Well, thank you everybody for being here. I wanna thank Jon for being here. Sallie Mae, the last slot of the 30th RBC conference.
The encore slot.
Yeah, this is the encore slot.
Yeah.
I, you know, I wanna say saved the best for last, but I think it's a dramatically undervalued company, and we're gonna try to get through some of the big objections-
Sure
...that people have.
Yeah.
I think it's probably best. There's a lot of generalist interest.
Yeah
I know there is from the sign-up sheet.
Yeah.
Give us a 30,000-foot view of what is Sallie Mae, and then we'll get to some of the other strategic objectives of the company from here.
Yeah. Jon, thank you, and thank you for the chance to be here. I know this is a huge event for you, and it's great, and we had wonderful meetings today, and appreciate all the support. For those of you who don't know Sallie, we are technically a 50+ year-old company, but the real sort of current version of the company is about 12 or 15 years old now, and we are predominantly a, or exclusively a private student lender. To put that in context, you know, our sort of position with customers is that they should find all the free money that they can to attend college. That could be family support, that could be scholarships, that could be grants.
They should then get all the subsidized money that they can, and then if there is a gap left at the end, those last dollars to make access to or completion of their higher education journey a reality, they should come to see us. The way that plays out practically, we will lend about $12,000-$13,000 per loan. An average customer will have about 1.5 loans with us.
It will take them about seven years to repay their loans, so this is very different from what you might hear about with some of the federal programs that are out there. In terms of student success, we know the vast majority of our customers are quite successful with the loan and with the product. We have about a 2% annual net charge-off rate, so comparatively low.
When we also do our surveying of customers, you know, we will hear a lot about sort of the last gap financing dollars really being that sort of final thing that put them over the edge in terms of being able to attend the college that they wanted to attend or earn the degree that they wanted to earn. Overall, a business that we're all really excited and passionate about. Almost every member of the management team has their own version of the story of how access to an education played a really pivotal and important role in their life, and we're really thrilled with the ability to pay that forward with our customers.
Good. Yeah, we just talked about that-
Yeah
...with mics off.
Yeah.
There's a lot to talk about going forward.
Yeah.
Just what are some of the things that you're the most proud of, that you've accomplished over the last few years?
You know, I've been CEO for six years and had the chance to work with a great group of team members and board colleagues, and I think there's three or four things that we're really proud of. First, we have built what I think is just an absolutely fabulous customer acquisition machine. We now form a client-initiated relationship with about 4 million customers a year.
That's roughly, you know, 2/3s of all the high school seniors and families who will matriculate the next year to college. And we help the vast majority of them with things that don't involve lending at all. And that could be access to scholarships, that could be access to, you know, other collateral or information to help them navigate this journey to, through, or after school.
It could be help with their federal loans and applications. We do that really because at the end of the day, we sort of stake our North Star on this notion of student success. You know, being that education solutions company, that one-stop shop for their needs is really important to us. You know, secondly, Jon, we've had a lot of fun really working on innovating and improving our core business.
Whether that's, you know, at the top end of the marketing funnel all the way through to, you know, how we work with borrowers who are in financial distress, we've been able to, I think, find really nice improvements to every aspect of the business, and that's driven down, you know, key metrics for us, like cost to acquire.
It's driven up our NIM over time. It's driven down our loss rates. So we're proud of that innovation in the core business. I think third, we've become a very trusted name in the broader policy circles around all things higher education. 2025 was clearly a year with lots of changes in the federal program. We like to think that we were a real voice of moderation and reason in those dialogues. We think we were credible with both sides of the aisle, and really making sure that we have, you know, responsible borrowing, you know, full access to and completion of higher education, is something that our views were sought out on.
Maybe, you know, last but certainly not least, we have been, I believe, real innovators in the area of capital allocation and capital return, and that through a variety of different strategies. The number I'm most proud of is in the last, you know, five and a half years, we've bought back roughly 55% of the shares outstanding of the company. That's generated, we think, really nice total shareholder returns over that period of time, and look to continue to be active in that space going forward.
Okay, great. If anyone has questions at all during the session, just put your hand up and we'll get them answered. There's obviously a lot of ground to cover.
Yeah, please.
There's a lot to talk about on Grad PLUS, and we'll get to that, but maybe touch on the Form 8-K that you filed after the close, and I don't wanna say that's legacy business in any kind of way, but talk about that just for a second.
Yeah, we've been active, and maybe I'll zoom out a little bit and put it into the broader context. We've been very active over the last two or three weeks in the capital markets. Things that were important to our business, but also things that I think during this time of market disruption really show the underlying value of the products that we provide.
We announced last week that we had completed our first on-book securitization of the year. We did that at pricing that was superior to inside pricing of our last deal. We were very proud of that. We thought that was, during a tumultuous market, a real indicator of sort of source of strength in our underlying assets.
On Monday of this week, we announced a $200 million accelerated share repurchase arrangement that in addition to share repurchase activity that we had already undertaken, you know, brought us up to about $300 million of delivered capital against our repurchasing stock at what we think are very attractive valuations.
You know, in that press release, sort of hinted at the fact that, you know, there was more work to be done. I would sort of think about, you know, that plan as really sort of the recalibration of the capital return we had planned already for this year. Again, we thought and we knew we could do more. Our great team, our capital markets team, went out into the market.
We executed a loan sale process. I'm happy to report that as of about midday today had reached indicative terms on a $2 billion loan sale that will be closed, if all goes according to plan, in the first quarter here of this year and included in our first quarter earnings results. I think the more important thing for this conversation, given this is really late-breaking news, is, you know, we had gotten board approval, you know, this first quarter for a $500 million share repurchase authorization split over two years.
That's not uncommon. That's what we've done historically. We now believe that with this loan sale agreement in place, you know, our expectation is that we will exhaust most, if not all, of that $500 million authority in calendar year 2026. Again, that gives us more tools to respond to this period of market dislocation that we're living in.
Okay. I'm like a kid in a candy shop. I mean, that's incredible.
You can take the big sucker behind the counter and go for it.
I haven't seen the Form 8-K. I've been up here for two and a half hours.
You're not hanging on every word we're putting out there.
Can you talk about the gains or what was the demand like?
Yeah, no, we're not gonna talk about the gains ahead of time. We never do that before the deal is closed and before we announce earnings. Suffice it to say, it is well in line with our expectations. We think it is sort of attractive economics in the grand scheme of sort of what we were planning for, and we're pleased with the outcome and more to come on that.
How about the securitization? How did that go generally?
Yeah, securitization, I think went great. You know, this was during, you know, some of the very most sort of intense periods of market dislocation and we, you know, ended up inside of our previous pricing and are thrilled with the execution on that. Several times oversubscribed, and so I think it really just couldn't have gone any better.
It's interesting because we're still pushing off Grad PLUS here.
Yeah.
You just executed a loan sale.
Yeah.
You just talked about a securitization being
Yeah
Nice and tight and clean and tidy.
Yeah.
At the same time, people are concerned about AI wiping out-
Yeah
the prospects of new college graduates and maybe even if you take it to the furthest-
Yeah
...extreme, the cosigners.
Yeah.
What's your answer to the threat of AI with the recent college grad job market?
Yeah
White-collar jobs in general?
Yeah. Jon, great question. First of all, I would be remiss if I didn't say this is not the first time we have seen dislocations between the equity markets and, you know, and the loan sale markets and fixed income markets as it relates to our name. You know, it doesn't happen all the time, but we've seen this movie before. You know, on the AI front, you know, to me, it's sort of a story in four parts. Number one, while I'm not a futurist, you know, we've obviously looked long and hard at the AI threat. I guess our emerging, you know, internal view is, AI is a powerful technology. It's clearly gonna reshape big parts of how the industry, all industries work.
It will clearly have an impact over time on how work gets done. I think it is our view that it, like many other technology innovations that have come before it, its evolution is gonna be more complex and more nuanced than maybe some of the sort of simple retorts that are out there. I think if you look you know over time you know there are always cases where you know innovation takes longer in some places, less long in others. There's always places where it causes disruption at the very same time it's causing advancements and opportunities in other places.
I think this notion of it's going to be nuanced, but I think our belief is, in aggregate, it's going to be a pro-cyclical, pro-business, you know, pro-economic set of innovations is really our, you know, kind of our working hypothesis. At the end of the day, you know, you can't make huge sectors of the economy more productive and not have the benefits of that productivity go someplace. I think that's one of the key messages that's been, you know, sort of lost in some of the, you know, some of the positions that's been put out there. Secondly, I think what we're already seeing though is schools, colleges, universities are responding.
They are, I think, understanding that their students are gonna need a different set of skills and a different set of capabilities going forward, and they are innovating with new programs, they're innovating with new support services around, you know, sort of employment. They're really, I think, looking long and hard at the affordability question within their university in ways that I've never seen before. This spirit of school innovation, I think, is really taking root and will be very positive for our business, but more importantly for students who are going to and completing their degrees. Third, I think we really underestimate the resilience of college grads and in particular new college grads.
You know, you think about this group, they're you know, trained, they're technologically savvy, they're hungry, they're scrappy, you know, and they are looking to go out there and to get started. I don't think you have to take my word for it. I think if you look at recent college grad unemployment rates, they really tell the story. If you rewind the tape, you know, to last spring, we had Independence Day, we had a lot of talk from companies about the early impacts of AI, a lot of talks about sort of cutting employment and hiring on campuses, and we saw that in the early grad unemployment rates. You know, they always spike over the summer as people graduate and then come down over time.
You know, at the height, you know, unemployment, college grad unemployment, recent college grad unemployment was sort of, you know, 1.3, 1.4 percentage points higher at the peak last summer than the year before, so 2025 versus 2024. You know, as of data that came out today, that gap has closed to 0.1%. You know, so, to put that into real terms, it's taking students this year about a month or maybe two longer to find a job than it did, you know, at the same time the year before. That's a level of resiliency that I'm not sure, you know, sort of the pundits get right when they talk about the big AI story.
I think sort of the final part I would put out there, Jon, is, we are as a company built to be successful in this model and continue to invest in that. You know, that's things like a 93% cosigner rate on our borrowers. That gives a tremendous amount of support to those students, and it gives us a tremendous amount of confidence in those loans. It's things like a, you know, 20%-25% ROE on our loans, which if we do hit an air pocket and have some higher credit exposure, unlike some other products, there's a lot of profitability there to absorb those losses while still being very high return and very attractive.
I think most importantly, over the last, you know, call it four years, we've taken really hard action that I'm not sure has always been fully appreciated to continue to really refine our underwriting approach. To put numbers on it, you know, depending on how you count it, we have reduced our annual origination somewhere between 10% and 15%, all with a focus on getting greater resiliency and credit performance within our book.
When I kind of take all of that together, I think the AI changes are likely to be more pro-economic, you know, sort of more, sort of spread out over time. I think schools are doing a great job responding. I think students are super resilient and scrappy and ready to get after it. I think we've put ourselves in a really good position to be able to be successful no matter which version of that AI narrative actually evolves. You know, for all those reasons, you know, I'm excited about what's ahead for us.
Okay. Good. Secondary markets are efficient.
Yep.
You did about $7.4 billion in originations.
Yeah.
Things are going well.
Yeah.
You're buying back a lot of stock, and then the market opens-
Yeah
... way up-
Yeah
...with the reform that's come out of Washington.
Yeah.
Talk a little bit about what's ahead for you, what's attractive about it, and just generally size and frame the Grad PLUS opportunity.
Yeah. For those of you who don't know, we put out some materials in our last earnings report. It gives a bit more of a detailed description of the exact Grad PLUS reforms. Jon, for the sake of time, I won't go through all of those, but suffice it to say, you know, it has effectively sort of capped and limited the federal government's involvement at both the sort of undergrad and grad level through the Parent PLUS and the Grad PLUS program.
As we have put that through what I think is a very deep and detailed credit sort of analysis and underwriting analysis, you know, we think that is, you know, you said it, $4.5 billion-$5 billion a year of annual originations, assuming our current credit box and, you know, obviously, if we did something different there, a chance to expand that opportunity. I think I would be remiss if I didn't say that I think the reform is important first and foremost because it makes the system healthier and better.
You know, there's a lot of evidence out there that the uncapped and unlimited federal lending was leading to, you know, higher levels of indebtedness than was probably healthy for these, students and families, and also very directly contributing to the rate of higher education inflation that I think has been haunting the sector, you know, probably for the last 30 years, but certainly for the last, you know, sort of five to 10 years. I think it's a positive step forward in terms of reforms. Probably more to be done there, but a positive first step forward. I think it means for us, we have the opportunity now to help support and serve a lot more customers.
You know, some of that business is very familiar to us and really very directly related to the particular undergrad business we have always done. Some of that business, you know, very much rides the same sort of chassis and rails, but will take some degree of incremental investment. But again, we think over the next three to four years, which is how long it will take for the reforms to fully mature and season in, you know, it will be a really nice increase to our annual originations, a really nice increase to our business as a whole, and represent the same commitment to high quality, high performing assets that we've always had.
Okay. To build out your infrastructure to take on-
Yeah
....some of this new volume, required a-
Yeah
...step function in investment, maybe?
Yeah.
I don't know if that's too strong of a term. Where are you in the process?
Yeah.
What do you think people maybe got wrong or misunderstood about what you had to do to take on another $5 billion, potentially $5 billion in originations?
Yeah. There's a little bit, which I think is investment in sort of ongoing sort of resources and capabilities, you know, and that's part of it. There's, you know, clearly some new products. There's clearly some new capabilities that we will need to have. I think the thing that's most understood, though, most misunderstood, is a lot of the increase in spending, in my mind, is really the result of the market, you know, sort of seasoning effect and growth effect, you know, as we phase in the reform. What do I mean by that?
Under the reforms, you know, you are only sort of capped in your access to federal programs if you start school later than this summer. Everyone who comes before that is still under the old program. What that means is, you know, this year we'll have one-fourth of all college students under the new program, and next year we'll have two-fourths or half, and then three-fourths, and then all. Same thing for the different graduate school programs. If you think about the effect of that ramp, though, you know, it impacts revenue in a couple of ways.
One, this year we'll only have one semester of originations, not two, under the new program. That's the difference between the academic year and the calendar year. That's pretty understandable. Two, you know, we know in our business, what we call securitization is a big deal. The most expensive thing that we do, for example, is to acquire that new customer the first time.
Having them take their second disbursement from us, having them come back to us their second year, their third year, is much more efficient from a marketing perspective. Well, if you think about it, in the first year, none of that securitization happens. There's a whole host, you know, maybe a dozen of these types of sort of forces at work that just cause the first couple of years to not be as efficient as, you know, it will be when fully implemented. We've tried to address that by being pretty declarative about where we see our efficiency ratio walk going. Today we have an efficiency ratio in the mid-thirties, which I would argue is pretty darn good.
I think in the worst of sort of this ramp-up, it will go to the high 30s%, which I think there's probably a bunch of my CEO banking colleagues out there who would take that in a heartbeat. But I think we believe that after we get through the ramp period, we will end up in the low 30s% around efficiency ratio. You know, net-net, a little bit of a price to pay for a couple of years, but we think all in service of an improved level of operating leverage and efficiency going forward.
Okay. Good. You feel like $5 billion is the number, that's the opportunity set that you have?
You know, we will always aspire to more, we will always aspire to serve more customers, we will always aspire to sort of challenge the contours of our credit box. I think we will learn a lot, Jon, in the first year, which will really start this summer, about where there is opportunity to sort of do more or different. Honestly, you know, a 70% increase in originations is pretty darn impressive in my book. If it ends up being, you know, 75% or 80%, so much the better. I think we're focused on making sure it's at least the 70%.
Are you hearing anything on competitors, the competitor reaction to this opportunity?
You know, it is important to say, first of all, it's a new market for everybody, right? This is, you know, a function of the federal government stepping out and creating new space for private enterprise to come in. We have certainly heard anecdotally through, you know, CEO comments and other interviews of folks intent to play here.
You know, we can see a little bit on the edges of, you know, what we suspect are various marketing tests and other programs that are starting to pick up in the marketplace. We are going into this with the full expectation that this will be, you know, a full-blown, you know, heavyweight competitive title fight.
I think a big part of why we wanna make sure we invest appropriately is we don't wanna show up unprepared and out of shape for that title fight. I am sure it will be a competitive market. We really like our advantages. We like the, you know, proprietary data and insight that we have around our underwriting models.
We like the relationships that we have with schools out there and sort of the access that we have to the financial aid offices. We think that gives us a real advantage. We think we have some really deep proprietary marketing channels and insights that will serve us well, and the list goes on. So we like our odds, but I'm sure it will be a competitive title fight.
Are there any nuances in terms of how you acquire the volume?
There are certainly nuances around how we acquire the volume. I think like many products today, this is a sort of a multi-touch, you know, acquisition strategy for all of our customers. We've talked about it before. I think we are really proud, and I mentioned at the beginning of that 4 million customer acquisition engine that we've built that in a really efficient way, with a very low CTA on that. That allows us to really start a dialogue with customers that we think will play out either on their undergraduate journey or eventually even on their graduate journey if they don't need us on the undergrad side.
Okay. Good. Touch briefly on the distribution model or how you handle all of these volumes-
Yep
..just for the benefit of people that may not understand it in terms of the partnership agreements.
Yeah. You know, historically there have been two ways that we have funded the growth in our business. We are, you know, a regulated bank. We have a, you know, a deposit franchise and, you know, sort of an attractive banking option there. At the other end of the spectrum, we have, you know, engaged over the last 5+ years in a pretty active loan sale process.
Each of those programs has advantages and disadvantages as most things in life. You know, the bank funding provides very stable, consistent, predictable, high quality earnings over time, but you maintain full risk ownership. You know, in our asset class, the loan loss reserves, the CECL costs, and the capital costs are high. There's a give and get.
The loan sale side has historically been great. Full transference of risk, nice premiums on the assets. That allows us to deploy capital and, you know, as I said earlier, buy back over half the company. The downside there is the earnings, the premium I think have been viewed as more volatile over time and perhaps, you know, sort of a lower, a lower cost of earnings, or there's a lower quality of earnings. We've kept an eye on this for a few years, but this fall we announced a strategic partnership with KKR. We love that partnership. We think it's a model for, you know, others that may evolve over time. We really liked it, Jon, because it was a bit of a hybrid between the two.
It was, you know, all of the, or much of the capital return and premium options of, and risk transference options of the loan sale, but it also provided sort of the opportunity for there to be, you know, ongoing economics in the loans over time. We really like that. That was important before PLUS reform. It became even more important after PLUS reform, because when you start to think about the ability to fund, you know, not $7 billion of originations or $7.5 billion, but $12 billion-$13 billion of originations, you know, several years out, having multiple different sources there of sort of funding and business arrangements just gives us a lot of options to optimize the mix.
Okay. Good. I do have a couple more questions, but does anybody have any? Okay, good. Credit is a topic. You guys have a pretty tight band for credit expectations for the upcoming year.
Yeah.
How are you feeling about credit in general? It's obviously on investors' minds. How do you feel about the trends?
Yeah. You know, we put out credit performance in 2025 that, you know, was in the, you know, sort of the midsection of our guidance range and kind of within the range of what we think is sort of the right long-term sort of credit expectations for the business. This year our guidance was very much focused on sort of a stable credit outlook. That's how we described it, and I think if you look at our guidance, you know, it very much fits into that.
You know, I think for us the big question has been, for those who know us, you know, we started a number of years ago a very different program around loan modifications and, you know, sort of how we treat and help and work with customers who are experiencing some degree of financial distress. Really, January was the first time we started to see what would happen when those customers rolled out of their loan modification programs and sort of began to enter back into sort of a normal, you know, a normal relationship with the company.
I wanna stress one and half months' worth of data is really not enough to draw any pattern and I'm, you know, I'm loath even to say it. Based on what we've seen to date, we, you know, we believe those are in line with actually slightly better than our expectations of how those customers would perform. It's, you know, here in early March. It's way too early to declare success. But we liked our position coming into the year, and the signs that we've seen so far seem to support that contention.
Okay. This is great. Anything we missed? Anything else you wanna touch on?
I think you hit all the really big ones, and I see we have 7- seconds left, so.
You have a train to catch. I'm ready to shut this down.
The bar is about to open.
Yes. 30th Annual Conference. I wanna thank you.
Yep
Very much for being here at the very end with us. A lot of good stuff-
Yeah
...happening with the company. Thank you very much, Jon.
Well, thank you. You've been a great host.