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DATE

Thursday, July 24, 2025, at 5:30 p.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Jonathan Witter
  • Chief Financial Officer — Peter Graham
  • Head of Investor Relations — Kate deLacy

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TAKEAWAYS

  • GAAP Diluted EPS-- GAAP diluted EPS for Q2 2025 was $0.32 per share, directly reported for the quarter.
  • Loan Originations-- $686 million, Stable relative to the same period last year and below internal expectations due to timing and concentration of non-traditional borrowers.
  • Net Interest Income-- $377 million of net interest income, an increase of $5 million year over year, attributed to higher average balances and asset mix improvements.
  • Net Interest Margin (NIM)-- 5.31% net interest margin, up four basis points sequentially from the previous quarter; Management reaffirmed a long-term net interest margin target in the low-to-mid 5% range.
  • Provision for Credit Losses-- $149 million provision for credit losses, up from $17 million in Q2 2024. The prior year (Q2 2024) benefited from a $103 million reserve release tied to loan sales.
  • Cosigner Rate-- 84%, compared to 80% in Q2 2024, reflecting tightened underwriting standards.
  • Average FICO at Approval-- 754, Up from 752 in Q2 2024.
  • 30+ Day Delinquencies-- 3.5% of loans in repayment, A sequential decrease from 3.6% in Q1 2025 but Higher than 3.3% at the end of Q2 2024.
  • Allowance for Loan Losses-- 5.95% of private education loan exposure, Slightly below the prior quarter's 5.97% and five basis points above the year-ago quarter.
  • Net Charge-Offs-- $94 million, representing 2.36% of average loans in repayment, a 17 basis point increase year-over-year in net private education loan charge-offs as a percentage of average loans in repayment, Attributed to California wildfire disaster forbearance timing; Year-to-date net private education loan charge-off rate is 2.11% for 2025, Six basis points below the prior year year to date.
  • Noninterest Expenses-- $167 million noninterest expenses, Up $12 million from the prior quarter and Up $8 million from the year-ago quarter, in line with management expectations.
  • Liquidity Ratio-- 17.8% liquidity ratio at period-end.
  • Total Risk-Based Capital Ratio-- 12.8% total risk-based capital at period-end.
  • Common Equity Tier 1 Capital Ratio-- 11.5% at quarter-end.
  • GAAP Equity Plus Reserves / Risk-Weighted Assets-- 16.3% (GAAP equity plus loan loss reserves over risk-weighted assets), described as very strong by management.
  • Share Repurchase-- 2.4 million shares repurchased at a $29.42 average price; total shares outstanding reduced by over 53% since 2020 at a weighted average price of $16.43.
  • Planned Private Education Loan Sale-- $1.8 billion of private education loans agreed to indicative pricing in Q3 2025, with transaction execution described as in line with expectations.
  • Policy Impact — Federal Reform-- The recently enacted legislation limits Parent PLUS and eliminates Grad PLUS borrowing, with management estimating an incremental $4.5 billion to $5 billion in annual private education loan origination volume once the transition from the previous federal lending programs is fully realized.
  • Loan Sale Gain on Sale Margin-- CFO Graham stated that pricing for the $1.8 billion loan sale in Q2 2025 is in line with expectations for the year, adjusting modestly to market rates from earlier sales.
  • Origination Growth Expectation-- Management reaffirmed expectations for year-over-year growth in the private student loan portfolio and a capital return strategy through continued buybacks and opportunistic loan sales.
  • Portfolio Credit Modification Performance-- 80% of borrowers enrolled in loan modification programs for over a year are consistently making payments; Late-stage delinquencies remained stable year over year despite an almost $2 billion increase in loans in repayment.
  • Anticipated Timing of Reform Benefits-- The impact from new federal lending limits is expected to commence with a muted effect in the second half of 2026, ramping in 2027 and beyond, due to academic program duration and phase-in provisions.
  • Funding Strategy Outlook-- Management is actively evaluating alternative private credit partnerships and expects to utilize a mix of balance sheet growth, loan sales, and new funding structures to support increased origination volume.
  • Market Share Metrics-- Management cited a recent market share of approximately 60%+ in newly addressable originations, based on recent years, with 67% share in private graduate lending per 2023-2024 figures.

SUMMARY

SLM Corp. (SLM -0.10%) characterized Q2 2025 by steady core loan origination, expanded net interest income, and firm underwriting metrics, while explicitly acknowledging continued macroeconomic and regulatory headwinds. Management highlighted a substantial forward opportunity resulting from federal student loan reforms, quantifying the potential increase in private loan demand and detailing the anticipated timing and mix of this incremental volume. Shareholder capital return actions, ongoing loan sale initiatives, and evaluations of alternative funding mechanisms were all identified as central to the company’s strategy for managing projected growth and market evolution. The call included specific commentary on credit loss provisioning, loan modification program performance, and SLM Corporation’s competitive positioning within the context of policy-driven industry change.

  • CEO Witter stated that "the enacted legislation introduces meaningful changes to the federal student loan system," including caps on borrowing under Parent PLUS and elimination of the Grad PLUS program, which management projects will translate into significant additional origination volume starting in the next two to three years.
  • Loan delinquency and charge-off metrics were directly addressed, with management attributed the increased Q2 2025 charge-off rate to temporary disaster forbearance tied to California wildfires, while year-to-date credit metrics remained consistent with full-year guidance for the first half of 2025.
  • Discussions of private credit partnership exploration confirmed the company's intent to avoid reliance on a simple forward flow arrangement, and instead seek scalable, capital-efficient funding options that preserve economic value and earnings predictability.
  • Graduation of loan modification enrollees and seasonal normalization in short-term delinquencies were cited as in line with expectations, and no abnormal stress or emerging trend was reported as of quarter-end.
  • Market share was explicitly quantified, with management stating, quick math indicates about a 67% market share in graduate private student loans, based on 2023-2024 data, and a similar or slightly lower range in undergraduate lending, with the company expressing high confidence in retaining competitive positioning.

INDUSTRY GLOSSARY

  • Parent PLUS: Federal loans that allow parents of dependent undergraduate students to borrow funds to cover postsecondary education expenses.
  • Grad PLUS: Federal loans for graduate and professional degree students to finance education costs beyond standard limits.
  • Gain on Sale Margin: The profit percentage realized when a company sells loans relative to their recorded value.
  • CECL: Current Expected Credit Loss, a U.S. accounting standard requiring lifetime loss estimation for financial assets.
  • Loan Modification Program: A contractual alteration of original loan terms for borrowers experiencing financial hardship, designed to improve payment performance.

Full Conference Call Transcript

Jonathan Witter: Thank you, Kate and Chloe. Good evening, everyone. Thank you for joining us to discuss SLM Corporation's second quarter 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. 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 $0.32 per share.

Loan originations for the second quarter were $686 million, roughly in line with the same period last year and slightly below our expectations. 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. We will continue to monitor this actively and optimize our strategies. The credit quality of originations continues to be robust, with incremental improvement compared to the second quarter of 2024. 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 754 from 752. These indicators reflect continued discipline in our underwriting standards and borrower selection. For the second quarter of 2025, we continued our capital return strategy, repurchasing 2.4 million 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 $1.8 billion 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. 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?

Peter Graham: Thank you, Jonathan. Good evening, everyone. Let's continue with a discussion of key drivers of earnings. For the second quarter of 2025, we earned $377 million of net interest income, up $5 million from the prior year quarter. Our net interest margin was 5.31% for the 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.

Our provision for credit losses was $149 million in the second quarter, up from $17 million in the prior year. It's worth noting that the prior year figure included a $103 million 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, 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 2025, 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 billion 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. 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 million, representing 2.36% of average loans in repayment, an increase of 17 basis points compared to the second quarter of 2024. We attribute this uptick primarily to the impact from our first quarter grant of disaster forbearance related to the California wildfires. While some of the borrowers that were granted disaster forbearance in the first quarter were able to return to making 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 expectation.

Year to date, our net private education loan charge-offs are 2.11%, six basis points below the prior year. Importantly, at this point, we have not observed any material signs that recent policy changes or broader economic softness are adversely affecting the portfolio. Second quarter noninterest expenses were $167 million compared to $155 million in the prior quarter and $159 million 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.

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 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. I'll turn the call back to Jonathan.

Jonathan Witter: 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 the broader policy landscape that could shape the future of our industry. Earlier this month, the President signed HR 1 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 the elimination of the Grad PLUS 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. 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 on 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. 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 $4.5 billion to $5 billion in annual private education loan origination volume for SLM Corporation once the transition from the previous programs is 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, 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.

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.

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 aimed 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. With that, Pete, shall we go ahead and open up the call for some questions?

Operator: The floor is now open for questions. To provide optimal sound quality, please ensure your line is unmuted. Thank you. Our first question comes from Richard Shane with JPMorgan. Your line is open.

Richard Shane: Hey, guys. Thanks for taking my questions this afternoon. First, can we talk a little bit about the $1.8 billion loan sale described in the third quarter? Can you help us sort of narrow the channel in terms of gain on sale margin? In 2024, the average gain on sale margin was just below 7%. Where are we sort of in that range for this transaction?

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

Richard Shane: 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. As we think about our 2025 numbers, should we assume a sale in the fourth quarter, or should we see the $3.8 billion you guys have done as sort of the total for the year?

Peter Graham: 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 the 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: Got it. And then last question for me, and I apologize for so many. But the net charge-off rate for loans in 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. 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. Can you help me understand that a little bit better?

Jonathan Witter: Yeah, we're very 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 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 the company. Typically, those natural 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, it kind of puts customers into stasis, you can move a charge-off that would have happened in 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. 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: 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: Hey, thank you. Good evening. So it sounds like the changes to federal lending potentially create a lot of upside from the private market and in turn, SLM Corporation. 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, can that potentially kind of change and increase the algorithm? 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.

Peter Graham: Yeah, I think the framework we laid out there is still relevant when evaluating this opportunity. And again, just kind of reiterating some of the points that Jonathan was making. We're really talking about 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.

Terry Ma: So 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.

Peter Graham: 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 the thirty to fifty-nine day delinquency bucket that's kind of meaningfully year over year? Thank you.

Peter Graham: Yeah, 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 modification 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 grace 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.

Jeff Adelson: Hey, good evening. Thanks for taking my questions. I just wanted to make sure we understood the $4.5 billion to $5 billion 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? And I guess just given the dynamic you identified on the third, a third, a third in a quarter, a quarter, a quarter for Parent PLUS, is that a good 28, 29 number to be thinking about?

Jonathan Witter: 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 estimates sort of an expectation of sort of the likely growth in average loan size, which we do whenever we do multiyear out-year projections. 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 tried 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 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. But I think the basic logic of what you laid out is correct.

Jeff Adelson: Okay, thanks for that. And I guess just to circle back on the private credit exploration here. You know, 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&L impacts you're maybe considering here, what you're maybe willing to trade off on take rate in order to, you know, have a more efficient cost structure, more efficient funding structure? I mean, the one pushback sometimes we get is, you know, 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: Yeah, Jeff. Look, a 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. 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. 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 important asset. But my view is, you know, we have a really good sense, a really good benchmark of what the lifetime value of these loans is. 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. 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, you know, 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. 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.

Jeff Adelson: 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: Great. Thanks. And Jonathan, it seems to me that if you're talking about a $4.5 to $5 billion opportunity that would phase in over, you know, 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, you know, from your normal loan sales if you wanted to. And I understand the comments you made about, you know, seeking other structures. Just wondering if as you do that, would some of those structures potentially expand that $4.5 billion to $5 billion by being willing to address some of the areas that you might not want to, you know, underwrite for your own balance sheet.

Jonathan Witter: You know, Moshe, it's a great question again. So there's no confusion. We did not include anything like a balance sheet expansion in the $4.5 billion to $5 billion 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. 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. 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, you know, probably too premature for us to comment on sort of the timing of any type of expansion.

But yes, I think we would certainly be open to that. And I think logic would dictate that's certainly a conceivable outcome.

Moshe Orenbuch: Thanks very much.

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

Mark DeVries: Yes, thanks. Just a couple more clarifying questions on the market opportunity here. For the $4.5 billion to $5 billion of incremental kind of opportunity you see for SLM Corporation, 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: Yes.

Mark DeVries: 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, you know, capital sufficiency going forward?

Peter Graham: Yeah. Again, as I said 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, you know, 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 Jonathan talked about earlier as the alternative funding mechanisms beside the bank.

Mark DeVries: 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 Jonathan, just kind of talk about how you think this new broader opportunity ultimately gets distributed. And what if any kind of barrier entries are there that, you know, that I think will enable you to really kind of protect your market share?

Jonathan Witter: You know, Mark, thanks. You know, to put it in context, I think rough justice 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.

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 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: Okay, great. Thank you.

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

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

Peter Graham: Yeah. Ideally, we would have that fully in place before any of the additional volume comes, you know. We started thinking about this in the context of a supplement to our existing loan sales in the 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 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: 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, you know, the undergrad that you currently focus on today?

Peter Graham: Yeah. I think it's broadly an alternative funding mechanism for all originations of the firm.

Michael Kaye: Okay. And then I had another quick question on the loan modifications, and you've made a lot of enrollments and loan mods in the first half of last year. So, like, what are you what's SLM Corporation doing to prepare these borrowers when these loan mods end, you know, two years from then will be the first half of next year?

Peter Graham: Again, we've made some tweaks over time to the enrollment mechanisms for the loan mod programs, as well as looking at the performance of the borrowers in the programs. And we feel really good about the success rates that we're seeing and feel confident that 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: Okay. Thank you.

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

Sanjay Sakhrani: 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? Is there specific data points that sort of give you confidence that you know, 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?

Peter Graham: Yeah. 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: Okay. And Jonathan, just that $4.5 to $5 billion incremental, how much of it is Grad PLUS versus Parent PLUS? I mean, 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: I am not sure we've divulged those numbers, but it is two-thirds Grad PLUS, it is one-third Parent PLUS.

Sanjay Sakhrani: Okay. Great. Thank you.

Jonathan Witter: Yep. And that's approximately, obviously.

Sanjay Sakhrani: Got it. Thanks.

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

Giuliano Bologna: I definitely congrats on the results. Maybe jumping off and you have expanding on that topic of this $4.5 to $5 billion. As you just mentioned, it's two-thirds, you know, Grad PLUS or somewhere in that ZIP code. When I think about that transition, you know, historically, it's been 8%, 9% graduate loan originations from a mix perspective? And we have having disproportionately large growth in grad, obviously, shift the mix of your balance sheet. Would you consider selling loans in a different way or selling grad loans separately going forward? A way to kind of keep your mix where it is?

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? Just thinking about some rough parameters, obviously not looking for exact numbers here.

Peter Graham: Yeah. I'll take a crack at it, and Jonathan 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. And, you know, 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's going to get them a higher earning career going forward. So perform better than the undergrad does broadly.

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. Therefore a longer repayment period. So until we have some real sort of underwriting data on the actual, you know, volumes, it's gonna be hard for us to give you a lot more than, you know, sort of the benchmarks that we've given so far.

Giuliano Bologna: That's very helpful. And one thing just to make sure I understood, you know, kind of answered a previous question. Correctly. I think those questions kind of implying kind of, that 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 the in the your prepared remarks, referred to the GradApp G as VANGO. About a third to half of the opportunity. Just wanna make sure if that's the right way to look at it. That's separate. 60% undergrad and a third to half. On the grad side.

Jonathan Witter: 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 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. So if you look at the interval data, there's about $927 million a year. That's probably 2024 kind of number, 2023, 2024 number. And we did about $623 million 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.

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

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

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

Jonathan Witter: 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. 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: Thanks, Jonathan. 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 salliemae.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 SLM Corporation Second Quarter 2025 Earnings Conference Call and Webcast. Please disconnect your line at this time and have a wonderful evening.