Q3 2025 SLM Corp Earnings Call

Speaker #1: In the future, results 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.

Kate deLacy: 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, these factors include, among others, results of operations, financial conditions, and/or cash flows, as well as any potential impact 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 could occur after today, Thursday, October 23, 2025. Thank you, and now I'll turn the call over to Jonathan.

Speaker #1: For Sallie Mae . These factors include , among others , results of operations , financial conditions , and or cash flows , as well as any potential impact of various external factors on our business .

Speaker #1: We undertake no obligation to update or revise any predictions , expectations or forward looking statements to reflect events or circumstances that could occur after today , Thursday , October 23rd , 2025 .

Speaker #1: Thank you. And now I'll turn the call over to John.

Speaker #2: Thank you, Kate and Chloe. Good evening, everyone. Thank you for joining us to discuss Sallie Mae's third quarter 2025 results.

Jonathan Witter: Thank you, Kate and Chloe. Good evening, everyone. Thank you for joining us to discuss Sallie Mae's third quarter 2025 results. I hope you'll take away three key messages today. First, we delivered a successful quarter in peak season. Second, we're pleased with our year-to-date performance and believe we have real momentum that will carry us through the rest of the year. Third, we're optimistic about the long-term outlook for private student lending and the growth of Sallie Mae. Let me begin with the quarter's results. GAAP diluted EPS in the third quarter was $0.63 per share. Loan originations for the third quarter were $2.9 billion, representing 6.4% growth over the year-ago quarter and 6% growth year to date. We were pleased to see that the credit quality of originations remains strong, showing incremental improvement year over year and steady but meaningful improvement over the last several years.

Speaker #2: I hope you'll take away three key messages today . First , we delivered a successful quarter in peak season . Second , we're pleased with our year to date performance and believe we have real momentum that will carry us through the rest of the year .

Speaker #2: And third, we're optimistic about the long-term outlook for private student lending and the growth of Sallie Mae. Let me begin with the quarter's results.

Speaker #2: GAAP diluted EPs in the third quarter was $0.63 per share . Loan originations for the third quarter were 2.9 billion . Representing 6.4% growth over the year ago quarter and 6% growth year to date .

Speaker #2: We were pleased to see that the credit quality of originations remained strong, showing incremental improvement year over year and steady, but meaningful improvement over the last several years.

Speaker #2: Our co-signer rate for the third quarter was 95%, compared to 92% in the year-ago quarter, and the average FICO score at approval increased to 7.56 from 7.54.

Jonathan Witter: Our cosigner rate for the third quarter was 95% compared to 92% in the year-ago quarter, and the average FICO score at approval increased to 756 from 754. These indicators reflect continued discipline in our underwriting standards. We have continued to see positive momentum in our credit performance. Private education loan net charge-offs in Q3 2025 were $78 million, representing 1.95% of average private education loans in repayment, down 13 basis points from the year-ago quarter. While we are certainly living in a period of economic ambiguity, we have not observed any material change in our borrowers' ability to meet their obligations to Sallie Mae. During the third quarter, we successfully completed the previously announced sale of approximately $1.9 billion in loans, generating $136 million in gains. We continued our capital return strategy in the third quarter, repurchasing 5.6 million shares at an average price of $29.45 per share.

Speaker #2: These indicators reflect continued discipline in our underwriting standards . We have continued to see positive momentum in our credit performance . Private education loan net charge offs in Q3 of 25 were 78 million , representing 1.95% of average private education loans and repayment , down 13 basis points from the year ago quarter .

Speaker #2: While we are certainly living in a period of economic ambiguity, we have not observed any material change in our borrowers' ability to meet their obligations to Sallie Mae.

Speaker #2: During the third quarter, we successfully completed the previously announced sale of approximately $1.9 billion in loans, generating $136 million in gains.

Speaker #2: We continued our capital return strategy in the third quarter, repurchasing 5.6 million shares at an average price of $29.45 per share. Since initiating this strategy in 2020, we have reduced our outstanding shares by 55% at an average price of $16.75.

Jonathan Witter: Since initiating this strategy in 2020, we have reduced our outstanding shares by 55% with an average price of $16.75. Pete, we'll now take you through some additional financial highlights of the quarter. Pete.

Speaker #2: Pete will now take you through some additional financial highlights of the quarter. Pete. Thank you, John.

Speaker #3: Good evening, everyone. Let's continue with the discussion of key drivers of earnings for the third quarter of 2025. We earned $373 million in net interest income.

Pete Graham: Thank you, John. Good evening, everyone. Let's continue with the discussion of key drivers of earnings. For the third quarter of 2025, we earned $373 million of net interest income. This is up $14 million from the prior year quarter. Our net interest margin was 5.18% for the quarter, 18 basis points ahead of the year-ago quarter, but 13 basis points behind the prior quarter given the drag from the actual liquidity that we hold to satisfy the requirements of peak season. We continue to believe that an annual NIM target in the low to 5% range, low to mid-5% range, remains appropriate over the longer term. Our provision for credit losses was $179 million in the third quarter, down from $271 million in the prior year quarter. This was largely due to $119 million of provision release resulting from the third quarter loan sale.

Speaker #3: This is $14 million from the prior year quarter. Our net interest margin was 5.18% for the quarter, 18 basis points ahead of the year-ago quarter.

Speaker #3: With 13 basis points behind the prior quarter . Given the drag from the extra liquidity that we hold to satisfy the requirements of peak season , we continue to believe that an annual Nim target in the low to 5% range , low to mid 5% range , remains appropriate over the longer term .

Speaker #3: Our provision for credit losses was $179 million in the third quarter, down from $271 million in the prior year quarter. This was largely due to $119 million of provision release, resulting from the third quarter loan sale.

Speaker #3: Our total allowance as a percentage of private education loan exposure modestly improved to 5.93% , slightly below the the prior quarters , 5.95% and just nine basis points above the year ago quarter .

Pete Graham: Our total allowance as a percentage of private education loan exposure modestly improved to 5.93%, slightly below the prior quarter's 5.95% and just 9 basis points above the year-ago quarter. The change from the year-ago quarter results is from a few factors. As we noted last quarter, the Moody's economic forecasts that we use in our CISL models have deteriorated, driving a significant portion of the increase to our allowance. This model-driven impact was partially offset, however, by continued improvements in our credit performance and portfolio quality. At the end of the third quarter, 4% of private education loans in repayment were 30 days or more delinquent, up from 3.6% at the end of the year-ago quarter. It's important to note that this year-over-year increase is largely attributable to changes we made last year to our loan modification eligibility criteria.

Speaker #3: The change from the year ago quarter results from a few factors . As we noted last quarter , the Moody's economic forecasts that we use in our Cecl models have deteriorated , driving a significant portion of the increase to our allowance .

Speaker #3: This model driven impact was partially offset , however , by continued improvements in our credit performance and portfolio quality . At the end of the third quarter .

Speaker #3: 4% of private education loans and repayment were 30 days or more delinquent, up from 3.6% at the end of the year-ago quarter.

Speaker #3: It's important to note that this year over year increase is largely attributable to changes we made last year to our loan modification eligibility criteria , specifically , since October of last year , we've loan modifications to those who were at least 60 days delinquent .

Pete Graham: Specifically, since October of last year, we've restricted loan modifications to those who were at least 60 days delinquent. This change was purposeful based on our observation that many early-stage delinquent borrowers tend to self-cure without intervention. We believe that approximately 25 basis points of delinquencies this quarter can be attributed to borrowers who would have qualified for a modification prior to entering our reported delinquency buckets under the prior eligibility criteria. Importantly, we've seen stability in our late-stage delinquencies and roll rates. Our loan modification programs continue to deliver strong results. When we look at borrowers who have been in the programs for over a year, 80% are consistently making payments. Additionally, following the previously mentioned change, monthly loan modification enrollments declined and have now stabilized around half the level that they were prior to the change.

Speaker #3: This change was purposeful, based on our observation that many early-stage delinquent borrowers tend to self-cure without intervention. We believe that approximately 25 basis points of delinquencies this quarter can be attributed to borrowers who would have qualified for a modification prior to entering our delinquency.

Speaker #3: Buckets under the prior eligibility criteria . Criteria . Importantly , we've seen stability in our late stage delinquencies and roll rates . Our loan modification programs continue to deliver strong results .

Speaker #3: When we look at borrowers who have been in the programs for over a year , 80% are consistently making payments . Additionally , following the previously mentioned change , monthly loan modification enrollments declined and have now stabilized around half the level that they were prior to the change .

Speaker #3: We continue to believe that our loss mitigation programs are helping our borrowers manage through periods of adversity and establish positive payment habits. Third quarter non-interest expenses were $180 million, compared to $167 million in the prior quarter and $172 million in the year-ago quarter.

Pete Graham: We continue to believe that our loss mitigation programs are helping our borrowers manage through periods of adversity and establish positive payment habits. Third quarter non-interest expenses were $180 million compared to $167 million in the prior quarter and $172 million in the year-ago quarter. This aligns with our full-year outlook and positions us well as we head into the final months of the year. Finally, our liquidity and capital positions remain strong. We ended the quarter with a liquidity ratio of 15.8%. Total risk-based capital was 12.6%, and CET1 capital was 11.3%. We're encouraged by the exciting opportunities ahead as we continue to grow and evolve our business, enabling strong return of capital to shareholders moving forward. Now I'll turn the call back to Jonathan Witter.

Speaker #3: This aligns with our full-year outlook and positions us well as we head into the final months of the year. Finally, our liquidity and capital positions remain strong.

Speaker #3: We ended the quarter with a liquidity ratio of 15.8%. Total risk-based capital was 12.6%, and common equity tier one capital was 11.3%.

Speaker #3: We're encouraged by the exciting opportunities ahead as we continue to grow and evolve our business, enabling strong return of capital to shareholders.

Speaker #3: Moving forward, I will turn the call back to John.

Speaker #2: Thanks, Pete. I hope you share my belief that our third-quarter performance reflects strong execution and positions us well to sustain momentum through the remainder of 2025.

Jonathan Witter: Thanks, Pete. I hope you share my belief that our third quarter performance reflects strong execution and positions us well to sustain momentum through the remainder of 2025. As we look ahead, we're optimistic about the impact of recent federal reforms and the opportunities they create for our industry and for Sallie Mae to better serve students and families. As the leading private student loan lender, Sallie Mae is well positioned to support them through this transition. At the same time, we recognize that these changes create new challenges for our school partners. We are proud to be working closely with many of them to design innovative solutions that help ensure students can access and complete their desired degrees. In parallel, we have been actively exploring alternative funding partnerships in the private credit space to expand our ability to serve students.

Speaker #2: As we look ahead, we're optimistic about the impact of recent federal reforms and the opportunities they create for our industry and for Sallie Mae to better serve students and families.

Speaker #2: As the leading private student lender, Sallie Mae is well positioned to support them through this transition. At the same time, we recognize that these changes create new challenges for our school partners.

Speaker #2: We are proud to be working closely with many of them to design innovative solutions that help ensure students can access and complete their desired degrees.

Speaker #2: In parallel , we have been actively exploring alternative funding partnerships in the private credit space to expand our ability to serve students . We expect to announce a first of its kind partnership in the near term , and we'll share more details soon after .

Jonathan Witter: We expect to announce a first-of-its-kind partnership in the near term and will share more details soon after. We view this as a strategic step toward unlocking the value of our attractive customer base, setting the stage for sustainable growth of capital-like fee-based revenues. We are looking forward to sharing more at a second investor forum later this year. Let me conclude with a discussion of 2025 guidance. To kick off this partnership, we anticipate selling both a small portfolio of seasoned loans and a portion of our recent peak season originations, either in the fourth quarter or early in 2026. Accordingly, we expect to designate a portion of our loans as held for sale prior to the end of the year. As a result, we now expect our GAAP diluted EPS for 2025 to be between $3.20 and $3.30.

Speaker #2: We view this as a strategic step toward unlocking the value of our attractive customer base, setting the stage for sustainable growth of capital-like fee-based revenues.

Speaker #2: We are looking forward to sharing more at a second investor forum later this year. Let me conclude with a discussion of 2025 guidance to kick off this partnership.

Speaker #2: We anticipate selling both a small portfolio of seasoned loans and a portion of our recent peak season originations, either in the fourth quarter or early in 2026.

Speaker #2: Accordingly, we expect to designate a portion of our loans as held for sale prior to the end of the year. As a result, we now expect our GAAP earnings per common share for 2025 to be between $3.20 and $3.30.

Speaker #2: At the same time , we are reaffirming all other elements of our 2025 outlook , including originations growth . Net charge offs and non-interest expense metrics , reflecting continued confidence in our strategic trajectory .

Jonathan Witter: At the same time, we are reaffirming all other elements of our 2025 outlook, including originations growth, net charge-offs, and non-interest expense metrics, reflecting continued confidence in our strategic trajectory. With that, Pete, why don't we go ahead and open up the call for some questions?

Speaker #2: With that, Pete, why don't we go ahead and open up the call for some questions?

Speaker #4: The floor is now open for questions. At this time, if you have a question or comment, please press star one on your telephone keypad.

Operator: The floor is now open for questions. At this time, if you have a question or a comment, please press star one on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing star two. Again, we ask that you pick up your handset when posing your questions to provide optimal sound quality. Thank you. Our first question is coming from Moshe Orenbuch with TD Cowen. Your line is open.

Speaker #4: If at any point your question is answered, you may remove yourself from the queue by pressing star two. Again, we ask that you pick up your handset when posing your questions to provide optimal sound quality.

Speaker #4: Thank you. Our first question is coming from Moshe Orenbuch with TD Cowan. Your line is open.

Speaker #5: Great . Thanks . I guess maybe two two thoughts and questions . The first , I guess , is is there a way to kind of think about the performance of , you know , of the current delinquency ?

[Analyst 1]: Great, thanks. I guess maybe two thoughts and questions. The first, I guess, is, is there a way to kind of think about the performance of the current delinquency out a little further than the end of the year? I know it's not your custom to give guidance past the current year, but we've looked at roll rates and we see that they've gotten somewhat better, but there has been some concern about the level of delinquency. Could you, is there any way to kind of give us a sense as to how you expect the current book to perform over the next several quarters?

Speaker #5: You know , out a little further than , you know , the , the end of the year ? I guess . I know it's not your custom to give guidance past the current year , but , you know , and we've looked at roll rates and we see that they've gotten somewhat better .

Speaker #5: But there has been some concern about the level of delinquency . So could you is there any way to kind of give us a sense as to how you expect , you know , that , you know , if the current book to perform over the next several quarters .

Speaker #3: Moshe Speed here . I think , look , we've we've been really pleased with the performance of the loan mod programs . We we are encouraged by the stability we've seen in terms of new entrants to the programs that we've seen over the last few quarters .

Pete Graham: Yeah, Moshe, it's Pete here. I think, look, we've been really pleased with the performance of the loan mod programs. We are encouraged by the stability we've seen in terms of new entrants to the programs that we've seen over the last few quarters. Given the seasonality of our business, yes, early-stage delinquencies ticked up a little bit in this quarter, but we don't view that as anything troubling in terms of longer-term trends. We expect to continue to see stability in the late-stage delinquencies and our roll rates. You know, we're comfortable with the guidance we've given through the end of this year, and we continue to believe that that kind of high 1s, low 2% net charge-off rate is the right way to think about us over a longer term.

Speaker #3: You know , given the seasonality of our business . Yes . You know , early stage delinquencies ticked up a little bit in this quarter .

Speaker #3: But we don't view that as anything troubling in terms of longer term trends . And we expect to continue to see stability in the late stage delinquencies .

Speaker #3: And our roll rates . And so , you know , we're comfortable with the guidance we've given through the end of this year .

Speaker #3: And we , you know , continue to believe that that kind of high ones , low 2% net charge off rate is the right , right way to think about this over a longer term .

Speaker #5: Got it . And obviously , you know , the your new , you know , partner in terms of this sale is obviously also I would assume , given that some thought .

[Analyst 1]: Yeah. Obviously, you know, your new partner in terms of this sale is also, I would assume, given that some thought. Is there any way to give us any further texture around how to think about that sale and how, you know, what the terms would be like?

Speaker #5: Is there any way to give us any further texture around how to think about the , you know , that sale and you know , and how you know what the terms would be like .

Speaker #3: You know , again , we're still in final , you know , sort of the final stretch of the deal coming together . And , you know , we'll release , you know , appropriate level of detail when we when we complete that and we look forward to talking in more detail about what that means for the future as we go into the the investor forum .

Pete Graham: We're still in the final stretch of the deal coming together. We'll release the appropriate level of detail when we complete that. We look forward to talking in more detail about what that means for the future as we go into the investor forum, as John said.

Speaker #3: As John said .

Speaker #5: Got it . Thank you .

[Analyst 1]: Got it. Thank you.

Speaker #4: We'll take our next question from Jeff Adelson with Morgan Stanley. Your line is open.

Operator: We'll take our next question from Jeff Adelson with Morgan Stanley. Your line is open.

Speaker #6: Hey , good morning . Thanks for taking my question . I mean , good evening . Sorry . It's been a long day for taking my question .

[Analyst 2]: Hey, good morning. Thanks for taking my question. I mean, good evening. Sorry. It's been a long day. Thanks for taking my question. I just wanted to circle back on the modification question. I recognize that the pace of modifications has slowed. If we look at the 10-Q disclosure on the payment status table, the volume of modifications over the past 12 months has come down a lot. If we do look at that table, it does seem like there's a higher percentage of 12-month mods rising on a delinquency basis. Maybe some color there. Nick, how are you thinking about the rolloff of those modifications as borrowers are graduating out over the next 12 months?

Speaker #6: Just wanted to circle back on the modification question . Listen , I recognize that the pace of modifications has slowed . And , you know , if we look at the 10-q disclosure on the payment status table , you know , the volume of modifications over the past 12 months has come down a lot .

Speaker #6: But if we do look at that table, it does seem like there's a higher percentage of 12-month mods rising on a delinquency basis.

Speaker #6: So, just maybe some color there. And how are you thinking about the roll-off of those modifications as, you know, borrowers are graduating out over the next 12 months?

Speaker #3: Yeah . Again , I we're happy with the performance of people in the mods . You know , for those that have been in for for 12 months or longer .

Pete Graham: Yeah. We're happy with the performance of people in the mods. For those that have been in for 12 months or longer, there's strong payment patterns amongst that cohort. We believe that these programs have been successful in helping people through a period of stress and to establish positive payment patterns. We're optimistic as we look to those first graduating wave from these that will have a high degree of success. That's something that we're keeping an eye on.

Speaker #3: There's strong , you know , sort of payment patterns among amongst that cohort . And we believe that , you know , these programs have been successful in helping people through a period of stress .

Speaker #3: And , you know , to establish positive payment patterns . And so , you know , we're we're optimistic as we look to those , you know , sort of first graduating wave from these that will have a high degree of success .

Speaker #3: And that's something that we're keeping an eye on.

Speaker #6: And just on the partnership opportunity, any sort of early details you can give us ahead of the investor forum later this year?

[Analyst 2]: On the partnership opportunity, any sort of early details you can give us ahead of the investor forum later this year? Maybe any sort of insight into the economics, length of the terms, and you know, are you going to potentially be starting to use some of the current book, or will that be more for the forthcoming opportunity with Plus Reform going away? Any sort of high-level commentary on how that might shift economics?

Speaker #6: Just maybe any sort of insight into the economics length of the terms . And , you know , are you going to potentially be starting to use some of the current book or will that be more for the forthcoming , you know , opportunity with Grad Plus going away and just any sort of like high level commentary on how that might shift economics ?

Speaker #3: Yeah . You know , again , we're close to being done , but we're not done . So can't share too much detail .

Pete Graham: Yeah. Again, we're close to being done, but we're not done. I can't share too much detail. We've said pretty consistently that we were looking to establish a multi-year arrangement with a strategic partner, and that still holds true. I think if you consider John's comments around our revision of guidance, the fact that we're designating a portion of our portfolio of loans as held for sale as we go into the fourth quarter, that's an indicator that we have loans in the current book that are going to be part of it.

Speaker #3: We've said pretty consistently that we are looking to establish a multi-year arrangement with a strategic partner, and that still holds true.

Speaker #3: I think if you consider , you know , John's comments around our , you know , revision of guidance , the fact that we're designating a portion of our portfolio of loans as you know , held for sale as we go into the end of the fourth quarter , that that's an indicator that we have loans in the current book that are going to be part of it .

Speaker #6: Okay . Thank you .

[Analyst 2]: Okay, thank you.

Speaker #3: Yeah .

Pete Graham: Yeah.

Speaker #4: We'll move next to Mark DeVries with Deutsche Bank. Your line is open.

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

Speaker #5: Yeah .

Speaker #7: Thanks . I had a follow up question on Moshe's . First question about kind of the the outlook for credit given where we are with the delinquency trends .

[Analyst 1]: Yeah, thanks. I had a follow-up question on Moshe's first question about the outlook for credit given where we are with the delinquency trends. I get that, I think you indicated roughly 25 basis points of the delinquencies are due to changes in eligibility for the loan mods, but that would still imply we're up year over year on, I think you commented on stable, not necessarily improving roll rates. Is it still right to assume that delinquencies at best are, I mean, charge-offs as we look forward are going to be flat, if not slightly higher, just given we're up year over year on delinquencies net?

Speaker #7: I mean , I get that I think you indicated roughly 25 basis points of delinquencies are due to kind of changes in eligibility , you know , for the loan mods , but that would still imply we're kind of up year over year on .

Speaker #7: I think you commented on stable , not necessarily improving roll rates . So is it is it still right to assume that delinquency is at best are kind of , I mean , charge offs as we look forward are going to be kind of flat , if not slightly higher , just given we're up year over year on delinquencies , net .

Speaker #2: Yeah , Mark , it's John I'm not sure I have a lot to add over what Pete said to Moshe , but look , I think if you look at the overall delinquency trend , I think the change in program terms really accounts for the majority of the change .

Jonathan Witter: Yeah, Mark, it's Jonathan. I'm not sure I have a lot to add over what Pete said to Moshe. If you look at the overall delinquency trend, I think the change in program terms really accounts for the majority of the change in delinquency rate year over year. We obviously have a methodology for figuring that out that points to the specific cases that we know with certainty. By the way, there's a sort of confidence band around that. It could be even a little bit higher. I sort of consider delinquencies to be plus or minus flat within normal operational variability that we're seeing in the book. I think, as Pete said, we feel pretty comfortable about the roll rates being consistent and flat, and the performance of the mods. As I mentioned, we are certainly in an ambiguous economic environment.

Speaker #2: And delinquency rate year over year . You know , we obviously , you know , have a methodology for figuring that out that points to , you know , the specific cases that we know with certainty .

Speaker #2: You know , by the way , I'm there's a there's a sort of confidence band around that it could be , you know , it could be even a little bit higher .

Speaker #2: But I sort of consider delinquencies to be sort of plus or minus flat within , you know , sort of normal operational variability that we're seeing in the book .

Speaker #2: And I think , as Pete said , you know , we feel pretty comfortable about the roll rates being consistent and flat . You know , and the performance of the mod .

Speaker #2: So , you know , as I mentioned , you know , we are certainly in an ambiguous economic environment . It's hard to make predictions , you know , now , you know , 15 months out , if you start to think about the end of next year .

Jonathan Witter: It's hard to make predictions now, 15 months out if you start to think about the end of next year. We're not going to do that here today. I think we continue to feel confident in the long-term through-the-cycle metrics that we laid out before, the 1.9 to 2.1 numbers that have been commonly cited. I think we believe that we're delivering on those commitments pretty well and are excited to continue that progress next year.

Speaker #2: So we're not going to do that here today . But I think we continue to feel confident in sort of the long term through the cycle sort of metrics that we laid out before the 1.9 to sort of 2.1 numbers that have been commonly cited .

Speaker #2: And I think we believe that , you know , we're delivering on those commitments pretty well . And , you know , are excited to , you know , continue that progress next year .

Speaker #7: Okay . Fair enough . Ninjas turning to you know , I think the marketing strategy that you talked about being kind of the the reason that you had to kind of reduce the origination guidance for this year .

[Analyst 1]: Okay. Fair enough. Just turning to, you know, I think the marketing strategy that you talked about being kind of the reason that you had to reduce the origination guidance for this year. Are these strategies that you've revisited in potentially looking for ways to re-accelerate origination growth as we look into 2026?

Speaker #7: Are these strategies that you've kind of revisited in potentially looking for ways to kind of reaccelerate origination growth as we look into 2026?

Speaker #2: Yeah , I mean , I think , Mark , a couple of thoughts . One , you know , I think we put up over 6% origination growth for the quarter year over year .

Jonathan Witter: Yeah. I mean, I think, Mark, a couple of thoughts. One, I think we put up over 6% origination growth for the quarter year over year. That's really strong, and I think attractive origination growth, and I think probably fares and compares well with what a lot of other consumer credit-oriented companies would do. One, I don't think we're making any apologies for the level of originations growth that we've seen. Two, as I think Pete shared at a conference earlier this fall, there are gives and gets every year in how we think about originations growth. We every year strive to be better, more efficient, more effective in our marketing. I think we've done that. You've seen that in our cost of acquisition coming down over time.

Speaker #2: That's really that's really strong . And I think attractive origination growth . And I think probably fares and compares well with , you know what a lot of other consumer credit oriented companies would do .

Speaker #2: So one , I don't think we're making any apologies for the level of originations growth that we've seen . You know , two , as I think Pete shared , at a conference earlier this fall , you know , there's gives and gets every year in how we think about originations growth .

Speaker #2: We every year strike to or strive to be , you know , better , more efficient , more effective in our marketing . I think we've done that .

Speaker #2: You've seen that our cost of acquisition has been coming down over time. We've also been really thoughtful about ways that we can continue to hone and refine our underwriting models to make sure that we are getting the very best type of customer that we can, and the ones that will really maximize our ROIs.

Jonathan Witter: We've also been really thoughtful about ways that we can continue to hone and refine our underwriting models to make sure that we are getting the very best type of customer that we can and the ones that will really maximize our ROEs. I think Pete shared that over the last three or four years, we've taken roughly $600 million to $700 million a year out of our annual originations. The growth rates that we're talking about, which I think are really attractive growth rates, are happening simultaneously to us improving pretty dramatically the quality of our originations. I think that's a trade our investors really do like and should like. That's value creation. I think this year we had a plan that we thought would get us to slightly higher originations growth in light of the headwinds of those underwriting changes. I think we executed most of it.

Speaker #2: And I think Pete shared , you know , that over the last 3 or 4 years , you know , we've taken , you know , rough justice , 6 to $700 million a year out of our annual originations .

Speaker #2: So , you know , the growth rates that we're talking about , which I think are really attractive , growth rates are happening , happening simultaneously to us improving pretty dramatically .

Speaker #2: The quality of our originations, I think that's a trade. Our investors really do like and should like. That's value creation.

Speaker #2: I think this year , you know , we had a plan that we thought would get us to slightly higher originations growth in light of the headwinds of , you know , sort of those those underwriting changes .

Speaker #2: I think we executed most of it . We didn't quite get all of it . But again , I think we believe we are on a trajectory and we've built a marketing machine that will allow us to continue to times , potentially grow our already industry leading market share .

Jonathan Witter: We didn't quite get all of it, but again, I think we believe we are on a trajectory and we've built a marketing machine that will allow us to continue to sometimes potentially grow our already industry-leading market share. We see no reason to believe that we won't continue our successful growth next year. We look forward to not only competing for the traditional business we have, but quite frankly, also competing very hard for the emerging Plus Reform opportunity as it.

Speaker #2: We see no reason to believe that we won't continue our successful growth next year , and we look forward to not only competing for the traditional business we have , but quite frankly , you know , also competing very hard for the emerging plus opportunity as it .

Speaker #2: .

Speaker #7: Got it. Thank you.

[Analyst 1]: Got it. Thank you.

Speaker #4: We'll take our next question from Terry Ma with Barclays. Your line is open.

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

Speaker #5: Hey .

Speaker #7: Thank you. I just wanted to follow up on credit.

[Analyst 3]: Thank you. I just wanted to follow up on credit. I just think simplistically, historically, there's a positive correlation between delinquencies and net charge-offs. If we sit here today and look at the 4%, is there any color you can give us on why that wouldn't imply maybe higher charge-offs for 2026?

Speaker #8: I just think simplistically , historically , there's a positive correlation between , you know , delinquencies and net charge offs . So if we sit here today and look at the 4% , like any color , you can kind of give us on , you know , like why that wouldn't kind of imply , you know , maybe higher charge offs for 2026 .

Speaker #3: Yeah , I think I covered it in my prior comments , Terry , that like , we feel like the combination of the low modification programs we put in place .

Pete Graham: Yeah. I think I covered it in my prior comments, Terry, that we feel like the combination of the loan modification programs we put in place are going to behave as we intended them to do when we designed the programs. What we're seeing so far with those programs is that we've got stable levels of late-stage delinquency, and the roll rates are stabilized as well. That's our expectation going forward. Again, barring any exogenous sort of market event, we feel like we're set up for success there. We've reconfirmed our guidance for this year, and we reconfirmed our longer-term read on destination net charge-off range. I'm not sure what more we can say.

Speaker #3: Are they going to behave as we intended them to do when we designed the programs? And what we're seeing so far with those programs is that we have stable levels of late-stage delinquency, and the rates are stabilized as well.

Speaker #3: So that's our expectation going forward . Again , barring any exogenous sort of , you know , market event , we feel like we're , you know , we're we're set up for success there .

Speaker #3: And we're reconfirmed our guidance for this year . And we reconfirmed our longer term , you know , read on . Destination net charge , off range .

Speaker #3: I'm not sure what more we can say.

Speaker #8: Okay . Fair enough . And I guess like in your deck , you mentioned Granddad . Originations are up 11% year over year .

[Analyst 3]: Okay. Fair enough. In your deck, you mentioned grad originations are up 11% year over year. Any color you can give us on what's driving that, whether it's behavioral changes from borrowers as a result of the bill that passed earlier, or are you just kind of gaining share? Thank you.

Speaker #8: Any color you can give us on kind of what's driving that , whether it's , you know , behavioral changes from borrowers as a result of , you know , the bill that passed earlier or you just kind of gaining share .

Speaker #8: Thank you .

Speaker #2: You know , Terry , we won't have share numbers for the quarter for , you know , for probably a another month plus on that .

Jonathan Witter: You know, Terry, we won't have share numbers for the quarter for probably another month plus on that. We have always had a grad business. It is one that in the grand scheme of all the grad business out there was relatively small because of the Grad Plus position from the government. There were only pockets where we felt like we could really profitably compete with the Grad Plus program. We have obviously, since Plus Reform was announced, started to pay a lot more attention to the opportunities to innovate in our graduate marketing. I think we felt like it was important to sort of continue to break out our sort of grad performance. My guess is the result is probably in part the change of a little bit of customer behavior. I think we don't quite know that yet, but it wouldn't surprise me.

Speaker #2: We have always had a grad business. You know, it is one that, in the grand scheme of all the grad businesses out there, was relatively small because of the Grad PLUS position from the government.

Speaker #2: You know , there were only pockets where we felt like we could really profitably compete with the grad Plus program . We have , obviously , since plus reform was announced , started to pay , you know , a lot more attention to the opportunities to innovate in our graduate marketing .

Speaker #2: I think we felt like it was important to sort of continue to break out our, you know, sort of grad performance.

Speaker #2: And so , you know , my guess is the result is probably , you know , in part , the change of a little bit of customer behavior .

Speaker #2: I think we don't quite know that yet , but it wouldn't surprise me . I think it's also just a focus of , you know , us beginning to gear up and get ready for what we think will be a much larger opportunity ahead .

Jonathan Witter: I think it's also just a focus of us beginning to gear up and get ready for what we think will be a much larger opportunity ahead. We see it as an exciting opportunity for us, not only in next year's volume, which, given the phase-in of the Plus Reform, is going to be smaller, but really playing out here over the course of the next couple of years.

Speaker #2: But we see it as an exciting opportunity for us , not only in next year's volume , which , you know , given the phase in of the plus reform is going to be smaller .

Speaker #2: But really playing out here over the course of the next couple of years.

Speaker #5: Got it. Thank you.

[Analyst 2]: Got it. Thank you.

Speaker #4: We'll move next to Don Fandetti with Wells Fargo. Your line is open.

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

Speaker #5: Hi .

Speaker #7: Good evening . In terms of the recent credit and abs market volatility , do you think that's going to impact your gain on sale margins for the Q4 ?

[Analyst 3]: Hi, good evening. In terms of the recent credit and ABS market volatility, do you think that's going to impact your gain on sale margins for the Q4-Q1 production? Is the 7% this quarter sort of a good base-level run rate?

Speaker #7: What is the Q1 production? And is the 7% this quarter sort of a good base level run rate?

Speaker #3: Yeah . You know , I think what I would say there is , you know , there's a there's different phases in the cycle .

Pete Graham: Yeah. I think what I would say there is, you know, there's different phases in the cycle. We've done, over time, pretty successful loan sales over a multi-year period in kind of that sort of mid to high single-digit range. Sometimes we've gotten above that. Sometimes we're a little below that. I think it's really tied to where spreads are in general at any point in time when we're executing a trade. At the margins, it can also be impacted by the implied structure that the purchaser is intending to use for their leverage takeout as well.

Speaker #3: We've done over time . You know , pretty successful loan sales over a multiyear period and kind of that sort of mid to high single digit range .

Speaker #3: Sometimes we've gotten above that . Sometimes we're a little below that . But I think , you know , it's really tied to kind of where spreads are in general at any point in time when we're when we're executing a trade at the margins , it can also be impacted by , you know , the implied , you know , structure that the purchaser is intending to use for their leverage takeout as well .

Speaker #7: Got it. Thank you.

[Analyst 2]: Got it. Thank you.

Speaker #4: We'll take our next question from Sanjay Sakhrani with KBW. Your line is open.

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

Speaker #9: Thank you, Pete. I just wanted to make sure I understood sort of the fourth quarter impact on moving those loans to held for sale.

[Analyst 4]: Thank you. Pete, I just wanted to make sure I understood the fourth quarter impact on moving those loans to held for sale. Does that mean that you recognize, do you move provisions over? I'm just trying to think about, it has an earnings benefit, correct? It's not the actual gain on sale that you recognize?

Speaker #9: Does that mean that you sort of recognize? Do you move provisions over? I'm just trying to think about, like, it has an earnings benefit.

Speaker #9: Correct. It's not the actual gain on sale that you recognize.

Speaker #3: Correct . So when the accounting for held for sale is essentially a , a lower , lower of cost or market . So to the extent you expect a premium , you don't really have a change in the value of the loans themselves .

Pete Graham: Correct. When you do the accounting for held for sale, it is essentially a lower cost of market. To the extent you expect a premium, you don't really have a change in the value of the loans themselves. You can continue to carry them at their, you know, sort of par basis for lack of a better term. To the extent they're in held for sale, you don't have to put a CECL provision against them. The impact that we've reflected in our updated guidance is the release of that provision.

Speaker #3: You can continue to carry them at their sort of , you know , par basis , for lack of a better term . And then to the extent they're in held , held for sale , you don't have to put a Cecl provision against them .

Speaker #3: So the , the impact that that we've reflected in our updated guidance is the release of that provision . .

Speaker #9: Got it . And is there any way to sort of dimensionalize that as far as sort of what the contribution was to the annual guide ?

[Analyst 4]: Is there any way to sort of dimensionalize that as far as sort of what the contribution was to the annual guide?

Speaker #3: Again , you'd need to know the exact amount of loans that have been reclassified , which we haven't disclosed . And it's roughly the the Cecil reserve rate that that we talk about each quarter that gets released .

Pete Graham: You'd need to know the exact amount of loans that have been reclassified, which we haven't disclosed. It's roughly the CISL reserve rate that we talk about each quarter that gets released.

Speaker #9: Okay, you guys haven't disclosed that yet—what you've reclassified.

[Analyst 4]: Okay. You guys haven't disclosed that yet, what you've reclassified?

Speaker #7: Correct ?

Speaker #9: Okay . And then Jon , just one , one follow up on this repayment wave that's coming through in November . Obviously lots of discussion about graduates and the challenging job market .

Pete Graham: Correct.

[Analyst 4]: Okay. John, just one follow-up on this repayment wave that's coming through in November. Obviously, lots of discussion about graduates and the challenging job market. I mean, is there any, I know all the commentary that you had was pretty constructive in terms of what you're seeing. Do you guys have any foresight into sort of how those cohorts will behave as they come into repayment, or is that sort of a point of squirmage type of opportunity, you know, event? Thanks.

Speaker #9: I mean, is there any I know all the commentary that you have was pretty constructive in terms of what you're seeing.

Speaker #9: I mean , do you guys have any foresight into sort of how those cohorts will behave as they come , into repayment , or is that sort of a point of scrimmage type of opportunity ?

Speaker #9: You know, event? Thanks.

Speaker #2: Yeah . Sanjay . Great . Great question . And look , I read , you know , all the same stories that I'm sure you and others read and , you know , sort of see the same facts .

Jonathan Witter: Yeah. Sanjay, great, great question. Look, I read all the same stories that I'm sure you and others read and sort of see the same facts. Let me see if I can paint a little bit of a picture here. I would start by saying, the period where students graduate and transition into their adult lives, we know is always has been, and I suspect always will be, one of the most difficult periods in their life. That's reflected by the fact that, rough justice, half of all financial distress that we see, and this has been true, Sanjay, for many, many years, happens in that first year or two after they finish their higher education experience and enter repayment. This is always the time where unemployment is higher. This is always the time where financial distress is a little bit higher. By the way, that's our business.

Speaker #2: Let me let me see if I can paint a little bit of a , of a picture here . But , you know , I would start by saying the period where students graduate and transition into their adult lives , you know , we you know , we know is always has been .

Speaker #2: And I and I suspect always will be , you know , one of the most difficult periods in , you know , sort of their life .

Speaker #2: And that's reflected by the fact that , you know , rough justice , half of all financial distress that we see . And this has been true for many , many years happens in that first year or two .

Speaker #2: You know , after they finish their higher education experience and enter repayment . So , so this is always a time where , you know , unemployment is higher .

Speaker #2: This is always the time when financial distress is a little bit higher. And, by the way, that's our business. That's why we built the programs we built.

Jonathan Witter: That's why we built the programs we built. That's why we're really expert in sort of understanding how to market to and educate our students and their cosigners about the transition to higher education and the like. It's a known period of sort of performance importance for us. That's sort of thought number one. Thought number two is if you go back and you look at what's been going on with early graduate unemployment rates. Think about students who are sort of 20 to 24 years old. If you take out the COVID year or two, which was obviously unusual, what we have seen for the last three or so years is early, kind of graduate unemployment rates are slightly elevated from where they were pre-COVID.

Speaker #2: That's why we're, you know, really experts in sort of understanding how to market to and educate our students and their co-signers about the transition to higher education and the like.

Speaker #2: It's a it's a known period of sort of performance , you know , importance for us . So that's sort of thought , number one , you know , thought number two is if you go back and you look at what's been going on with early graduate unemployment rates , so think about students who are , you know , sort of 20 to 24 years old , you know , and if you take out the Covid , you know , year or two , which was obviously unusual , you know , what we have seen for the last three or so years is , you know , early kind of graduate unemployment rates are slightly elevated from where they were pre-COVID .

Speaker #2: What's really interesting is , despite all the stories of , you know , sort of gloom and doom for the current graduating class , you know , the , the current unemployment rate for early stage graduates is only up about ten basis points over last year .

Jonathan Witter: What's really interesting is despite all the stories of sort of a gloom and doom for the current graduating class, the current unemployment rate for early-stage graduates is only up about 10 basis points over last year. That's even smaller on a percentage basis than what you might imagine. I'd encourage you to go back and look at the data for yourself. While I said earlier in my prepared remarks that we are certainly living in, I think my term was ambiguous economic times, I think I was also pretty clear in saying we just haven't seen that yet in our operating results. Now, as the leader of a credit-oriented company, I'm not ever going to tempt fate by sort of trying to predict what the future economic environment is going to be like. I think we would say the unemployment story is always a challenge.

Speaker #2: And that's even smaller on a percentage basis than what you might imagine. I'd encourage you to go back and look at the data for yourself.

Speaker #2: And so , you know , while I said earlier in my prepared remarks that , you know , we are certainly living in , I think my term was ambiguous , economic times , I think I was also pretty clear in saying we just haven't seen that yet .

Speaker #2: You know , in our operating results . Now , you know , as the leader of a , you know , a credit oriented company , I'm not ever going to tempt fate by sort of trying to predict what the future economic environment is going to be like .

Speaker #2: But I think we would say , you know , the unemployment story , you know , is is always a challenge . We are really well prepared and suited to manage it .

Jonathan Witter: We are really well prepared and suited to manage it. The impacts year over year, I think, are not what maybe is the popular perception out there. I think the data tells a pretty clear story. We haven't seen it in our performance, but we're not taking that for granted. We are continuing to work really constructively with our borrowers. We're continuing to up our outreach program for soon-to-be graduates to really help ease their transition into repayment because we do view this as a really important performance moment for us and, more importantly, a really important moment for our students and their families and helping them be successful in this transition.

Speaker #2: The impacts year over year , I think , are not what maybe is the popular perception out there . And I think , you some of the data tells a pretty clear story and we haven't seen it in our performance , but we're not taking that for granted .

Speaker #2: We are continuing to work really constructively with our borrowers . We're continuing to up our outreach program for soon to be graduates , to really help ease their transition into repayment , because we do view this as a really important performance moment for us , and really more importantly , a really an important moment for our students and their families .

Speaker #2: And helping them be successful in this transition.

Speaker #9: Okay , great . Thank you so much .

[Analyst 4]: Okay, great. Thank you so much.

Speaker #4: We'll move next to Rick Shane with J.P. Morgan. Your line is open.

Operator: We'll move next to Rick Shane with J.P. Morgan. Your line is open.

Speaker #5: Hey guys . Thanks for taking .

Speaker #10: My question . This afternoon . A couple things . Look , the decision to sell loans in the fourth quarter , doing some rough math .

[Analyst 5]: Hey, guys. Thanks for taking my question this afternoon. A couple of things. Look, the decision to sell loans in the fourth quarter, doing some rough math, it looks a little bit different from what you guys outlined strategically two years ago in terms of growing the book a little bit faster and reducing or at least keeping flat the actual dollar volume of loans sold. I'm curious what shifted in your thinking there. I want to make sure I understand the answer to Sanjay's question because it sounds like there are basically two scenarios here. One scenario where loans are held for sale, you release the reserves, but you don't recognize the gain on sale. The second scenario is you complete the sale and you get both the gain on sale and the reserve release.

Speaker #10: It looks a little bit different from what you guys outlined strategically two years ago, in terms of growing the book a little bit faster and reducing, or at least keeping flat, the actual dollar volume of loans sold.

Speaker #10: So I'm curious , sort of what shifted in your thinking there . And then I want to make sure I understand the answer to Sanjay's question , because it sounds like there are basically two scenarios here .

Speaker #10: One scenario where loans are held for sale is when you release the reserves, but you don't recognize the gain on sale. The second scenario is when you complete the sale and you get both a gain on sale and the reserve release.

Speaker #10: Given where gain on sale margins are , it would seem that the variance between those two scenarios is significantly more greater than the variance between the high end and low end of your guidance .

[Analyst 5]: Given where gain on sale margins are, it would seem that the variance between those two scenarios is significantly greater than the variance between the high-end and low-end of your guidance. I'm trying to make sure I understand this fully.

Speaker #10: And so I'm trying to make sure I understand this fully.

Speaker #2: Yeah, Rick. Let me take those in reverse order, and I'll invite Pete at the end to jump in if I miss anything.

Jonathan Witter: Yeah. Rick, let me take those in reverse order, and I'll invite Pete at the end to jump in if I miss anything. We have not assumed anything in our guidance about a gain on sale. I think we said very clearly that the actual loan sale would happen either in the fourth quarter or in the first quarter. We don't know that timing yet. We felt like it was inappropriate for us to incorporate the gain into our outlook. There was nothing about the gain in our guidance. I think what we said was we expect to sort of conclude and to hopefully sign this deal here in the near term. When we do, we will identify the loans that will be a part of that initial deal.

Speaker #2: We have not assumed anything in our guidance about a gain on sale. I think we said very clearly that the actual loan sale would happen either in the fourth quarter or in the first quarter.

Speaker #2: We don't know that timing yet. We felt like it was inappropriate for us to incorporate the gain into our outlook.

Speaker #2: So there is nothing about the gain in in our guidance . I think what we said was , you know , we expect to sort of conclude and to hopefully sign this deal here in the near term .

Speaker #2: When we do , we will identify the loans that will be a part of that sort of initial deal . And as I think is appropriate and good accounting , we will therefore start to account for those loans differently at that time , regardless of whether or not the actual closing date for that sale has a 25 handle on it , or a 26 handle on it .

Jonathan Witter: As I think is appropriate and good accounting, we will therefore start to account for those loans differently at that time, regardless of whether or not the actual closing date for that sale has a 25 handle on it or a 26 handle on it. I hope that sort of answers your question. Again, we've tried to be as clear as we can be about that so that you can model it appropriately. I think in terms of your question.

Speaker #2: So, hopefully that answers your question. And again, we've tried to be as clear as we can be about that so that you can model it appropriately.

Speaker #2: I think in terms of your question, I'm sorry.

Speaker #10: I was about to say that's helpful. Basically, the reserve release is contemplated in that guidance, but you're not embedding a gain on sale.

[Analyst 5]: And.

Jonathan Witter: I'm sorry?

[Analyst 5]: That's helpful. Basically, the reserve release is contemplated in that guidance, but you're not embedding a gain on sale. If the deal closes in the fourth quarter, it's probably upside to the number.

Speaker #10: If the deal closes in the fourth quarter, it's probably upside to the number.

Speaker #2: Correct ?

Speaker #10: Okay .

Speaker #2: Thank you . In terms of of your question of sort of what strategically has changed , I think the answer , you know , in short form is nothing .

Jonathan Witter: Correct.

[Analyst 5]: Got it. Thank you.

Jonathan Witter: Rick, in terms of your question of sort of what strategically has changed, I think the answer, in short form, is nothing, but I think it's a little more complicated than that. We are still very, very committed to the strategy that we, the general strategy that we laid out at the investor forum two years ago in December, which is the idea of modest balance sheet growth in the bank, using loan sales to moderate that growth, still have aggressive return of capital and so forth. What I think has changed since then is really two things. One, Plus Reform, which, if you look at it when fully implemented, has the opportunity to increase our annual originations meaningfully. I think we've given all those numbers on past calls.

Speaker #2: But I think it's a little more complicated than that . We are still very , very committed to the strategy that we , you know , the general strategy that we laid out at the investor forum two years ago , December , which is the idea of modest balance sheet growth in the bank using loan sales to moderate that growth .

Speaker #2: You know, we still have aggressive return of capital and so forth. What I think has changed since then is really two things.

Speaker #2: One plus reform , which , you know , if you look at it , when fully implemented , has the opportunity to increase our annual originations meaningfully .

Speaker #2: And I think we've given all those numbers on past calls . You know , the other is , you know , both the growth in sort of size and sophistication of private credit and sort of our ability to think about creating a new sort of third funding leg of the stool , if you will , and sort of , you know , a real business around that .

Jonathan Witter: The other is both the growth in sort of size and sophistication of private credit and our ability to think about creating a new sort of third funding leg of the stool, if you will, and a real business around that. Our view is at one end of the spectrum, you've got growing the bank balance sheet, and that comes with really stable, high-quality earnings, but it also has a fairly high and heavy capital requirement to it. At the other end of the spectrum, you've got our traditional loan sale program, which we still really like, which is attractive earnings economics and very attractive capital characteristics, but a little bit more volatility in the earnings. I think you heard Pete talk about that a minute ago.

Speaker #2: And so , you our view is at one end of the spectrum , you've got , you know , growing the bank balance sheet .

Speaker #2: And that comes with really stable high quality , you know , earnings . But it also has a fairly high and heavy capital requirement to it .

Speaker #2: At the other end of the spectrum , you've got our traditional loan sale program , which we still really like , which , you know , is attractive earnings economics .

Speaker #2: But and very attractive sort of , you know , capital characteristics . But a little bit more volatility in the earnings I think , you know , you heard Pete talk about that a minute ago .

Speaker #2: I think what we believe we have the opportunity to create is something that's a little bit in the middle that has the potential of having sort of more stable long-term earnings.

Jonathan Witter: What we believe we have the opportunity to create is something that's a little bit in the middle that has the potential of having more stable long-term earnings. I think we've talked about this over time, the kinds of things that would be easier to model and manage, think about it almost in a sort of asset under management kind of construct. At the very same time, really attractive capital characteristics that go along with that. Rick, you've known us long enough to know that we really care about capital efficiency and capital return as our North Star. I think what you're hearing us talk about, and you've heard us talk about for the last three or four quarters, is we're excited about building sort of that third leg to our stool.

Speaker #2: I think we've talked about this over time . The kinds of things that would be easier to sort of model and manage , you know , think about it almost in a sort of asset under management , kind of construct , you know , at the very same time , really attractive sort of capital .

Speaker #2: You know , characteristics that go along with that . And , you know , Rick , you've known us long enough to know that we really care about capital efficiency and capital return as sort of our North Star .

Speaker #2: And so I think what you're hearing us talk about, and you've heard us talk about for the last 3 or 4 quarters, is we're excited about building sort of that third leg to our stool.

Speaker #2: And , you know , I think this is the right time for us to do it . As we're sitting here on the eve of plus reform , beginning .

Jonathan Witter: I think this is the right time for us to do it as we're sitting here on the eve of Plus Reform beginning. Yes, that probably will cause us to think a little bit differently about balance sheet growth levels over the next several quarters as we get that up and going. Make no mistake, nothing has changed in our strategy except we have an exciting third opportunity, which should only make it better.

Speaker #2: Yes , that probably will cause us to think a little bit differently about balance sheet growth levels . You know , here over the next several quarters , as we get that up and going .

Speaker #2: But make no mistake, nothing has changed in our strategy, except we have an exciting third opportunity, which should only make it better.

Speaker #10: Got it? Okay, I suspect we'll see a slide on this in a few months.

[Analyst 2]: Got it. Okay, I suspect we'll see a slide on this in a few months.

Speaker #2: I would hope so .

Jonathan Witter: I would hope so.

Speaker #10: Terrific. Thank you, guys.

Speaker #2: Thanks , Rick .

[Analyst 2]: Terrific. Thank you, guys.

Jonathan Witter: Thanks, Rick.

Speaker #4: We'll move next to Giuliano Bologna with Compass Point. Your line is open.

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

Speaker #3: Well .

Speaker #7: Thanks for .

Speaker #11: Your question . I appreciate a lot of the commentary around the new program . Maybe touching on on the on that and that program and the Liberty County around that , you know , I'm curious when you talk about the loans being moved to help or sell , is that just for the initial sale that you're planning , or is there or will you continue to roll loans into for sale as you keep executing for the program ?

[Analyst 3]: Thank you for the question. I appreciate a lot of the commentary around the new program. Maybe touching on that program and a little bit of the accounting around that. I'm curious, when you talk about the loans are being moved to held for sale, is that just for the initial sale that you're planning, or will you continue to roll loans into held for sale as you keep executing through the program? Will those go up more similarly to the current loan sales?

Speaker #11: But there's going up, you know, more similarly to the current loan sales.

Speaker #3: Yeah . So the the idea and the intent is to create a multi year partnership arrangement . The , the specific loans that we've identified are sort of the start of that relationship .

Pete Graham: Yeah. The idea and the intent is to create a multi-year partnership arrangement. The specific loans that we've identified are sort of the start of that relationship. Over time, we would have, ideally, some portion of our new originations that would go into this new partnership.

Speaker #3: And so, over time, we would ideally have some portion of our new originations that would go into this new partnership.

Speaker #11: That we have an ongoing flow of loans that just go directly into hell for sale at lower cost of market going forward.

[Analyst 3]: Yeah, that's very helpful. We should see kind of an ongoing flow of loans that just go directly into this, into, you know, held for sale at lower cost of market, going forward. When I think about the, you know, I realize that there are limitations in terms of how much you can say, but you know, in order to kind of get within the guidance range, it seems like it's, you know, you need to have a number that's by well into the $1 billion, even close to $2 billion that would have to move to, you know, held for sale in terms of the reserve releases. Is that, you know, wildly off base or, you know, am I in the, are we, am I thinking about the right zip code?

Speaker #11: And when I think about the , you know , I realize that there are limitations in terms of how much you can say , but in order to kind of get within the guidance range , it seems like it's , you know , you need to have a number that's by well into the one billions , even close to 2 billion .

Speaker #11: That would have to be moved to held for sale in terms of the reserve releases , is that wildly off base or , you know , I mean , are we am I thinking about the right zip code ?

Speaker #3: I mean , again , the simple math would be our reserve rate times . A notional number . So that it's probably about all I'm comfortable giving you on the call .

Pete Graham: I mean, again, the simple math would be our reserve rate times an emotional number. That's probably about all I'm comfortable giving you on the call.

Speaker #11: That's just one quick one . I realized that the questions come up a few times . There's obviously been a bit of a structural change in the way that you're approaching both forbearance modifications and how to how to deal with delinquencies .

[Analyst 3]: All right. That's all. Maybe just one quick one. I realize that the credit question's come up a few times. I mean, there's obviously been a bit of a structural change in the way that you're approaching both forbearance modifications and how to deal with delinquencies. We had a lot of commentary in terms of what you expect when it comes to the ultimate improvements. I'm curious, when you think about the overall kind of accounting impact, is the kind of lower usage of forbearance and higher usage of modifications post-COVID or in the current timeframes and going forward, something that will have a benefit when it comes to less interest rate reversals and that might move around the actual delinquency rate and benefit charge-offs over time?

Speaker #11: And you have, we have all the commentary in terms of what you expect when it comes to the ultimate improvements. I'm curious, when you think about the overall kind of accounting impacts, is the kind of lower usage of forbearance and higher usage of modifications.

Speaker #11: You know, post-Covid or in the current time frame, going forward, some of that will have a benefit when it comes to more or less interest rate reversals.

Speaker #11: And that might move around the actual delinquency rate . And , you benefits offs over time . Or is there a potential to charge offs might be higher , but you have less interest rate reversals because you're getting more loans to repay form and still benefiting on that basis ?

[Analyst 3]: Or is there a potential that charge-offs might be higher, but you're less interest rate reversals because you're paying more loans to reperform and still benefiting on a net basis?

Speaker #3: Yeah , I think if you if you take a few steps back and you look broadly at our use of forbearance as a tool to manage this stress in the early stage , repayment portion of the book , the overall levels of people enrolled in that , you know , forbearance prior to our change in practice compared to the overall level of people that are now in the Mod programs .

Pete Graham: I think if you take a few steps back and you look broadly at our use of forbearance as a tool to manage the stress in the early-stage repayment portion of the book, the overall levels of people enrolled in that forbearance prior to our change in practice compared to the overall level of people that are now in the mod programs, it's relatively consistent. It's not exactly like for like, but it's on order of magnitude, it's pretty consistent. What we substituted was short-term and judgmental usage of forbearance to manage stress, and forbearance meaning no payments are required, for a more programmatic tool that tries to adjust for where the borrower is in terms of their ability to make payments on the loan. We feel like these new programs that we have put in place are fit for purpose, so to speak.

Speaker #3: It's relatively consistent . It's not exactly like for like , but it's an order of magnitude . It's it's pretty consistent . But what we substituted was , you know , sort of short term and judgmental usage of forbearance to manage stress and forbearance , meaning no payments are required for a more programmatic tool that tries to adjust for where the borrower is in terms of their ability to make payments on the loan .

Speaker #3: And so , you know , we feel like these new programs that we have put in place are fit for purpose , so to speak , we believe that the metrics that we're seeing in terms of performance of borrowers in those programs are promising .

Pete Graham: We believe that the metrics that we're seeing in terms of performance of the borrowers in those programs are promising and give us comfort that they're designed appropriately. We believe that as these borrowers start to graduate out of those programs and step back into their contractual terms, we expect to see a high degree of success in doing that.

Speaker #3: And , you know , give us comfort that there their designed appropriately . And we believe that as these borrowers start to graduate out of those programs and step back into their contractual terms , we expect to see a high degree of success in doing that .

Speaker #11: I appreciate the time and answer all my questions. I'll jump back in the queue. Sure.

[Analyst 3]: I appreciate the time and the answers to all my questions. I'll jump back in the queue.

Speaker #4: We'll move next to Jon Arfstrom with RBC Capital. Your line is open.

Pete Graham: Great.

Operator: We'll move next to John Witter with RBC Capital. Your line is open.

Speaker #11: Thanks. Good afternoon, everyone.

[Analyst 1]: Thanks. Good afternoon, everyone.

Speaker #3: Hi , Joe .

Speaker #11: Hey, how are you thinking about buyback appetite at this point and the authorization as well?

Pete Graham: Hey, John.

[Analyst 1]: How are you thinking about buyback appetite at this point and the authorization as well?

Speaker #2: Hey John , it's Jon . You know , I think the way that I would say that is , first of all , we are delighted with how our buyback program has performed through the course of this year .

Jonathan Witter: Hey, John. It's John. I think the way that I would say that is, first of all, we are delighted with how our buyback program has performed through the course of this year. If you look at the numbers we just announced, we were obviously very active in the marketplace over the last couple of months during this period of dislocation. I think we bought back stock on attractive terms and had prices that I think when we look back in a month or two or a quarter or two, we're going to feel absolutely great about. We've obviously talked a lot about the partnership on this deal. We've talked a lot about the various gives and takes to our balance sheet and business model over the course of the next quarter or two.

Speaker #2: If you look at the numbers we just announced, we were obviously very active in the marketplace over the last couple of months.

Speaker #2: During this period of dislocation . And I think bought back stock on attractive terms . And , you know , at prices that I think when we look back in a month or two or a quarter or two , we're going to feel absolutely great about , you know , we've obviously talked a lot about the partnership on this deal .

Speaker #2: We've talked a lot about the various gives and takes to sort of our balance sheet and business model over the course of the next quarter or two.

Speaker #2: You know, I think our view is we will sit back as we, you know, get this partnership across the goal line.

Jonathan Witter: I think our view is we will sit back as we get this partnership across the goal line. We will look at the exact timing of that. We will determine what's our appetite to do additional share buybacks, how much of that we're going to do, and we'll set up our plan to execute that over the course of these incoming quarters. I can't comment today any more specifically on what it's going to be. I think we have to get through a couple of these moving pieces. I think you should expect, as has been the case for the last five years, we remain really committed to buying back our stock aggressively. It's something that we feel is an important thing that drives shareholder value, and we'll continue to do so at the time and in the quantity that we deem to be correct.

Speaker #2: We will look at the exact timing of that . We will determine , you know , therefore , you know , what's our appetite to do ?

Speaker #2: Sort of additional share buybacks . How much of that we're going to do . You know , and we'll set up our plan to , you know , to sort of execute that over the course of , you know , this in coming quarters .

Speaker #2: So I can't comment any more specifically on what it's going to be . I think we have to get through a couple of these sort of moving pieces , but I think you should expect , as has been the case for the last five years , we remain really committed to buying back our stock aggressively .

Speaker #2: It's something that we feel is an important thing that drives shareholder value, you know, and we'll continue to do so at the time.

Speaker #2: And in the quantity that we deem to be correct.

Speaker #11: Okay . Fair enough . And then just in optics question that that for percent delinquency rate , is that a . level that we should expect to .

[Analyst 1]: Yeah. Okay. Fair enough. And then just an optics question, that 4% delinquency rate, is that a level that we should expect to continue to trend up over time, or is it not clear, or is that not the right way to really look at it?

Speaker #11: ...continue to trend up over time, or is it not clear? Or is that not the right way to really look at it?

Speaker #3: Look , I think the we're this this quarter in particular is a seasonal , you know , sort of peak with the way that the repayment waves come through and , you know , so I would expect this to be kind of a high point in terms of delinquencies in any given year .

Pete Graham: Look, I think that this quarter in particular is a seasonal, you know, sort of peak with the way that the repayment waves come through. I would expect this to be kind of a high point in terms of delinquencies in any given year. In terms of absolute levels, again, we're not as concerned about what the absolute level is. What we're concerned about is, you know, what are the late-stage delinquency levels, what are the roll rates, and how does that, you know, implicate in terms of net charge-offs? We feel really good about the programs that we've designed and how they're performing.

Speaker #3: You know , in terms of absolute levels , again , we're we're not as concerned about what the absolute level is , what we're concerned about is , you know , what are the late stage delinquency levels and what are the roll rates .

Speaker #3: And how does that , you know , implicate in terms of net charge offs . And we feel really good about the programs that we've designed and how they're performing .

Speaker #11: Okay . And then if I can ask one more , John , for you just very big picture . The noise is kind of deafening on consumer health and students entering the job market .

[Analyst 1]: Okay. If I can ask one more, Jonathan, for you, just very big picture, the noise is kind of deafening on consumer health and students entering the job market and delinquencies. Do you feel like it's been a wild quarter, in your stock? Do you feel like we're all too pessimistic on the credit outlook? Are we overreacting to it, or do you have any thoughts on that, just bigger picture?

Speaker #11: And delinquencies. Do you feel like it's been a wild quarter in your stock? Do you feel like we're all too pessimistic on the credit outlook?

Speaker #11: Are we overreacting to it, or do you have any thoughts on that? Just a bigger picture?

Speaker #2: Yeah . John , you know , I'm not sure . I have a lot to add over the answer I gave earlier . You know , I think we have seen , you know , a relatively minimis change year over year in the unemployment rate of , you know , early , you know , early college grads or young college grads , you know , those kind of 20 to 24 , you know , I think I said in my prepared remarks that , you know , we have not yet seen this ambiguous economic environment translate into , anything that we sense as an inability for customers to not meet their financial obligations and commitments to Sallie Mae .

Jonathan Witter: Yeah, John, I'm not sure I have a lot to add over the answer I gave earlier. I think we have seen a relatively de minimis change year over year in the unemployment rate of early college grads or young college grads, those kind of 20 to 24. I think I said in my prepared remarks that we have not yet seen this ambiguous economic environment translate into anything that we sense as an inability for customers to not meet their financial obligations and sort of commitments to Sallie Mae. It's a little bit hard for me to say whether it's overblown or not. I'll just say we have not seen the results of some of the stories that have been proffered out there. It's obviously something that we take very seriously and we'll continue to watch for.

Speaker #2: You know , it's a little bit hard for me to say whether it's overblown or not . I'll just say we have not seen , you know , we have not seen the results of some of the stories that , you know , have been proffered out there and , you know , it's obviously something that we take very seriously .

Speaker #2: And we'll continue to watch for that. But, you know, the time of college graduation is always associated with higher unemployment and a little bit more financial distress.

Jonathan Witter: The time of college graduation is always associated with higher unemployment and a little bit more financial distress. I'm not sure that we're seeing anything right now that's particularly out of the ordinary from what we would expect to see.

Speaker #2: And I'm not sure that we're seeing anything right now that is particularly out of the ordinary from what we would expect to see.

Speaker #11: Thank you very much.

[Analyst 1]: Okay. Thank you very much.

Speaker #4: We'll move next to Caroline Lauda with Bank of America. Your line is open. Hi.

Operator: We'll move next to Caroline Lauda with Bank of America. Your line is open.

Speaker #12: I just wanted to ask, how are you guys thinking about the opportunity from the Plus program and other federal government policy changes?

[Analyst 6]: Hi, I just wanted to ask, how are you guys thinking about the opportunity from the Plus Reform and other federal government policy changes?

Speaker #2: Yeah . Caroline , I probably won't do it justice here today . I think we see it , you know , as as an important opportunity for the private student lending market to step in and help support families and students through sort of this time of transition .

Jonathan Witter: Yeah, Caroline, I probably won't do it justice here today. I think we see it as an important opportunity for the private student lending market to step in and help support families and students through this time of transition. We gave some numbers on the last call of what we thought that could be worth in terms of annual origination changes to us when fully implemented. I think we were thinking about that, if memory serves, in the $4 to $5 billion range. That will not all be recognized in year one. The Plus Reform phases in each year. If you're enrolled in a program and you've taken a loan before, I think it's July 1 of next year, you're grandfathered in under the old program. That means it's really next year's undergraduate freshmen and graduate school first years that are under the new program.

Speaker #2: We gave some numbers on the last call of what we thought that could be worth in terms of, you know, annual origination changes to us.

Speaker #2: You know , when fully implemented . And , you know , I think we were thinking about that if memory serves in the sort of , you know , 4 to $5 billion range , that will not all be , you know , sort of recognized on year one , you know , the plus reform phases in sort of each year .

Speaker #2: So if you're enrolled in a program and you've taken a loan before, I think it's July 1st of next year. You're grandfathered in under the old program.

Speaker #2: So you know , that means it's really next year's undergraduate freshmen and graduate school . First years that , you know , are sort of under the new program .

Speaker #2: So, you have to sort of build it up over time based on the average length of expectancy of sort of each of those programs.

Jonathan Witter: You have to build it up over time based on the average length expectancy of each of those programs. If you go back and you look at some of the details we provided on the last call, I think you'll get a pretty good sense of that.

Speaker #2: But if you go back and look at sort of the details we provided on the last call, I think you'll get a pretty good sense of that.

Speaker #2: .

Speaker #12: Awesome . Thank you . And then maybe just a follow up , are you seeing any differences in how graduate loans are performing versus undergraduate loans in terms of like entry into delinquency and role rates ?

[Analyst 6]: Awesome. Thank you. Maybe just a follow-up. Are you seeing any differences in how graduate loans are performing versus undergraduate loans in terms of entry into delinquency and roll rates?

Speaker #2: Yeah , we we have a number of different grad programs . It is an apples to oranges comparison . All the different programs perform differently .

Jonathan Witter: We have a number of different grad programs. It is an apples-to-oranges comparison. All the different programs perform differently, but all of them are governed under the same kind of return and lifetime loss thresholds and standards that we hold. While the timing and the patterns might be a little bit different, the underlying decision and governance matrix and framework is the same. Yes, they're different on the surface, but we like those loans every bit as much as we like our other loans.

Speaker #2: But all of them are sort of governed under the same kind of return, and lifetime loss thresholds, and standards that we hold.

Speaker #2: So, you know, while the timing and the patterns might be a little bit different, the underlying sort of decision and governance matrix and framework is the same.

Speaker #2: So yes , they're they're they're different on the surface . But we like those loans every bit as much as we like our other loans .

Speaker #12: Okay. Thanks. That was very helpful.

[Analyst 6]: Okay, thanks. That was really helpful.

Speaker #2: Thank you .

Jonathan Witter: Thank you.

Speaker #4: This concludes the Q&A portion of today's call. I would now like to turn the floor over to Mr. John Witter for closing remarks.

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.

Speaker #2: Chloe , thank you . And thank you to everyone who joined today . We appreciate your ongoing interest in Sallie Mae . We look forward to speaking with all of you at the upcoming investor forum , which we will schedule here in the weeks ahead .

Jonathan Witter: Chloe, thank you. Thank you to everyone who joined today. We appreciate your ongoing interest in Sallie Mae. We look forward to speaking with all of you at the upcoming investor forum, which we will schedule here in the weeks ahead, but will happen before the end of the year. We obviously look forward to continuing the conversation as well next quarter. With that, Kate, we'll turn it over to you for some closing business.

Speaker #2: But what will happen before the end of the year? And obviously, I look forward to continuing the conversation as well next quarter. With that, we'll turn it over to you for some closing business.

Speaker #1: Thanks, John. Thank you all for your time and questions today. A replay of this call and the presentation will be available on the Investors page at Sallie Mae.

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

Speaker #1: If you have any further questions, feel free to contact me directly. This concludes today's call.

Speaker #4: Thank you. This concludes today's Sallie Mae third quarter 2025 earnings conference call and webcast. Please disconnect your line at this time and have a wonderful evening.

Operator: Thank you. This concludes today's Sallie Mae third quarter 2025 earnings conference call and webcast. Please disconnect your line at this time and have a wonderful evening.