits in third party consolidations, as the pressure to consolidate federal loans is pushed back. We believe this, coupled with the rate increase environment, will put real pressure on the profitability of the refi business. We do expect continued headlines and actions regarding the payment holiday specifically, and loan forgiveness more broadly. But we expect any action will be targeted at the federal program. We do not believe there is any legal basis that subjects private loans to the type of administrative action being used to delay repayments, or proposed to forgive federal student debt. As such, any potential future announcements in this area, should they occur, should only apply to federal student loans. We are in the final preparation stages of our 2022 peak season. While still early, overall college enrollment for fall of 2022 is anticipated to reflect a modest increase over fall of 2021, with greater success at highly selective schools. We recently surveyed our top 100 schools and 63% reported an increase in admission applications compared to the fall of 2021. This was led by significant demand growth in Western and Northeastern schools. Additionally, 83% of our top 100 schools expect to meet or exceed their enrollment targets. I would also like to spend a few minutes talking about how we view the current economic environment. We have not seen market volatility or macroeconomic conditions like we are seeing today in many years. I don't need to tell you that inflation is the main concern on everyone's mind. The building blocks for renewed inflation were already in place and were then exacerbated by the war in Ukraine. This has put increased pressure on consumer prices across the board. I think it is important during periods of extreme volatility to step back and take a look at the bigger picture. The Moody's forecasts for consumer inflation is for a decline back to the mid 2% level by late '22 and remain there. That forecast is very similar to the consensus economic forecast they compile and publish every quarter. This inflation outlook is consistent with their forecast of a peak Fed funds rate of 2.8% over the next several years. The fixed income markets have priced in most of this tightening already. The consumer is in very solid shape at this point in time. Moody's estimates that consumer savings are 2.7 trillion higher than the pre-pandemic trend they were on. Balance sheets have been significantly improved as consumers took advantage of federal pandemic relief funds to pay down existing levels of debt. Disposable income to debt ratios are as high as they have been, particularly for our client base in the upper quintile of earners. Finally, the outlook for employment and wage gains remains solid. These views are incorporated in our current guidance and outlook. It's important to recognize, however, that our core business and strategy are resilient and we can adjust course as needed to changing economic conditions. As a reminder, our higher quality assets are derived from over a decade of conservative underwriting and funding. College graduates have unemployment rates that are typically half of the U.S. population. Our cosigner rates are consistently approaching 90% and provide us the security of another financially responsible party on our loans. As a bank, we have a dynamic funding model which allows us to take advantage of our various funding options, including retail and broker deposits, as well as secured funding. Additionally, while we take advantage of our loan sale and share back arbitrage program, our balance sheet is expected to remain relatively flat. This reduces the need to replace and grow our funding base significantly, which allows us to be selective and opportunistic with our funding vehicles in different market conditions. Lastly, we can influence our mix of fixed and variable rate loans by changing our pricing. Our strategy is to match fund our loans on both the asset and liability side. In extreme situations, we have the ability to change price on our loans to influence the fixed variable mix of our originations. This is not something we have had to do historically, but it is an option if extreme market conditions materialize in the future. For these reasons, we remain confident in the performance of our portfolio and our ability to navigate potential macroeconomic challenges in the future. Let me conclude with a discussion of 2022 guidance. First, we are reaffirming our guidance for earnings per share, loan growth and expenses. We are adjusting our outlook for net charge-offs slightly higher as a result of the higher delinquency roll rates we are experiencing from the segments of loans that left school during the pandemic that Steve described earlier. Specifically, we expect full year diluted non-GAAP core earnings per share between $2.80 and $3.00, private education loan origination growth of 8% to 10%. We expect our non-interest expenses for full year of 2022 to be between 555 million and 565 million. And we expect our total loan portfolio net charge-offs will be between $270 million and $290 million. With that, Steve, let's open up the call for questions. Thank you.

[Operator Instructions]. Our first question comes from Michael Kaye with Wells Fargo.

Hi. Good morning. What's your appetite to do more than the half of the $1.25 billion authorization in 2022, considering the disappointing stock performance this year? Could you perhaps do some more than the planned $3 billion of total loan sales in 2022, if the premiums continue to hold off and the stock price remains near these levels?

Yes, Michael. Good morning, and thanks for that question. Let me take those in turn. As I think we've discussed in the past, we set up a stock repurchase program. We will obviously be more opportunistic when the price is lower. We will be slightly more reserved in that program when we think the price is higher. But I think in terms of our overall share repurchase authorization, you should expect us to be as aggressive as we possibly can be during this period of lower valuation. We obviously have to work that within the constraint of sort of relative capital levels, funding requirements for our loans and so forth. But I think in general, you can expect us, and I think our past performance has demonstrated this, to be more opportunistic, more aggressive when the prices are low. As it relates to your second question of selling more loans this year, we have not contemplated that at this point and are not expecting to sort of make that decision. With that said, we will always continue to evaluate the market, the market for our equity, the market for our loans. And if we really saw that there was something materially different there from expectations, of course, we reserve the right to come back and make a different decision there.

Okay, that's great. Thank you. And then just on the industry, excluding the impact of the recovery from COVID, how do you think about the longer term secular growth trends in the private student lending industry? It seems historically there has been some pretty good steady growth. But now there's some potential headwinds to think about, like changes in students attitudes toward higher education post COVID, things such as students attending college closer to home, going to two-year colleges instead of four-year colleges to start out, for example. So do you think there's a permanent shift in students' attitudes towards higher education that's going to impact industry growth?

Michael, it's a great question. And as you can imagine, we think about the industry dynamics a lot. I think for our relevant planning horizon, which we typically think about in sort of the four to five-year horizon, I think our conclusion with a number of gives and gets [ph] is that the next four to five years probably look a lot like the last four or five years, which with the exception of the COVID hiccup and the implementation of the HEERF funds, which we've talked about pretty extensively, we're always in that sort of mid to upper single digits. I think the trends that you talk about are certainly true. I think what we also see though is there is continued pressure on schools to increase selectivity and the quality of their programs and amenities. We don't see that trend changing at all. We don't see the trend of people staying closer to home, or at least have no evidence yet that that's a permanent trend. That really seems to be from our research more focused on sort of the reaction to COVID. But obviously, we'll watch that closely. That conclusion is based more at this point on sort of perception and judgment than it is a long litany of sort of hard data. And I also think that while the mix of programs is changing a little bit, that also affords real opportunity for our business. So when you think about certificate programs, when you think about professional and sort of training programs, like pilot programs, those are all things that we have nice business around. And so even as some of those trends shift, we're well positioned to take advantage of those.

Okay. Thank you.

Our next question comes from Moshe Orenbuch with Credit Suisse.

Great, thanks. Maybe just to kind of drill down a little bit into the process that kind of allowed you to get $2 billion sold in this otherwise difficult environment, I guess is there a way to talk about how much the variable rate portion of the portfolio helps with respect to that when you think about? And as you kind of think about further loan sales during 2022 and into 2023, how do you think about the resilience of your premium versus the other stuff that we're seeing in the market?

So great question, Moshe. Let me make a couple of points sort of from a higher level. So our team has worked with a lot of buyers for this paper and there are now quite a few investors up to speed on how to model student loan cash flows and performance. And that's a very big positive. And in this most recent auction, we had a brand new buyer that was asked to try and access this paper, which is another big positive. And also this actually surprised me when I saw the stat. In the first quarter of 2022, there was slightly more securitization done than in the first quarter of 2021. So the capital markets held up very, very well. So while the headlines and the volatility in the market looked pretty frightening, the underlying market did hold in very, very well. In terms of the fixed and variable portion of the pools, the bond math works out pretty well, the fixed side of the portfolio, definitely the premiums decline as interest rates go up. And depending upon how the buyer is expecting to finance the variable, whether it is with fixed rate or variable rate funding, the value in the variable rate side can offset a significant amount of the deterioration in the fixed rate side. And I do think that that is what we saw occurring this quarter. And then the other wildcard is credit spreads, which moved out but not as significantly as one would have expected. So going forward, we feel very good about the program. And we will continue to work with buyers to get them up to speed on how to understand the cash flows in the portfolio. And look, as I mentioned in the prepared remarks, we have a long track record of performance that people can feel very good about. And then the other wildcard prepaid fees are a big component of the valuation of these pools. And if consolidations do start to slow, as we certainly expect them to do, and as we have already seen evidence that they might, that can also be an added source of value to these pools. So I rambled around there a little bit, but I hope I answered your question.

Yes. Thanks, Steve. And maybe, Jon, the growth rate of originations was a little below your full year growth rate, but you maintained your guidance. You talked a little bit about some of the survey work that you've done. What other -- are there any other factors or factors that you would highlight in terms of your ability to get back to that higher growth rate in originations over the course of 2022?

Yes, Moshe, a great question. I would remind folks that what happens in the spring is really tied to what happened in the peak of 2021. So in some respects, day follows night. And really when we get into the fall, that's effectively a new peak season and starting that trend all over again. I think as we have looked through it, and I think we talked about this a little bit when we set the original guidance, and I think appropriately got some good challenging questions on it, I think there's two or three things that are really going to be different this peak season versus last. Number one is just the continued healing of the enrollment trends and the normalization back to a college experience, like what we saw pre-pandemic. I think that was perhaps a little bit of the impetus behind Michael's earlier question. But I also think the other big thing is the removal of the HEERF funding, which I think we said statutorily had to sort of run its course by the spring of this year. And I think we're in the very tail end of that happening now. And I think we shared back when we did first quarter earnings -- I'm sorry, fourth quarter earnings, that there was no appetite that we could see to extend or enhance that, and that we didn't expect that to play out going forward. You put on top of that just what we're seeing around the continued investments in our marketing capabilities, the continued improvements and enhancements that we're seeing to our customer management programs. And we feel like the 6% growth in the quarter is very, very aligned with the expectations that we had that take us to the 8% to 10% for the year.

Great. Thanks, Jon.

Our next question comes from Steven Kwok with KBW.

Hi. This is Steven Kwok filling in for Sanjay Sakhrani. Thanks for taking my questions and congrats on the completion of the loan sale. I was wondering, given the buyback you have in place, how aggressive can you be? Is there a limit around when you can buy back in any given quarter?

Yes, Steve, there are absolutely rules and regs as to how we can implement and execute, for example, a 10b5-1 program and they're basically anchored to the amount of volume in the prior four weeks. I believe it is. But we have shown, for example, post tender offer that we can buy a significant amount of stock on a day-to-day basis without having a material impact on the share price. And that's exactly what we expect to do when the window opens and we can begin to repurchase stock again. So yes, we think that we can execute quite a bit in a short period of time without impacting prices.

Got it. And then just given the commentary around inflationary pressure on consumers and you get fairly real-time data around that on the payment side. Are you seeing any signs of stress among your customer base?

We are absolutely not. Except the one segment of the portfolio that we identified that is having higher roll rates into delinquency and default. The core part of the portfolio is performing very, very well. And look, the flipside of inflation as we are seeing, as we all know, recent college graduates and young adults in the working force are experiencing very strong wage increases and certainly enough to cover any increases in interest rates or pressure on their disposable income from inflationary pressures. So we feel very good about the portfolio as we look at it today.

Great, that's good to hear. Thanks for taking my questions.

You're welcome.

[Operator Instructions]. Our next question comes from Vincent Caintic with Stephens.

Hi. Good morning. Thanks for taking my questions. And I want to also give my congratulations getting the loan sale done. Just wondering if you could talk about that in more detail. I know you've already given a lot of detail, but if you can maybe talk about the investors who are buying into that, are you seeing more demand or is it the same demand? And in an environment where the Fed funds rate expectations have increased as well as credit deterioration and inflation, and it was pretty impressive that you're able to still get double digit gains. So is that sort of the right expectation we can think of going forward, even in an environment where there might be some high volatility? Thank you.

Yes. Vincent, it's Jon. Thanks for your question. And I won't repeat the portions that Steve covered earlier. But let me add maybe a little bit of commentary. I think the team has really worked hard to make sure we have a robust process in two ways. One is the continued seasoning and demonstrated performance of the high quality asset class. And I think that sort of speaks for itself, and people can judge and evaluate the performance and what that looks like over time. And then I think the second is really cultivating and managing a large pool of really quality potential borrowers. And Steve mentioned the fact that this quarter, we actually had not a deterioration in the number of interested borrowers, we actually had a very large and significant new borrower enter the mix with interest. And so I think our view is we're going to continue to work both sides of that equation. We're going to really focus on making sure that our assets perform as well as they can. That's going to be all around staying really diligent around underwriting, around pricing. It's going to be staying really diligent around our various loss mitigation programs. And I think at the very same time, we're going to continue to cultivate what we think is a very well subscribed and efficient auction process. At the end of the day, and I've said this on a few calls, I think we would be foolish to try to predict the specific outcome of any auction. That's obviously going to be a very unique situation. I think what we have seen pretty consistently though is these auctions are pretty rational. And as we look at the pricing we got, and I think Steve laid out on the last call some sort of simple analytical constructs to help people understand how pricing could move, I think as we looked at the pricing we got, we felt like it was certainly within the range of what that analytical construct would have suggested. And so again, I can't promise that the markets in the future will be, or the outcome of the auction in the future will be rational. But we've certainly seen it behave rationally so far, and I have no reason to expect that it wouldn't be.

Okay. Thank you. I appreciate that. And yes, it stands out given some of the other participants in the capital markets who had to maybe pull sales or had much higher cost to that. So I think that's a really standout job you guys have done. Thank you. Next, just kind of a quick question. So the 2022 EPS guidance being unchanged even though the net charge-off forecast guidance is a bit higher. Maybe if you could discuss the puts and takes of how the EPS is unchanged, if there's any offsets like maybe more aggressive share repurchases or any other offset? Thank you.

Yes, sure. There are a lot of ingredients to the EPS number. One of the things that we're seeing is actually a stronger NIM. We do expect that we will buy back shares lower than we had in the initial plan. But I do want to point out that the mechanics of building the reserve are important. And we do have a life of loan loss reserve as a result of CECL. And to a certain extent, the increases that we're seeing in defaults are not necessarily incremental to the life of loan, but actually more of a timing difference. And I think we just increased the midpoint by $15 million, which in the grand scheme of things isn't that material. But building the provision and the reserve in the CECL world is a lot different than it was prior to that.

Okay, great. Very helpful. Thank you very much.

You're welcome.

Our next question comes from Rick Shane with JPMorgan.

Good morning.

Good morning.

I wanted to circle back to inflation, if we could. I think historically tuition costs have always risen a bit faster than everything else, economically speaking. So I'm curious if you've gotten any feedback from your school partners about what expectations they have in terms of tuition pricing and what we might see, and how it might affect demand for loans?

Melissa, thank you. Let me provide a couple of thoughts here. And I will confess. I've not looked at this data in perhaps a quarter or so. So what I'm telling you might be slightly dated. But I think the way that I think about it is, during the pandemic, I think a lot of schools worked very hard to maintain stable tuition, stable fee, stable pricing, just recognizing the financial burden and the uncertainty on students and families. I think we saw as the pandemic began to break, in our survey results, schools indicated that they would likely expect some marginal increase in fees and tuition over time. And I don't think there's anything that I've seen in recent data to suggest that that trend has not changed. And I really do think it goes back to sort of understanding the broader structural issues that most universities face. And as I've said a couple of different times in a couple of different forums, I think the single biggest thing that is driving university administrators today is figuring out ways to improve sort of the quality, the prestige, sort of the desirability of their programs. And if you think about how do you do that? You do that by getting and investing in more and better academic programs, you do that by investing in more and better amenities. By the way, I think increasingly you see that by or you see administrators trying to do that by recruiting a more and more diverse student base and really bifurcating pricing between sort of the typical student and perhaps scholarship students. But all of those trends I think we expect to continue and all of those trends put upward pressure on tuition and fees going forward. So I think we have seen both a short-term effect around COVID, but I also think -- and maybe this is back to Michael's earlier question, I do think we believe that the structural elements that have led to tuition and fee inflation are likely to persist for our relevant planning horizon. At the very least, we haven't seen any reason yet to assume anything different in our outlook.

Great. Thank you.

You're welcome.

And I'm not showing any further questions at this time. I'd like to turn the call over to Jon Witter for any closing remarks.

Very good. Well, listen, thank you everyone for joining. I know this is your busy season. We really do appreciate the continued interest in Sallie Mae. And speaking on behalf of Brian, Steve and myself, obviously we are here, our IR team is here to be helpful in answering any questions, and look forward to talking to you next quarter. With that, Brian, I will turn it over to you for our closing comments.

Thank you, Jon. Thank you for your time and your questions today. A replay of this call and the presentation will be available on the Investors page at salliemae.com. If you have further questions, feel free to contact me directly. This concludes today's call. Thank you.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.