SLM Q2 2025 Earnings Report

SLM EPS Results

• Actual EPS: $0.32
• Consensus EPS: $0.49
• Beat/Miss: Missed by -$0.17
• One Year Ago EPS: $1.11

SLM Revenue Results

• Actual Revenue: $403.60 million
• Expected Revenue: $370.26 million
• Beat/Miss: Beat by +$33.34 million
• YoY Revenue Growth: -21.40%

SLM Announcement Details

• Quarter: Q2 2025
• Date: 7/24/2025
• Time: After Market Closes
• Conference Call Date: Thursday, July 24, 2025
• Conference Call Time: 5:30PM ET

SLM (NASDAQ:SLM), through its subsidiaries, originates and services private education loans to students and their families to finance the cost of their education in the United States. It is also involved in the provision of retail deposit accounts, including certificates of deposit, money market accounts, and high-yield savings accounts; and interest-bearing omnibus accounts. The company was formerly known as New BLC Corporation and changed its name to SLM Corporation in December 2013. SLM Corporation was founded in 1972 and is headquartered in Newark, Delaware.

SLM Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Solid Q2 performance with GAAP diluted EPS of $0.32, net interest income of $377 M (+$5 M YoY), a net interest margin of 5.31%, and originations of $686 M.
• Negative Sentiment: Provision for credit losses rose to $149 M from $17 M YoY due to a more cautious macroeconomic outlook and longer portfolio duration, though allowance coverage held at 5.95%.
• Positive Sentiment: Repurchased 2.4 M shares at an average price of $29.42 and agreed on a $1.8 B private education loan sale at expected pricing to advance its capital return strategy.
• Positive Sentiment: Ended the quarter with a strong liquidity ratio of 17.8%, total risk-based capital at 12.8%, and CET1 at 11.5%, positioning the company for growth and capital returns.
• Positive Sentiment: Anticipates $4.5 B–$5.0 B of incremental annual private loan volume from recent federal student loan reforms once fully implemented by 2027, supporting mid-to-high single-digit portfolio growth.

Presentation

[Operator]

Welcome to the Sallie Mae Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants have been placed on a listen only mode and the floor will be open for your questions following the prepared remarks. I would now like to turn the call over to Kate DeLacey, Senior Director and Head of Investor Relations. Please go ahead.

[Kate deLacy, Senior Director & Head - IR at Sallie Mae]

Thank you, Chloe. Good evening, and welcome to Sallie Mae's second quarter twenty twenty five earnings call. It is my pleasure to be here today with John Witter, our CEO Pete Graham, our CFO and Melissa Bernal, Managing Vice President of Strategic Finance. After their prepared remarks, we will open the call for questions. Before we begin, keep in mind our discussion will contain predictions, expectations and forward looking statements.

[Kate deLacy, Senior Director & Head - IR at Sallie Mae]

Actual results in the future may be materially different from those discussed here due to a variety of factors. Listeners should refer to the discussion of those factors in the company's Form 10 Q and other filings with the SEC. For Sallie Mae, those factors include, among others, results of operations, financial conditions and or cash flows as well as any potential impacts of various external factors on our business. We undertake no obligation to update or revise any predictions, expectations or forward looking statements to reflect events or circumstances that occur after today, Thursday, 07/24/2025. Thank you. And now I'll turn the call over to John.

[Jonathan Witter, CEO at Sallie Mae]

Thank you, Kate and Chloe. Good evening, everyone. Thank you for joining us to discuss Sallie Mae's 2025 results. I hope you'll take away three key messages today. First, we delivered solid results in the second quarter and first half of the year.

[Jonathan Witter, CEO at Sallie Mae]

Second, recognizing ongoing economic uncertainties, we believe we have momentum going into the second half of the year. And third, we're optimistic about the long term outlook for private student lending, particularly in light of the recently passed federal student loan reforms. Let's begin with the quarter's results. GAAP diluted EPS in the second quarter was zero three two dollars per share. Loan originations for the second quarter were $686,000,000 roughly in line with the same period last year and slightly below our expectations.

[Jonathan Witter, CEO at Sallie Mae]

The second quarter typically represents our lowest origination volume, less than 10% of the annual total and includes a higher concentration of non traditional borrowers and programs. A handful of our non traditional school partners faced unique challenges such as short term enrollment caps and disbursement volume shifts to later in the year. We do not expect these factors to have a similarly significant impact in future quarters. Looking forward, conversations with school partners indicate they are navigating considerable uncertainty as they evaluate impacts from federal lending reforms, reductions in grant funding and other recent policy developments. While peak volumes are beginning to build, these factors may be causing a delayed peak season similar to what we experienced last year.

[Jonathan Witter, CEO at Sallie Mae]

We will continue to monitor this actively and optimize our marketing strategies accordingly. The credit quality of originations continues to be robust with incremental improvement compared to the second quarter of twenty twenty four. Our cosigner rate for the second quarter was 84%, up from 80% in the year ago quarter. And average FICO at approval rose slightly to 7.54% from 7.52%. These indicators reflect continued discipline in our underwriting standards and borrower selection.

[Jonathan Witter, CEO at Sallie Mae]

For the second quarter of twenty twenty five, we continued our capital return strategy repurchasing 2,400,000.0 shares at an average price of $29.42 per share. We have reduced the shares outstanding since we began this strategy in 2020 by over 53% at an average price of $16.43 We expect to continue programmatically and strategically buying back stock throughout the year. Before I hand the call over to Pete, I'm pleased to share that earlier this week, we agreed to indicative pricing on a transaction for the sale of $1,800,000,000 of private education loans. We are encouraged by the price that has been agreed on, which is in line with our expectations for the year. As we look ahead to the second half of the year, we will continue to take a disciplined approach to managing balance sheet capacity, particularly as we prepare for anticipated plus reform and will remain open to opportunities that support our strategic and financial objectives.

[Jonathan Witter, CEO at Sallie Mae]

We continue to expect year over year growth in our private student loan portfolio with any additional loan sales evaluated in the context of our broader strategy and evolving balance sheet priorities. Pete will now take you through some of the additional financial highlights of the quarter. Pete?

[Pete Graham, EVP & CFO at Sallie Mae]

Thank you, John. Good evening, everyone. Let's continue with a discussion of key drivers of earnings.

[Pete Graham, EVP & CFO at Sallie Mae]

For the second quarter of twenty twenty five, we earned $377,000,000 of net interest income. This is up 5,000,000 from the prior year quarter. Our net interest margin was 5.31% for quarter, four basis points ahead of the prior quarter. This expansion of net interest income is in part due to higher average balances across the portfolio over the first half of the year, as well as changes to the overall mix of total assets on our balance sheet. We continue to believe over the long term that low to mid 5% range is an appropriate NIM target.

[Pete Graham, EVP & CFO at Sallie Mae]

Our provision for credit losses was $149,000,000 in the second quarter, up from $17,000,000 in the prior year quarter. It's worth noting that the prior year figure included a $103,000,000 reserve release related to a loan sale that occurred in the second quarter of last year. The year over year increase can be attributed to a more cautious macroeconomic outlook as well as an increase in the weighted average life of the portfolio over the prior year. Despite the higher provision, our allowance as a percentage of private education loan exposure remains stable at 5.95%, slightly below the prior quarter's 5.97% and just five basis points above the year ago quarter. The Moody's macroeconomic forecasts that are a key input in our reserve modeling have softened quarter over quarter.

[Pete Graham, EVP & CFO at Sallie Mae]

And accordingly, we're maintaining a cautious outlook for the remainder of the year, closely monitoring forecast revisions that could influence our assumptions and estimates. Private education loans delinquent thirty days or more were 3.5% of loans in repayment, a decrease from the 3.6% at the end of the first quarter of twenty twenty five, although higher than the 3.3% at the end of the year ago quarter. We remain pleased with the continued positive performance of our loan modification programs and see the benefit of these programs within our late stage delinquencies, which have remained flat year over year despite an almost $2,000,000,000 increase in loans and repayment. When we look at borrowers who have been in the programs for over a year, 80% are consistently making payments. We're encouraged by the trajectory of these programs, which are performing in line with our expectations as we look towards achieving our long term NCO targets.

[Pete Graham, EVP & CFO at Sallie Mae]

Separately, when looking at the credit performance of the portfolio, the second quarter demonstrated solid credit quality consistent with our seasonal expectations. Net private education loan charge offs in the second quarter were $94,000,000 representing 2.36% of average loans and repayment, an increase of 17 basis points compared to the second quarter of twenty twenty four. We attribute this uptick primarily to the grant of disaster forbearance related to the California wildfires. While some of the borrowers that were granted disaster forbearance payments, a portion of those borrowers ultimately charged off in the second quarter. We view this as a unique event that shifted some charge off timing and we remain confident in our full year expectations.

[Pete Graham, EVP & CFO at Sallie Mae]

Year to date, our net private education loan charge offs are 2.11%, six basis points below prior year. Importantly, at this point, we have not observed any material signs that recent policy changes or broader economic softness are adversely affecting portfolio performance. Second quarter non interest expenses were $67,000,000 compared to $155,000,000 in the prior quarter and $159,000,000 in the year ago quarter. This is consistent with our expectations for the year, providing a solid foundation as we move into the third quarter. And finally, our liquidity and capital positions remain strong.

[Pete Graham, EVP & CFO at Sallie Mae]

We ended the quarter with a liquidity ratio of 17.8%. And at the end of the second quarter, total risk based capital was 12.8% and common equity Tier one capital was 11.5%. Another measure of loss absorption capacity of the balance sheet is GAAP equity plus loan loss reserves over risk weighted assets, which was a very strong 16.3%. We continue to believe we are well positioned to grow the business and continue to return capital to shareholders going forward. Now I'll turn the call back to John.

[Jonathan Witter, CEO at Sallie Mae]

Thanks Pete. I hope you agree that we have delivered solid results throughout the first half of the year and you share my belief that we have positive momentum for the full year of 2025. As we look ahead, we are also encouraged by the developments in broader policy landscape that could shape the future of our industry. Earlier this month, the President signed H. R.

[Jonathan Witter, CEO at Sallie Mae]

One into law, marking a pivotal moment in federal student loan reform. The enacted legislation introduces meaningful changes to the federal student loan system, capping borrowing under the Parent PLUS program and setting new limits on graduate borrowing through program. The bill also expands Pell Grant eligibility and streamlines federal student loan repayment plans. Altogether, the reforms represent a meaningful step toward building a more responsible federal lending program. By curbing over borrowing and addressing unsustainable debt levels, the policy has the potential to slow the rising cost of higher education and provide stronger financial protection for families.

[Jonathan Witter, CEO at Sallie Mae]

These limits will take effect on 07/01/2026 for first time borrowers. Those with existing loans will continue to have access to the Plus programs and borrowings under the current uncapped limits. It is worth noting that this transition may create a small short term impact to originations. We are hearing that some schools and borrowers who previously chose private lending options are now opting for federal loans likely to secure access under the current terms. We are keeping a close eye on this trend and believe any near term impact will be more than offset by the longer term benefits of the policy changes.

[Jonathan Witter, CEO at Sallie Mae]

As the leading private student lender, we believe we are uniquely positioned to serve students and families and support our school partners through this period of transition. Based on the final legislation, we anticipate that the new federal lending limits could generate an additional 4,500,000,000.0 to $5,000,000,000 in annual private education loan origination volume for Sallie Mae once the transition from the previous programs are fully realized. Because the reforms officially take effect in July and existing borrowers are grandfathered into the current programs, the volume impacts will build over time. As undergraduate degrees typically take about four years to complete, we expect to realize approximately one fourth of the incremental volume from Parent PLUS in each academic year after implementation. Similarly, graduate studies last approximately three years on average.

[Jonathan Witter, CEO at Sallie Mae]

And so we expect to realize between a third and half of the Grad PLUS incremental volume opportunity each academic year. It's also important to note that the impact in 2026 will be muted since the changes are not being implemented until the second half of the year. As a result, while we anticipate an impact next year, the bigger impacts are expected to be in 2027 and beyond. We have engaged in significant readiness planning for this change. As part of that planning, we've been evaluating potential funding strategies.

[Jonathan Witter, CEO at Sallie Mae]

We are confident we could meet this demand leveraging our current approach, balancing moderate balance sheet growth with strategic loan sales to effectively manage this volume. However, as we have mentioned more recently, we are actively exploring new alternative funding partnerships in the private credit space. This ideally would offer a scalable and efficient structure to support growth, while preserving balance sheet capacity and delivering more predictable returns over time. While we are less interested in a simple forward flow arrangement, a structure that allows us to marry capital efficiency with long term predictable earnings would be attractive. We expect to leverage a combination of these funding options and are evaluating the optimal mix.

[Jonathan Witter, CEO at Sallie Mae]

We remain committed to our strategy of delivering mid to high single digit private student loan portfolio growth supported by loan sales and other structures with a goal of delivering EPS growth in line with recent years. As was the case two years ago, we currently plan to hold an investor forum before the close of the year where we will provide a longer term framework aims to highlight our strategic priorities around anticipated originations growth and optimal funding strategies. Let me finish by affirming our guidance for the year. While we continue to closely monitor developments in the higher education landscape and volatility in the broader macroeconomic environment, our results to date reflect the strength of our core business, the resilience of our customer base and the disciplined execution of our strategic priorities. In addition, we continue to optimize our strategies to maximize our in year performance.

[Jonathan Witter, CEO at Sallie Mae]

With that, Pete, why don't we go ahead and open up the call for some questions?

[Operator]

The floor is now open for questions. Our first question comes from Rick Shane with JPMorgan. Your line is open.

[Richard Shane, Analyst at JP Morgan]

Hey, guys. Thanks for taking my questions this afternoon. First, can we talk a little bit about the loan sale, the $1,800,000,000 loan sale described in the third quarter? Can you help us sort of narrow the channel markers in terms of gain on sale margin? In 2024, average gain on sale margin was just below 7%.

[Richard Shane, Analyst at JP Morgan]

First quarter this year, was 9.4%. Where are we sort of in that range for this transaction?

[Pete Graham, EVP & CFO at Sallie Mae]

I'd say we're in line with our expectations when we set guidance for this year. I think obviously the rates environments changed a little bit since we did the first quarter loan sale. And as a result, the pricings adjusted modestly from what we attained earlier in the year, but we're very pleased with the execution on the transaction.

[Richard Shane, Analyst at JP Morgan]

Got it. Okay. And then just two other quick questions. Historically or generally speaking, you guys have done two loan sales a year. There have been years where you've done more.

[Richard Shane, Analyst at JP Morgan]

As we think about our 2025 numbers, should we assume a sale in the fourth quarter? Or should we see the $3,800,000,000 you guys have done is sort of the total for the year?

[Pete Graham, EVP & CFO at Sallie Mae]

I think we'll continue to sort of monitor as we go into the latter part of this year. We'll see how peak season is shaping up. We'll look at our results of our capital stress testing that we do in the fall and what that implies for capital levels we'll be carrying into next year and we'll evaluate accordingly.

[Richard Shane, Analyst at JP Morgan]

Got it. And then last question for me and I apologize for so many, but the net charge off rate for loans and repayment after trending down for four quarters in a row ticked up in the second quarter on a year over year basis. It's a fairly significant reversal. And again, you talked a little you alluded to forbearance related to the wildfires. That I'm having a hard time sort of dimensionalizing or putting that particular cohort of borrowers and having that explain the change that we've seen in the loss rate.

[Richard Shane, Analyst at JP Morgan]

Can you help me understand that a little bit better?

[Jonathan Witter, CEO at Sallie Mae]

Yes, Rick, happy to. So when there is a FEMA declared national disaster, we have a series of programs and protocols in place to provide assistance to borrowers both reactively if borrowers call in, but also in circumstances certain circumstances proactively recognizing that some borrowers don't have access to communication and we would not want something like a hurricane, a wildfire, a flood to negatively impact someone's ability to maintain a lending relationship with disasters are smaller blips on the radar and things that you would sort of scarcely notice in the context of the timing of net charge offs. But because we offer sort of sixty to ninety days forbearance in those cases and it kind of puts customers into stasis, you can move a charge off that would have happened into the first quarter say into the second quarter. And so that's sort of the mechanics of it. I think what's unique about the California wildfires is that this was the first time that such a wide area and a densely populated area was impacted.

[Jonathan Witter, CEO at Sallie Mae]

And so I think the impact was larger in this case than it would have normally been in a more typical natural disaster situation. But we can obviously track the specific customers who we gave that forbearance to. We can understand how they sort of are progressing through delinquency. We can sort of anticipate which ones likely would have charged off post facto without the forbearance. And we feel very comfortable that the slight uptick that Pete described in his comments was attributable to that population.

[Richard Shane, Analyst at JP Morgan]

Okay, great. Thank you very much, Jonathan.

[Operator]

We'll take our next question from Terry Ma with Barclays. Your line is open.

[Terry Ma, Senior Equity Research Analyst at Barclays]

Hey, thank you. Good evening. So it sounds like the changes to federal lending can potentially create a lot of upside from private market and in turn, Sallie Mae and it gives you a lot of optionality. If I kind of go back to the last investor forum, you guys kind of laid out a five year plan with high single digit receivables growth and double digit EPS growth. I guess with the potential upside like can that potentially kind of change and increase the algorithm?

[Terry Ma, Senior Equity Research Analyst at Barclays]

Like how are you guys thinking about that? Because you kind of called out the same algorithm before, but it seems like there's just a lot more upside to volume over time.

[Pete Graham, EVP & CFO at Sallie Mae]

Yes. I think that the framework we laid out there is still relevant when evaluating this opportunity. And again, just kind of reiterating some of the points that John was making, we're really talking about a 2027 and beyond sort of growth opportunity profile because of the staging. But we still have the same sort of mindset around balance sheet growth. In light of this sort of step change in opportunity, we might trend towards the higher end of that sort of mid to high single digit growth of the balance sheet, again reflecting constraints of capital and EPS impact of reserving in the period.

[Pete Graham, EVP & CFO at Sallie Mae]

The investor appetite for loan sales has continued to sort of remain strong year in and year out, and we don't see any signs of that abating. And we're also looking at other types of sort of committed funding arrangements that we might do in the private credit space that will give us another tool in the toolkit to sort of optimize for return and ability to sort of meet as many customers and satisfy the needs of the customers as well as the schools.

[Terry Ma, Senior Equity Research Analyst at Barclays]

Got it. And then maybe just on credit, I noticed the percentage of borrowers on extended grace dropped meaningfully this quarter. Any kind of color on how those borrowers are kind of performing as they exit? And then maybe just any color on these thirty to fifty nine day bucket that's kind of up meaningfully year over year? Thank you.

[Pete Graham, EVP & CFO at Sallie Mae]

Yes. I think in general, I would say the trends that we're seeing in both delinquencies as well as sort of the grace programs and the like really are following the normal seasonal trends that we would expect in the business. We continue to be pleased with the performance of the loan mod programs and success rates there. We have not seen any sort of abnormal trends of increased pressure on folks as they come out of the extended graze program. So variations that we're seeing, we're starting to sort of settle into what we think is going to be kind of our new kind of normal in terms of seasonality.

[Operator]

We'll move next to Jeff Adelson with Morgan Stanley. Your line is open.

[Jeffrey Adelson, Executive Director at Morgan Stanley]

Hey, good evening. Thanks for taking my questions. I just wanted to make sure we understood the $4,500,000,000 to $5,000,000,000 number you put out there on what could potentially come your way once you're fully up and running, once we sort of lap the existing borrowers staying in the program. Is that based on what you're seeing in today's run rate? Or is there any sort of expectation for growth in that borrower cohort versus what you're seeing today?

[Jeffrey Adelson, Executive Director at Morgan Stanley]

And I guess just given the dynamic you identified on the third, a third, a third and a quarter, a quarter, a quarter for Parent Plus, Is that a good 28, 29 number to be thinking about?

[Jonathan Witter, CEO at Sallie Mae]

Yes, Jeff, let me take a crack at it. First of all, we have not assumed in those numbers any sort of material change to our credit buy box. And obviously every year we optimize our strategies a little bit. We might do some more of that, but this is consistent with our current risk appetite and our current credit buy box. We have applied over time to our estimates sort of an expectation of sort of the likely growth in average loan size which we do whenever we do multi year out year projections.

[Jonathan Witter, CEO at Sallie Mae]

So I'm not sure if that was part of your question as well, but that goes into sort of the mechanics of what we do. And then, yes, I think sort of we try to lay out the broad parameters. But I think the way that I would think about it is next year we will see sort of a half a year impact on sort of the freshman undergraduate class and the first year sort of graduate student class. And I think based on those average times to complete degree you would expect those to load sort of over the of the two to three to four year period thereafter. So we tried to give you sort of what we think are the basic modeling inputs to that.

[Jonathan Witter, CEO at Sallie Mae]

But I think the basic logic of what you laid out is correct.

[Jeffrey Adelson, Executive Director at Morgan Stanley]

Okay. Thanks for that. And I guess just to circle back on the private credit exploration here. You've laid out how you kind of want to keep the EPS growth in line with where it's been in recent years. Can you maybe give us any way that you're thinking about the different P and L impacts you're maybe considering here, which you're maybe willing to trade off on take rate in order to have a more efficient cost structure, more efficient funding structure.

[Jeffrey Adelson, Executive Director at Morgan Stanley]

I mean, the one pushback sometimes we get is you get a really nice gain on sale today with the existing structure. So are you going to have to sacrifice economics to do that or how are you thinking about that? Thank you.

[Jonathan Witter, CEO at Sallie Mae]

Yes, Jeff. Look, couple of thoughts. Obviously, I'm not going to go into great detail because as we have said, we're in ongoing discussions and I think it would be inappropriate and probably counterproductive for me to go into too much detail. But I think my view on this is the following. We have a wonderful asset class.

[Jonathan Witter, CEO at Sallie Mae]

The loans that we produce not only serve an incredibly important societal function, but our borrowers are incredibly successful. The sort of losses on the loans are extremely sort of attractive as a result of that success. The sort of duration and the sort of structure of those loans is really well suited to structures that a lot of our private or potential private credit partners might want to explore. And we are the leading market share player in the space. And so when it comes to sort of private student loans and private credit partnerships, I don't think it is at all arrogant for me to say that I think we are a great partner.

[Jonathan Witter, CEO at Sallie Mae]

I think what we offer is really unique. And we are in many respects the last or the only game in town in terms of a really scalable partner who can serve sort of that counterparty relationship. So with that in mind, I am very open to different financial and economic structures to fund this incredibly high quality and important asset. But my view is we have a really good sense and a really good benchmark of what the lifetime value of these loans are of course discounted back in time. And I don't see any reason why we should be willing to accept financial terms that on a lifetime value basis are materially different from what we might get through different avenues.

[Jonathan Witter, CEO at Sallie Mae]

Now with that said, I think we all recognize the volatility that comes from loan sales. There were good questions about that earlier in the call. By the way, I think we've talked at length about the fact that while we love our bank and we love the growth of our bank balance sheet, it is a more capital sort of intensive way to grow the business, especially when you include the loan loss reserves under CECL. So I do think there is a one plus one equals three opportunity for us to develop a complementary funding sort of partnership here. I think that's what Pete's tried to lay out over time.

[Jonathan Witter, CEO at Sallie Mae]

We think we're a great partner and we think we should expect attractive economics in that partnership as well as potentially providing great value if such a partnership emerged.

[Jeffrey Adelson, Executive Director at Morgan Stanley]

Great. That's great color. Thanks so much. Take care.

[Operator]

We'll take our next question from Moshe Orenbuch with TD Cowen. Your line is open.

[Moshe Orenbuch, MD & Senior Analyst at TD Cowen]

Great. Thanks. And John, it seems to me that if you're talking about a 4,500,000,000.0 to $5,000,000,000 opportunity that would phase in over several years, most of it over two to three years, that would probably be consistent with just the normal expansion that you could expect from your normal loan sales if you wanted to. And I understand the comments you made about seeking other structures. Just wondering if as you do that, would some of those structures potentially expand that 4,500,000,000.0 to $5,000,000,000 by being willing to address some of the areas that you might not want to underwrite for your own balance sheet?

[Jonathan Witter, CEO at Sallie Mae]

Moshe, it's a great question again, So there's no confusion. We did not include anything like a balance sheet expansion in the 4,500,000,000.0 to $5,000,000,000 we gave you. But yes, I mean at the end of the day, we sort of have gauged our buy box today off of the economic model defined by our bank. And that bank has a certain capital structure. It has a certain loan loss reserve structure.

[Jonathan Witter, CEO at Sallie Mae]

It has a certain expense structure. It has a certain expectation of return on equity. And by the way, you know how committed I am to capital allocation and strong ROEs. And so that has led us to what we think is a great answer where the bank is sort of the stalking horse on how we fund the loans. I think it is entirely possible that over time different partnership or partners may come forward, different structures may emerge that make other sort of parts of the credit spectrum more attractive to us to originate and just fund in a different way.

[Jonathan Witter, CEO at Sallie Mae]

So we've not built any of that in. I think it's probably premature for us to conjecture on is that a small, big, medium sized opportunity. And I think candidly probably premature for us to comment on sort of the timing of any type of expansion. But yes, think we would certainly be open to that and I think logic would dictate that that's certainly a conceivable outcome.

[Moshe Orenbuch, MD & Senior Analyst at TD Cowen]

Got it. Thanks very much.

[Operator]

We'll move next to Mark DeVries with Deutsche Bank. Your line is open.

[Mark Devries, Director at Deutsche Bank]

Yes. Thanks. Just a couple more clarifying questions on the market opportunity here. For the 4,500,000,000.0 to $5,000,000,000 of incremental kind of opportunity you see for Sallie Mae, are you assuming kind of a comparable market share of the new addressable market that you've had recently kind of in the 60% plus range?

[Jonathan Witter, CEO at Sallie Mae]

Yes.

[Mark Devries, Director at Deutsche Bank]

Okay. Simple enough. And then as we think about the incremental volume that comes on over and above what you would have planned for originally, is there a percentage of that volume that we should think of as you kind of needing to sell versus retain to kind of maintain capital sufficiency going forward?

[Pete Graham, EVP & CFO at Sallie Mae]

Yes. Again, as I said on in answering a prior question, our framework that we laid out in 2023 had kind of mid to high single digit balance sheet growth of the bank and loan sales used to moderate sort of the size of the bank balance sheet. I think with this size of a volume opportunity, I think you could see us potentially pushing the growth rate of the bank up still single digits, but in kind of higher single digits and continuing to sort of size loan sales or other funding mechanisms that John talked about earlier as the alternative funding mechanisms beside the bank.

[Mark Devries, Director at Deutsche Bank]

Okay, great. And then one of the questions we've been getting from investors is whether this new kind of expanded opportunity is going to make the market more attractive all of a sudden and attract new competitors. Maybe John just kind of talk about how you think this new broader opportunity ultimately gets distributed? And what if any kind of barrier centuries are there that I think will enable you to really kind of protect your market share?

[Jonathan Witter, CEO at Sallie Mae]

Mark, thanks. To put it in context, I think rough justice, this probably comes close to sort of doubling maybe not quite the sort of total market size depending on what kind of credit discount you want to apply to that. So it's a meaningful increase in the overall sort of size of the market when fully implemented. It is still a very small market when you put it up against other consumer credit classes. And so whether or not that attracts lots of other competitors or just some other competitors, I think time will tell.

[Jonathan Witter, CEO at Sallie Mae]

But I think the more important thing is, look, we are incredibly confident in our ability to compete and win and help service our important university partners and these students who are looking for access to and completion of their higher education. We have really better data and credit insights. We have incredibly sort of at scale systems and marketing engines. I think we have school relationships and a reputation with the schools of being a constant and persistent partner that they can count on to support their businesses at volume. And so whether or not it attracts more competition or not, I feel great about our ability to compete and win help our university partners be successful and help these students and their families be successful.

[Mark Devries, Director at Deutsche Bank]

Okay, great. Thank you.

[Operator]

We'll move next to Michael Kaye with Wells Fargo. Your line is open.

[Michael Kaye, Equity Research Analyst at Wells Fargo Securities]

I just had another follow-up on a private partnership. I know you're still working on it, but what's the timing goal to get something like this potentially done? Would this be before the federal loan reform takes place next year?

[Pete Graham, EVP & CFO at Sallie Mae]

Yes. Ideally, we would have that fully in place before any of the additional volume comes. We started thinking about this in the context of a supplement to our existing loan sales in context of our existing sort of business strategic framework. And I would say the additional volume opportunity that's now being presented with this reform is maybe an accelerant to our efforts to in order to be ready. We'll continue to work on it. We'll announce it when we've got something to announce.

[Michael Kaye, Equity Research Analyst at Wells Fargo Securities]

And then the partnership, would this just be these new incremental loans as part of this reform? Or would this be across like the whole stack, everything you originate, including the undergrad that you currently focus on today?

[Pete Graham, EVP & CFO at Sallie Mae]

Yes. I think it's broadly an alternative funding mechanism for all originations of the firm.

[Michael Kaye, Equity Research Analyst at Wells Fargo Securities]

Okay.

[Michael Kaye, Equity Research Analyst at Wells Fargo Securities]

And then I had another quick question on the loan modifications. You've made a lot of enrollments in loan mods in the first half of last year. So like what are you what's selling you're doing to prepare these borrowers when these loan mods end two years from then, which will be the first half of next year?

[Pete Graham, EVP & CFO at Sallie Mae]

Again, we're we've made some tweaks over time to the enrollment mechanisms for the loan mod programs as well as looking at performance of the borrowers in the programs. And we feel really good about the success rates that we're seeing, and feel confident that the programs as designed are performing as we would have expected. And we are expecting that also similar to the performance while in program, it's going to be the right sort of glide path to get them back in good payment patterns once they emerge at the end of the temporary mod.

[Michael Kaye, Equity Research Analyst at Wells Fargo Securities]

Okay. Thank you.

[Operator]

We'll take our next question from Sanjay Sakhrani with KBW. Your line is open.

[Sanjay Sakhrani, Managing Director at Keefe, Bruyette & Woods (KBW)]

Thank you. Going back on credit quality and some of those California impacts, as we think about the next couple of quarters, do you not expect a significant impact? Are there specific data points that sort of give you confidence that you won't see them? And does credit have to perform better in the second half versus the first half to sort of hit your targeted range?

[Pete Graham, EVP & CFO at Sallie Mae]

Yes. Again, just kind of reiterating the point that we were trying to make around this. We viewed it more as a shift quarter to quarter within the first half of the year. When you look at the year to date performance on net charge offs, it's right in line with our expectations, maybe even a little a few basis points better. And that gives us confidence in our sort of longer term journey and gives us confidence in terms of reaffirming our guidance for the full year.

[Sanjay Sakhrani, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay. And John, just, that 4,000,000,000 to $5,000,000,000 incremental, how much of it is Grad PLUS versus Parent Plus? I mean is it probably the bulk of it is Grad Plus? I'm just trying to think about how to dimensionalize that one third and quarter stat that you gave.

[Jonathan Witter, CEO at Sallie Mae]

I am not sure we've divulged those numbers, but it is two thirds grad plus, it is one third parent plus.

[Sanjay Sakhrani, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay, great. Thank you.

[Jonathan Witter, CEO at Sallie Mae]

Yes. And that's approximately obviously.

[Sanjay Sakhrani, Managing Director at Keefe, Bruyette & Woods (KBW)]

Got it. Thanks.

[Operator]

And we'll move next to Giuliano Bologna with Compass Point. Your line is open.

[Giuliano Bologna, Managing Director at Compass Point Research & Trading LLC]

Hi, good afternoon. Congrats on the results. Maybe jumping off and kind of expanding on that the topic of this four point five dollars five billion dollars As you just mentioned, it's all two thirds grad plus or somewhere in that zip code. When I think about that transition, historically, it's been 89% graduate loan originations from a mix perspective and having a disproportionate large growth in grad, obviously shift to the next year balance sheet. Would you consider selling loans in a different way or selling grad loans separately going forward as a way to kind of keep your mix where it is?

[Giuliano Bologna, Managing Director at Compass Point Research & Trading LLC]

And then how should we think about those loans on a relative basis versus kind of your current core loans? Like are they how much shorter duration are they? How is the how much lower the yield be? And just thinking about some rough parameters, obviously not looking for exact numbers here.

[Pete Graham, EVP & CFO at Sallie Mae]

Yes. I'll take a crack at it and John can jump in if he thinks I've missed any of the key points. I think the existing grad programs we have are a small part of our book and the primary competitor we have currently is the federal program. And so as we started looking at trying to size this opportunity, we got some bureau data about the federal programs and we tried to parse and understand a little bit about the credit quality of both the Parent PLUS opportunity in the context of undergrad and the opportunity in the grad space. Our best view based on that data is that the credit profile is largely similar to what we've currently been underwriting at a small scale in our existing programs.

[Pete Graham, EVP & CFO at Sallie Mae]

And quite honestly, the grad product is a lower loss product, a higher return product, if you think about that. These are typically people that have well, they obviously have an undergrad degree, but they've worked for some period of time. They have a credit profile. And they're also very committed to pursuing a higher education on the basis of assuming that that's going to get them a higher earning career going forward. So I would say broadly, it's going to perform better than the undergrad does broadly.

[Pete Graham, EVP & CFO at Sallie Mae]

And depending on the nature of the programs, the repayment will be different as well. And I think the mix there matters. Business school tends to be shorter and probably the payback is quicker versus a med program, which is much more intensive, longer course of study, higher average balances outstanding and therefore a longer repayment period. So until we have some real sort of underwriting data on the actual volumes, it's going to be hard for us to give you a lot more than sort of the benchmarks that we've given so far.

[Giuliano Bologna, Managing Director at Compass Point Research & Trading LLC]

That's very helpful. And one thing just to make sure

[Giuliano Bologna, Managing Director at Compass Point Research & Trading LLC]

I understood kind of the answer to a previous question, correctly. I think this question kind of implying kind of like you guys might be making a similar assumption market share wise around 60%. Is that just for the undergrad or parent plus capture? Because in your prepared remarks, you referred to the grad opportunity as being about a third to half of the opportunity. Just want to make sure if that's the right way to look at it, that's separate 60% undergrad and third to half on the grad side.

[Jonathan Witter, CEO at Sallie Mae]

Yeah. Interestingly, the numbers aren't actually all that different. So as Pete said, the primary player in the grad space has been the federal government. We do, do grad lending today. The various data providers do provide out on or do provide data out on sort of the level of private grad loans.

[Jonathan Witter, CEO at Sallie Mae]

So if you look at the interval data, there's about $927,000,000 a year. That's probably a 2024 kind of number, 2023, 2024 number. And we did about $623,000,000 of that. So quick math says that's about a 67% market share. So actually slightly more than I think what we would have done in the undergraduate space.

[Jonathan Witter, CEO at Sallie Mae]

But I think still in the same basic ballpark given that data I think is more directional than absolutely precise. So there's not a whole lot of difference in our mind in our current market share, but between grad and undergrad. But I think Pete's point is really right. This is a fundamental sort of change in the way that graduate students and graduate schools will sort of fund their higher education. It allows us to serve customers and sort of compete for business that was simply not available to us before.

[Jonathan Witter, CEO at Sallie Mae]

And but we don't see any reason why we shouldn't maintain our market share and sort of compete aggressively for that.

[Giuliano Bologna, Managing Director at Compass Point Research & Trading LLC]

That is very helpful and I appreciate all the answers. Thank you and I'll jump back in just few.

[Operator]

This concludes the Q and A portion of today's call. I would now like to turn the floor over to Mr. John Witter for closing remarks.

[Jonathan Witter, CEO at Sallie Mae]

Well, thank you everyone for your time and attention today. Hopefully, you got a sense about sort of the pride we've taken in our second quarter and first half performance. I hope you likewise sort of sense the momentum that we expect to carry into the second half of the year. But really most importantly, I hope you hear in our voice the excitement about us being able to work closely with our university partners, a new group of students, some of whom we've served before, some of whom we haven't, to really continue our mission of providing access to and completion of sort of financing for higher education. We think this is a really important and pivotal moment for the company.

[Jonathan Witter, CEO at Sallie Mae]

We think this opens up an expanse of new strategic opportunities for us And we look forward to continuing these discussions in the quarters and years ahead recognizing these opportunities and sort of our excitement about pursuing them. So I hope everyone has a great rest of your day and we'll look forward to talking next quarter if not before. Thank you. I'll now turn the call back over to Kate.

[Kate deLacy, Senior Director & Head - IR at Sallie Mae]

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

[Operator]

Thank you. This concludes today's Sallie Mae second quarter twenty twenty five earnings conference call and webcast. Please disconnect your line at this time and have a wonderful evening.

Participants

Analysts

• Kate deLacy, Senior Director & Head - IR at Sallie Mae
• Jonathan Witter, CEO at Sallie Mae
• Pete Graham, EVP & CFO at Sallie Mae
• Richard Shane, Analyst at JP Morgan
• Terry Ma, Senior Equity Research Analyst at Barclays
• Jeffrey Adelson, Executive Director at Morgan Stanley
• Moshe Orenbuch, MD & Senior Analyst at TD Cowen
• Mark Devries, Director at Deutsche Bank
• Michael Kaye, Equity Research Analyst at Wells Fargo Securities
• Sanjay Sakhrani, Managing Director at Keefe, Bruyette & Woods (KBW)
• Giuliano Bologna, Managing Director at Compass Point Research & Trading LLC