Earnings call transcript: SLM Corp Q2 2025 sees stock rise amid strong performance

Sallie Mae (SLM Corp) reported its Q2 2025 earnings, showcasing a GAAP diluted EPS of $0.32 per share and a net interest income of $377 million, marking a $5 million increase year-over-year. Despite a significant rise in provisions for credit losses, the company’s stock experienced a 4.9% increase, closing at $25.50. According to InvestingPro data, the stock currently trades near its Fair Value, with a P/E ratio of 13.6x and a market capitalization of $5.6 billion. The RSI suggests the stock is in oversold territory, potentially presenting an opportunity for investors. The company also announced future growth expectations in its private education loan portfolio, buoyed by potential market opportunities from federal student loan reforms.

Key Takeaways

• SLM Corp’s EPS for Q2 2025 was $0.32, with net interest income rising by $5 million year-over-year.
• The company completed a $1.8 billion loan sale transaction, maintaining strong liquidity and capital ratios.
• The stock rose by 4.9% post-earnings, reflecting positive market sentiment.
• Sallie Mae anticipates mid to high single-digit growth in its private education loan portfolio.
• The company has a strong market position, holding a 60-67% share in undergraduate and graduate lending.

Company Performance

SLM Corp demonstrated robust performance in Q2 2025, with a notable increase in net interest income and a stable net interest margin of 5.31%. The company maintained its leadership in the private student lending market, supported by strong school partnerships and marketing capabilities. Despite a rise in provisions for credit losses to $149 million, the firm’s strategic initiatives and market opportunities contributed to positive investor sentiment.

Financial Highlights

• Revenue: Not specified in the earnings call.
• Earnings per share: $0.32 per share.
• Net interest income: $377 million, up $5 million year-over-year.
• Provision for credit losses: $149 million, up from $17 million in the previous year.
• Private education loan charge-offs: $94 million, representing 2.36% of average loans in repayment.

Outlook & Guidance

Looking ahead, SLM Corp expects mid to high single-digit growth in its private education loan portfolio, driven by potential market opportunities from federal student loan reforms. The company is exploring private credit partnership opportunities and anticipates incremental volume to phase in over the next 2-3 years. Future EPS forecasts suggest continued growth, with projections reaching $3.41 by FY2026.

Executive Commentary

CEO Jon Witter emphasized the company’s leadership position, stating, "We are the leading market share player in the space." He also highlighted the quality of their assets, noting, "We have a wonderful asset class." Witter expressed optimism about future growth, saying, "We continue to expect year-over-year growth in our private student loan portfolio."

Risks and Challenges

• Rising provisions for credit losses could impact profitability if the trend continues.
• Market saturation in private student lending could limit growth opportunities.
• Macroeconomic pressures, such as interest rate fluctuations, could affect loan demand and margins.
• Regulatory changes in the student loan market may pose challenges to existing business models.
• Competition from other lenders could impact market share and profitability.

SLM Corp’s Q2 2025 earnings call highlighted its strong financial performance and optimistic outlook, bolstered by strategic initiatives and market opportunities. The company’s stock reacted positively, reflecting investor confidence in its growth prospects despite certain financial challenges. InvestingPro analysis shows the company maintains a "Fair" overall financial health score, with particularly strong profitability metrics. Analysts have set price targets ranging from $29 to $44, suggesting potential upside, though 3 analysts have recently revised their earnings expectations downward. For comprehensive analysis of SLM Corp and 1,400+ other US stocks, access the full Pro Research Report on InvestingPro.

Full transcript - SLM Corp (SLM) Q2 2025:

Unidentified Operator, Conference Call Moderator: Welcome to the Sallie Mae second quarter 2025 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. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2 so others can hear your questions clearly. We ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star 0. I would now like to turn the call over to Kate deLacy, Senior Director and Head of Investor Relations. Please go ahead.

Jon Witter, CEO, Sallie Mae: Thank you.

Unidentified Operator, Conference Call Moderator: Good evening and welcome to Sallie Mae’s second quarter 2025 earnings call. It is my pleasure to be here today with Jon Witter, our CEO, Pete Graham, our CFO, and Melissa Bernau, Managing Vice President of Strategic Finance. After the 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. 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 condition, and 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, July 24, 2025. Thank you. Now I’ll turn the call over to Jon.

Jon Witter, CEO, Sallie Mae: Thank you, Kate and Chloe. Good evening, everyone. Thank you for joining us to discuss Sallie Mae’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 certainties, we believe we have momentum going into the second half of the year. 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 marketing strategies accordingly. The credit quality of originations continues to be robust with incremental improvement.

Compared to the second quarter of 2024, our co-signer 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 2Q25, 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 Graham, CFO, Sallie Mae: Pete, thank you, Jon. 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. This is up $5 million from the prior year quarter. Our net interest margin was 5.31% for the quarter, 4 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 quarter.

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 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 5 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 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 30 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 in 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 grant of disaster forbearance related to the California wildfires. While some of the borrowers that were granted disaster forbearance made the 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. Year to date, our net private education loan charge offs are 2.11%, 6 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 $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. 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 1 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 Jon. Thanks Pete.

Jon Witter, CEO, Sallie Mae: 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 HR1 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 overborrowing 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 July 1, 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 to $5 billion in annual private education loan origination volume for Sallie Mae once the transition from the previous programs is fully realized. Because the reforms officially take effect in July of next year 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 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 education 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, why don’t we go ahead and open up the call for some questions.

Unidentified Operator, Conference Call Moderator: The floor is now open for questions. At this time, if you have a question or comment, please press star 1 on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing star 2. Again, we ask that you pick up your handset when you’re posing your questions to provide optimal sound quality. Thank you. Our first question comes from Rick Shane with J.P. Morgan. Your line is open.

Jon Witter, CEO, Sallie Mae: Hey guys, thanks for taking my questions this afternoon. First, can we talk a little bit about the loan sale? The $1.8 billion 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%. First quarter this year it was 9.4%. Where are we sort of in that range for this transaction?

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

Unidentified Operator, Conference Call Moderator: Got it.

Jon Witter, CEO, Sallie Mae: Okay. Just two other quick questions. Historically, 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?

Pete Graham, CFO, 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 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. Got it.

Jon Witter, CEO, Sallie Mae: 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. 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. Can you help me understand that a little bit better? Yeah, we’re happy to. 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.

We would not want something like a hurricane, a wildfire, or 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 scarcely notice in the context of the timing of net charge offs. Because we offer 60 to 90 days forbearance in those cases and 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. That’s the mechanics of it. 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. The impact was larger in this case than it would have normally been in a more typical natural disaster situation.

We can obviously track the specific customers who we gave that forbearance to. We can understand how they are progressing through delinquency. We can anticipate which ones likely would have charged off post facto without the forbearance. We feel very comfortable that the slight uptick that Pete described in his comments was attributable to that population. Okay, great. Thank you very much, Jonathan.

Unidentified Operator, Conference Call Moderator: We’ll take our next question from Terry Ma with Barclays. Your line is open.

Jon Witter, CEO, Sallie Mae: Thank you. Good evening. It sounds like the changes to federal lending can potentially create a lot of upside for the private market and in turn Sallie Mae. It gives you a lot of optionality. If I go back to the last investor forum, you guys 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 change and increase the algorithm? How are you guys thinking about that? You called out the same algorithm before, but it seems like there’s just a lot more upside to volume over time.

Pete Graham, CFO, Sallie Mae: Yeah, I think that the framework we laid out there is still relevant when evaluating this opportunity. Again, just kind of reiterating some of the points that Jon was making. We’re really talking about a 2027 and beyond, you know, sort of growth opportunity profile because of the staging. 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. 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.

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.

Jon Witter, CEO, Sallie Mae: Got it. 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 performing as they exit, and maybe just any color on the 30 to 59 day delinquency bucket that is up meaningfully year over year. Thank you.

Pete Graham, CFO, Sallie Mae: Yeah, I think in general, I would say the trends that we’re seeing in both delinquencies as well as 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 abnormal trends of increased pressure on folks as they come out of the extended grace program. The variations that we’re seeing are starting to sort of settle into what we think is going to be kind of our new kind of normal in terms of seasonality.

Unidentified Operator, Conference Call Moderator: We’ll move next to Jeff Adelson with Morgan Stanley. Your line is open.

Jon Witter, CEO, Sallie Mae: Hey, good evening. Thanks for taking my questions. I just wanted to make sure we understood the $4.5 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 borrower staying in the program, is that based on what you’re seeing?

Pete Graham, CFO, Sallie Mae: In today’s run rate, or is there?

Jon Witter, CEO, Sallie Mae: Any sort of expectation for growth in that borrower cohort versus what you’re seeing today? I guess just given the dynamic you identified on the third, a third, a third and a quarter, a quarter quarter for Parent PLUS, is that a good 28, 29 number to be thinking about? Yeah, 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 an expectation of the likely growth in average loan size, which we do whenever we do multi-year out year projections.

I’m not sure if that was part of your question as well, but that goes into the mechanics of what we do. Yes, I think 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 a half a year impact on the freshman undergraduate class and the first year graduate student class. I think based on those average times to complete degree, you would expect those to load over the two to three to four year period thereafter. We tried to give you what we think are the basic modeling inputs to that. I think the basic logic of what you laid out is correct.

Pete Graham, CFO, Sallie Mae: Okay, thanks for that.

Jon Witter, CEO, Sallie Mae: Just to circle back on the private credit exploration here, you.

Pete Graham, CFO, Sallie Mae: You’ve laid out how you kind.

Jon Witter, CEO, Sallie Mae: I 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, you know, the 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. Are you going to have to sacrifice economics to do that, or how are you thinking about that?

Pete Graham, CFO, Sallie Mae: Thank you.

Jon Witter, CEO, Sallie Mae: Yeah, Jeff, look, you know, couple of thoughts. Obviously I’m not going to go into great detail because, you know, 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. 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 losses on the loans are extremely attractive as a result of that success. The duration and the 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. We are the leading market share player in the space.

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. With that in mind, I am very open to different financial and economic structures to fund this incredibly high quality and important asset. My view is, you know, we have a really good sense and a really good benchmark of what the lifetime value of these loans are, of course, you know, discounted back in time.

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. 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.

Pete Graham, CFO, Sallie Mae: Great. That’s great color.

Jon Witter, CEO, Sallie Mae: Thanks so much.

Pete Graham, CFO, Sallie Mae: Take care.

Unidentified Operator, Conference Call Moderator: We’ll take our next question from Moshe Orenbuk with TD Cowen. Your line is open.

Pete Graham, CFO, Sallie Mae: Great, thanks. Jon, it seems to me that.

Jon Witter, CEO, Sallie Mae: If you’re talking about a four and.

Pete Graham, CFO, Sallie Mae: A half to $5 billion opportunity that would phase in over several years, most of it over two to three years.

Jon Witter, CEO, Sallie Mae: That would probably be consistent with just.

Pete Graham, CFO, Sallie Mae: The normal expansion that you could expect from your

Jon Witter, CEO, Sallie Mae: Normal loan sales if you wanted to. I understand the comments you made.

Pete Graham, CFO, Sallie Mae: About seeking other structures. Just wondering if, as you do that.

Jon Witter, CEO, Sallie Mae: Would some of those structures potentially expand that 4.5 to 5?

Pete Graham, CFO, Sallie Mae: Billion by being willing to address some.

Jon Witter, CEO, Sallie Mae: Of the areas that you might not want to, you know, underwrite for your own balance sheet? 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 we gave you. 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. 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. By the way, you know how committed I am to capital allocation and strong ROEs. 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 parts of the credit spectrum more attractive to us to originate and just fund in a different way. 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 too premature for us to comment on the timing of any type of expansion. Yes, I think we would certainly be open to that and I think logic would dictate that that’s certainly a conceivable outcome.

Pete Graham, CFO, Sallie Mae: Thanks very much.

Unidentified Operator, Conference Call Moderator: Next, Mark DeVries with Deutsche Bank, your line is open.

Pete Graham, CFO, Sallie Mae: Yeah, thanks. Just a couple more clarifying questions on the market opportunity here. For the $4.5 to $5 billion 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?

Jon Witter, CEO, Sallie Mae: Yes.

Pete Graham, CFO, Sallie Mae: Okay, simple enough. 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 maintain capital sufficiency going forward? Yeah. 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 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 higher single digits and continuing to size loan sales or other funding mechanisms that Jon talked about earlier as the alternative funding mechanisms beside the bank.

Okay, great. One of the questions we’ve been getting from investors is whether this new expanded opportunity is going to make the market more attractive all of a sudden and attract new competitors. Maybe. Jon, just talk about how you think this new broader opportunity ultimately gets distributed. What, if any, barriers to entry are there that you think will enable you to really protect your market share?

Jon Witter, CEO, 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 total market size, depending on what kind of credit discount you want to apply to that. It’s a meaningful increase in the overall size of the market when fully implemented. It is still a very small market when you put it up against other consumer credit classes. Whether or not that attracts lots of other competitors or just some other competitors, I think time will tell. 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. 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 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. 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.

Pete Graham, CFO, Sallie Mae: Okay, great, thank you.

Unidentified Operator, Conference Call Moderator: We’ll move next to Michael K. with Wells Fargo. Your line is open.

Jon Witter, CEO, Sallie Mae: I just had another follow-up on that private partnership.

Pete Graham, CFO, Sallie Mae: You know, I know you’re still working.

Jon Witter, CEO, Sallie Mae: 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?

Pete Graham, CFO, Sallie Mae: 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. 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.

Jon Witter, CEO, Sallie Mae: Would this just be these new incremental loans as part of this reform?

Pete Graham, CFO, Sallie Mae: Would this be across, like, the whole stack, everything you originate, including the undergrad?

Jon Witter, CEO, Sallie Mae: That you currently focus on today?

Pete Graham, CFO, Sallie Mae: Yeah, I think it’s broadly an alternative funding mechanism for all originations of the firm.

Jon Witter, CEO, Sallie Mae: Okay. I had another quick question on the loan modifications. You’ve made a lot of enrollments and loan mods in the first half of last year. What are you, what’s Sallie Mae doing to prepare these borrowers when these loan mods end, you know, two years from then, which will be the first half of next year?

Pete Graham, CFO, Sallie Mae: 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. 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. 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.

Jon Witter, CEO, Sallie Mae: Okay, thank you.

Unidentified Operator, Conference Call Moderator: We’ll take our next question from Sanjay Sakrani with KBW. Your line is open.

Jon Witter, CEO, Sallie Mae: 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 give you confidence that you won’t see them? Does credit have to perform better in the second half versus the first half to hit your targeted range?

Pete Graham, CFO, Sallie Mae: Yeah, 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. You know, 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. 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.

Jon Witter, CEO, Sallie Mae: Okay. Jon, just that $4 to $5 billion incremental, how much of it is Grad PLUS versus Parent PLUS? Is it probably the bulk of it is Grad PLUS? I’m just trying to think about how to dimensionalize that 1/3 and 1/4 stat that you gave. I’m not sure we’ve divulged those numbers, but it is 2/3 Grad PLUS. It is 1/3 Parent PLUS.

Pete Graham, CFO, Sallie Mae: Okay, great.

Jon Witter, CEO, Sallie Mae: Thank you. Yep, that’s approximately. Obviously.

Pete Graham, CFO, Sallie Mae: Got it, thanks.

Unidentified Operator, Conference Call Moderator: We will move next to Giuliano Bologna with Compass Point. Your line is open.

Pete Graham, CFO, Sallie Mae: Good afternoon. Congrats on the results. Maybe jumping off and expanding on that, the topic of the $4.5 to $5 billion. As you just mentioned, it’s all two-thirds, you know, Grad PLUS or somewhere in that zip code. When I think about that transition, historically it’s been 8% to 9% graduate loan originations from mixed perspectives and having disproportionately large growth in grad obviously shifts 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, and then how should we think about those loans on a relative basis versus your current core loans? How much duration are they? How much lower is the yield? Just thinking about some rough parameters. I’m not looking for exact numbers here.

Yeah, I’ll take a crack at it and Jon can jump in if 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. 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. Quite honestly, the graduation 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 higher education on the basis of assuming that that’s going to get them a higher earning career going forward. I would say broadly it’s going to perform better than the undergrad does. Broadly, and depending on the nature of the programs, the repayment will be different as well. 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.

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 the benchmarks that we’ve given so far. That’s very helpful. One thing just to make sure I understood the answer to a previous question correctly, I think there’s a question implying you might be making a similar assumption market share wise, around 60%. Is that just for the undergrad or Parent PLUS capture? 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 that’s the right way to look at it. That separate 60% undergrad and third to half on the grad side.

Jon Witter, CEO, Sallie Mae: Yeah. Interestingly, you know, the numbers aren’t actually all that different. You know, 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 data out on sort of the level of private grad loans. If you look at the interval data, there’s about $927 million a year. That’s probably a 2024 kind of number, 2023, 2024 number. We did about $623 million of that. Quick math says that’s about a 67% market share. 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. There’s not a whole lot of difference in our mind in our current market share between grad and undergrad.

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

Pete Graham, CFO, Sallie Mae: That is very helpful, and I appreciate all the answers.

Jon Witter, CEO, Sallie Mae: Thank you.

Pete Graham, CFO, Sallie Mae: I’ll jump back into here.

Unidentified Operator, Conference Call Moderator: This concludes the Q&A portion of today’s call. I would now like to turn the floor over to Mr. Jon Witter for closing remarks.

Jon Witter, CEO, Sallie Mae: 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.

Pete Graham, CFO, Sallie Mae: Year.

Jon Witter, CEO, Sallie Mae: 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 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 our excitement about pursuing them. I hope everyone has a great rest of your day, and we’ll look forward to talking next quarter, if not before. Thank you. Now I’ll turn the call back over to Kate.

Unidentified Operator, Conference Call Moderator: Thanks, Jon. 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. Thank you. This concludes today’s Sallie Mae Second Quarter 2025 Earnings Conference Call and webcast. Please disconnect your line at this time and have a wonderful evening.

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