SLM Corp Q2 FY2025 Earnings Call

Welcome to the Sallie Mae Second Quarter 2025 Earnings Conference Call. I would now like to turn the call over to Kate deLacy, Senior Director and Head of Investor Relations.

Thank you, Chloe. Good evening, and welcome to Sallie Mae's Second Quarter 2025 Earnings Call. It is my pleasure to be here today with Jon Witter, our CEO; Pete Graham, our CFO; and Melissa Bronaugh, Managing Vice President of Strategic Finance. After the prepared remarks, we will open the call for questions. Before we begin, keep in mind our discussion will contain predictions, expectations and forward-looking statements. Actual results in the future may be materially different from those discussed here due to a variety of factors. Listeners should refer to the discussion of those factors in the company's Form 10-Q and other filings with the SEC. For Sallie Mae, those factors include, among others, results of operations, financial conditions and/or cash flows as well as any potential impacts of various external factors on our business. We undertake no obligation to update or revise any predictions, expectations or forward-looking statements to reflect events or circumstances that occur after today, Thursday, July 24, 2025. Thank you. And now I'll turn the call over to Jon.

Thank you, Kate and Chloe. Good evening, everyone. Thank you for joining us to discuss Sallie Mae's second quarter of 2025 results. I hope you'll take away three key messages today. First, we delivered solid results in the second quarter and first half of the year. Second, recognizing ongoing economic certainties, we believe we have momentum going into the second half of the year. And third, we're optimistic about the long-term outlook for private student lending, particularly in light of the recently passed federal student loan reforms. Let's begin with the quarter's results. GAAP diluted EPS in the second quarter was $0.32 per share. Loan originations for the second quarter were $686 million, roughly in line with the same period last year and slightly below our expectations. The second quarter typically represents our lowest origination volume, less than 10% of the annual total and includes a higher concentration of nontraditional borrowers and programs. A handful of our nontraditional school partners faced unique challenges such as short-term enrollment caps and disbursement volume shifts to later in the year. We do not expect these factors to have a similarly significant impact in future quarters. Looking forward, conversations with school partners indicate they are navigating considerable uncertainty as they evaluate impacts from federal lending reforms, reductions in grant funding and other recent policy developments. While peak volumes are beginning to build, these factors may be causing a delayed peak season similar to what we experienced last year. We will continue to monitor this actively and optimize our marketing strategies accordingly. The credit quality of originations continues to be robust with incremental improvement compared to the second quarter of 2024. Our cosigner rate for the second quarter was 84%, up from 80% in the year-ago quarter, and average FICO at approval rose slightly to 754 from 752. These indicators reflect continued discipline in our underwriting standards and borrower selection. For the second quarter of '25, we continued our capital return strategy, repurchasing 2.4 million shares at an average price of $29.42 per share. We have reduced the shares outstanding since we began this strategy in 2020 by over 53% at an average price of $16.43. We expect to continue programmatically and strategically buying back stock throughout the year. Before I hand the call over to Pete, I'm pleased to share that earlier this week, we agreed to indicative pricing on a transaction for the sale of $1.8 billion of private education loans. We are encouraged by the price that has been agreed upon, which is in line with our expectations for the year. As we look ahead to the second half of the year, we will continue to take a disciplined approach to managing balance sheet capacity, particularly as we prepare for anticipated policy reforms, and we will remain open to opportunities that support our strategic and financial objectives. We continue to expect year-over-year growth in our private student loan portfolio with any additional loan sales evaluated in the context of our broader strategy and evolving balance sheet priorities. Pete will now take you through some of the additional financial highlights of the quarter.

Thank you, Jon. Good evening, everyone. Let's continue with a discussion of key drivers of earnings. For the second quarter of 2025, we earned $377 million of net interest income. This is up $5 million from the prior year quarter. Our net interest margin was 5.31% for the quarter, 4 basis points ahead of the prior quarter. This expansion of net interest income is in part due to higher average balances across the portfolio over the first half of the year as well as changes to the overall mix of total assets on our balance sheet. We continue to believe over the long term that low to mid-5% range is an appropriate NIM target. Our provision for credit losses was $149 million in the second quarter, up from $17 million in the prior year quarter. It's worth noting that the prior year figure included a $103 million reserve release related to a loan sale that occurred in the second quarter of last year. The year-over-year increase can be attributed to a more cautious macroeconomic outlook as well as an increase in the weighted average life of the portfolio over the prior year. Despite the higher provision, our allowance as a percentage of private education loan exposure remained stable at 5.95%, slightly below the prior quarter's 5.97% and just 5 basis points above the year-ago quarter. The Moody's macroeconomic forecasts that are a key input in our reserve modeling have softened quarter-over-quarter. Accordingly, we're maintaining a cautious outlook for the remainder of the year, closely monitoring forecast revisions that could influence our assumptions and estimates. Private education loans delinquent 30 days or more were 3.5% of loans in repayment, a decrease from the 3.6% at the end of the first quarter of 2025, although higher than the 3.3% at the end of the year-ago quarter. We remain pleased with the continued positive performance of our loan modification programs and see the benefit of these programs within our late-stage delinquencies, which have remained flat year-over-year despite an almost $2 billion increase in loans in repayment. When we look at borrowers who have been in the programs for over a year, 80% are consistently making payments. We're encouraged by the trajectory of these programs, which are performing in line with our expectations as we look towards achieving our long-term net charge-off targets. Separately, when looking at the credit performance of the portfolio, the second quarter demonstrated solid credit quality, consistent with our seasonal expectations. Net private education loan charge-offs in the second quarter were $94 million, representing 2.36% of average loans in repayment, an increase of 17 basis points compared to the second quarter of 2024. We attribute this uptick primarily to the impact from our first quarter grant of disaster forbearance related to the California wildfires. While some of the borrowers that were granted disaster forbearance in the first quarter were able to return to making payments, a portion of those borrowers ultimately charged off in the second quarter. We view this as a unique event that shifted some charge-off timing, and we remain confident in our full-year expectations. Year-to-date, our net private education loan charge-offs are 2.11%, 6 basis points below the prior year. Importantly, at this point, we have not observed any material signs that reset policy changes or broader economic softness are adversely affecting portfolio performance. Second quarter non-interest expenses were $167 million compared to $155 million in the prior quarter and $159 million in the year-ago quarter. This is consistent with our expectations for the year, providing a solid foundation as we move into the third quarter. And finally, our liquidity and capital positions remain strong. We ended the quarter with a liquidity ratio of 17.8%. And at the end of the second quarter, total risk-based capital was 12.8% and common equity Tier 1 capital was 11.5%. Another measure of loss absorption capacity of the balance sheet is GAAP equity plus loan loss reserves over risk-weighted assets, which was a very strong 16.3%. We continue to believe we are well positioned to grow the business and continue to return capital to shareholders going forward. Now I'll turn the call back to Jon.

Thanks, Pete. I hope you agree that we have delivered solid results throughout the first half of the year, and you share my belief that we have positive momentum for the full year of 2025. As we look ahead, we are also encouraged by the developments in the broader policy landscape that could shape the future of our industry. Earlier this month, the President signed H.R.1. into law, marking a pivotal moment in federal student loan reform. The enacted legislation introduces meaningful changes to the federal student loan system, capping borrowing under the Parent PLUS program and setting new limits on graduate borrowing through the elimination of the Grad PLUS program. The bill also expands Pell Grant eligibility and streamlines federal student loan repayment plans. Altogether, the reforms represent a meaningful step toward building a more responsible federal lending program. By curbing overborrowing and addressing unsustainable debt levels, the policy has the potential to slow the rising cost of higher education and provide stronger financial protection for families. These limits will take effect on July 1, 2026 for first-time borrowers. Those with existing loans will continue to have access to the PLUS programs and borrowings under the current uncapped limits. It is worth noting that this transition may create a small short-term impact to originations. We are hearing that some schools and borrowers who previously chose private lending options are now opting for federal loans likely to secure access under the current terms. We are keeping a close eye on this trend and believe any near-term impact will be more than offset by the longer-term benefits of the policy changes. As the leading private student lender, we believe we are uniquely positioned to serve students and families and support our school partners through this period of transition. Based on the final legislation, we anticipate that the new federal lending limits could generate an additional $4.5 billion to $5 billion in annual private education loan origination volume for Sallie Mae once the transition from the previous programs has fully realized. Because the reforms officially take effect in July of next year and existing borrowers are grandfathered into the current programs, the volume impacts will build over time. As undergraduate degrees typically take about 4 years to complete, we expect to realize approximately 1/4 of the incremental volume from Parent PLUS in each academic year after implementation. Similarly, graduate studies last approximately 3 years on average. And so we expect to realize between 1/3 and half of the Grad PLUS incremental volume opportunity each academic year. It's also important to note that the impact in 2026 will be muted since the changes are not being implemented until the second half of the year. As a result, while we anticipate an impact next year, the bigger impacts are expected to be in 2027 and beyond. We have engaged in significant readiness planning for this change. As part of our planning, we've been evaluating potential funding strategies. We are confident we could meet this demand, leveraging our current approach, balancing moderate balance sheet growth with strategic loan sales to effectively manage this volume. However, as we have mentioned more recently, we are actively exploring new alternative funding partnerships in the private credit space. This ideally would offer a scalable and efficient structure to support growth while preserving balance sheet capacity and delivering more predictable returns over time. While we are less interested in a simple forward flow arrangement, a structure that allows us to marry capital efficiency with long-term predictable earnings would be attractive. We expect to leverage a combination of these funding options and are evaluating the optimal mix. We remain committed to our strategy of delivering mid- to high single-digit private student loan portfolio growth supported by loan sales and other structures with a goal of delivering EPS growth in line with recent years. As was the case 2 years ago, we currently plan to hold an investor forum before the close of the year, where we will provide a longer-term framework aimed at highlighting our strategic priorities around anticipated originations growth, and optimal funding strategies. Let me finish by affirming our guidance for the year. While we continue to closely monitor developments in the higher education landscape and volatility in the broader macroeconomic environment, our results to date reflect the strength of our core business, the resilience of our customer base, and the disciplined execution of our strategic priorities. In addition, we continue to optimize our strategies to maximize our in-year performance. With that, Pete, why don't we go ahead and open up the call for some questions.

Our first question comes from Rick Shane with JPMorgan.

First, can we discuss the $1.8 billion loan sale mentioned in the third quarter? Can you help clarify the gain on sale margin? In 2024, the average gain on sale margin was just below 7%. In the first quarter of this year, it was 9.4%. Where do we stand in that range for this transaction?

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

Got it. Okay. And then just two other quick questions. Historically or generally speaking, you guys have done two loan sales a year. There have been years where you've done more. As we think about our 2025 numbers, should we assume a sale in the fourth quarter? Or should we see the $3.8 billion you guys have done as sort of the total for the year?

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

Got it. I have one last question, and I apologize for asking so many. The net charge-off rate for loans in repayment, after declining for four consecutive quarters, increased in the second quarter compared to the previous year. This is quite a significant change. You mentioned forbearance related to the wildfires, but I'm struggling to understand how this specific group of borrowers could account for the shift we've observed in the loss rate. Can you help clarify this for me?

Yes, Rick, happy to. So when there is a FEMA declared national disaster, we have a series of programs and protocols in place to provide assistance to borrowers, both reactively if borrowers call in, but also in certain circumstances proactively recognizing that some borrowers don't have access to communication and we would not want something like a hurricane, a wildfire, or a flood to negatively impact someone's ability to maintain a lending relationship with the company. Typically, those natural disasters are smaller blips on the radar and things that you would sort of scarcely notice in the context of the timing of net charge-offs but because we offer sort of 60 to 90 days forbearance in those cases and it kind of puts customers into spaces, you can move a charge-off that would have happened into the first quarter, say, into the second quarter. And so that's sort of the mechanics of it. I think what's unique about the California wildfires is that this was the first time that such a wide area and a densely populated area were impacted. And so I think the impact was larger in this case than it would have normally been in a more typical natural disaster situation. But we can obviously track the specific customers who we gave that forbearance to. We can understand how they sort of are progressing through delinquency. We can sort of anticipate which ones likely would have charged off post facto without the forbearance, and we feel very comfortable that the slight uptick that Pete described in his comments, was not attributable to that population.

We'll take our next question from Terry Ma with Barclays.

So it sounds like the changes to federal lending can potentially create a lot of upside for the private market and in turn Sallie Mae, and it gives you a lot of optionality. If I kind of go back to the last investor forum, you guys kind of laid out a 5-year plan with high single-digit receivables growth and double-digit EPS growth. I guess with the potential upside, like can that potentially kind of change and increase the algorithm? Like how are you guys thinking about that because you kind of called out the same algorithm before, but it seems like there's just a lot more upside to volume over time.

Yes. I think that the framework we laid out there is still relevant when evaluating this opportunity. And again, just kind of reiterating some of the points that Jon was making, we're really talking about a 2027 and beyond sort of growth opportunity profile because of the staging, but we still have the same sort of mindset around balance sheet growth. In light of this sort of step change in opportunity, we might trend towards the higher end of that sort of mid- to high single-digit growth of the balance sheet, again, reflecting constraints of capital and EPS impact of reserving in the period. The investor appetite for loan sales has continued to sort of remain strong year in and year out, and we don't see any signs of that abating, and we're also looking at other types of sort of committed funding arrangements that we might do in the private credit space that will give us another tool in the toolkit to sort of optimize for full return and ability to sort of meet as many customers and satisfy the needs of the customers as well as the schools.

Got it. And then maybe just on credit. I noticed the percentage of borrowers on extended grace dropped meaningfully this quarter. Any kind of color on how those borrowers are kind of performing as they exit? And then maybe just any color on the 30- to 59-day delinquency bucket that is kind of up meaningfully year-over-year.

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

We'll move next to Jeff Adelson with Morgan Stanley.

I just wanted to make sure we understood the $4.5 billion to $5 billion number you put out there on what could potentially come your way once you're fully up and running, once we sort of lap the existing borrowers staying in the program, is that based on what you're seeing in today's run rate or is there any sort of expectation for growth in that borrower cohort versus what you're seeing today? And I guess just given the dynamic you identified on the 1/3, 1/3, 1/3 and a quarter, a quarter, a quarter for Parent PLUS, is that a good '28-'29 number to be thinking about?

Yes, Jeff, let me take a crack at it. First of all, we have not assumed in those numbers any sort of material change to our credit buy box. And obviously, every year, we optimize our strategies a little bit. We might do some more of that, but this is consistent with our current risk appetite and our current credit buy box. We have applied over time to our estimates sort of an expectation of sort of the likely growth in average loan size which we do whenever we do multi-year, outyear projections, so I am not sure if that was part of your question as well, but that goes into sort of the mechanics of what we do. And then yes, I think sort of we try to lay out the broad parameters, but I think the way that I would think about it is next year, we will see sort of a half-year impact on sort of the freshman undergraduate class and the first-year sort of graduate student class. And I think based on those average times to complete a degree, you would expect those to load sort of over the 2- to 3- to 4-year period thereafter. So we try to give you sort of what we think are the basic modeling inputs to that. But I think the basic logic of what you laid out is correct.

Okay. To revisit the topic of private credit exploration, you've outlined your goal of maintaining EPS growth consistent with recent years. Could you share your thoughts on the potential P&L impacts you're considering? Specifically, what trade-offs might you be willing to make on take rate in order to achieve a more efficient cost and funding structure? Some feedback we receive is that the current structure provides a substantial gain on sale. Will adjustments be needed that could impact economics, or how are you approaching this?

Yes, Jeff. Look, we have a couple of thoughts. Obviously, I'm not going to go into great detail because as we have said, we're in ongoing discussions and I think it would be inappropriate and probably counterproductive for me to go into too much detail. But I think my view on this is the following: we have a wonderful asset class, the loans that we produce not only serve an incredibly important societal function, but our borrowers are incredibly successful, the sort of losses on the loans are extremely attractive as a result of that success, the sort of duration and the sort of structure of those loans is really well suited to structures that a lot of our private or potential private credit partners might want to explore. And we are the leading market share player in the space. And so when it comes to sort of private student loans and private credit partnerships, I don't think it is at all arrogant for me to say that I think we are a great partner. I think what we offer is really unique. And we are, in many respects, the last or the only game in town in terms of a really scalable partner who can serve sort of that counterparty relationship. So with that in mind, I am very open to different financial and economic structures to fund this incredibly high-quality and important asset. But my view is we have a really good sense and a really good benchmark of what the lifetime value of these loans are, of course, discounted back in time. And I don't see any reason why we should be willing to accept financial terms that on a lifetime value basis are materially different from what we might get through different avenues. Now with that said, I think we all recognize the volatility that comes from loan sales. There were good questions about that earlier in the call. By the way, I think we've talked at length about the fact that while we love our bank and we love the growth of our bank balance sheet, it is a more capital-intensive way to grow the business, especially when you include the loan loss reserves under CECL. So I do think there is a one plus one equals three opportunity for us to develop a complementary funding sort of partnership here. I think that's what Pete's tried to lay out over time. We think we're a great partner, and we think we should expect attractive economics in that partnership as well as potentially providing great value if such a partnership emerged.

We'll take our next question from Moshe Orenbuch with TD Cowen.

Great. And Jon, it seems to me that if you're talking about a $4.5 billion to $5 billion opportunity that would phase in over several years, most of it over 2 to 3 years, that would probably be consistent with just the normal expansion that you could expect from your normal loan sales, if you wanted to. And I understand the comments you made about seeking other structures. Just wondering if as you do that, would some of those structures potentially expand that $4.5 billion to $5 billion by being willing to address some of the areas that you might not want to underwrite for your own balance sheet?

Moshe, it's a great question. Again, so there's no confusion. We did not include anything like a balance sheet expansion in the $4.5 billion to $5 billion we gave you. But yes, I mean, at the end of the day, we sort of have gauged our buy box today off of the economic model defined by our bank. And that bank has a certain capital structure, it has a certain loan loss reserve structure, it has a certain expense structure. It has a certain expectation of return on equity. And by the way, you know how committed I am to capital allocation and strong ROEs. And so that has led us to what we think is a great answer where the bank is sort of the stocking horse on how we fund the loans. I think it is entirely possible that over time, different partnerships may come forward, different structures may emerge that make other parts of the credit spectrum more attractive to us to originate and just fund in a different way. So we've not built any of that in. I think it's probably premature for us to conjecture on, is that a small, big, or medium-sized opportunity and I think, candidly, probably too premature for us to comment on sort of the timing of any type of expansion. But yes, I think we would certainly be open to that and I think logic would dictate that that's certainly a conceivable outcome.

We'll move next to Mark DeVries with Deutsche Bank.

Just a couple more clarifying questions on the market opportunity here. For the $4.5 billion to $5 billion of incremental kind of opportunity you see for Sallie Mae, are you assuming kind of a comparable market share of the new addressable market that you've had recently kind of in the 60% plus range?

Yes.

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

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

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

Mark, thanks. To put it in context, I think rough justice, this probably comes close to sort of doubling, maybe not quite the sort of total market size, depending on what kind of credit discount you want to apply to that. So it's a meaningful increase in the overall sort of size of the market when fully implemented. It is still a very small market when you put it up against other consumer credit classes. And so whether or not that attracts lots of other competitors or just some other competitors, I think time will tell. But I think the more important thing is, look, we are incredibly confident in our ability to compete and win and help service our important university partners and these students who are looking for access to and completion of their higher education. We have really better data and credit insights. We have incredibly sort of at-scale systems and marketing engines. I think we have school relationships and a reputation with the schools of being a constant and persistent partner that they can count on to support their businesses at volume. And so whether or not it attracts more competition or not, I feel great about our ability to compete and win, help our university partners be successful and help these students and their families be successful.

We'll move next to Michael Kaye with Wells Fargo.

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

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

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

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

I have another quick question about the loan modifications. You had a lot of enrollments and loan modifications in the first half of last year. What is Sallie Mae doing to prepare these borrowers when their loan modifications end two years from now?

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

We'll take our next question from Sanjay Sakhrani with KBW.

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

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

Okay. Jon, regarding the $4 billion to $5 billion increment, how much of that is from Grad PLUS compared to Parent PLUS? I assume the majority is likely from Grad PLUS. I'm trying to understand how to interpret the one-third and quarter statistics you mentioned.

I am not sure we've divulged those numbers, but it is 2/3 Grad PLUS, it is 1/3 Parent PLUS. Yes. And that's approximately obviously.

And we'll move next to Giuliano Bologna with Compass Point.

Congratulations on the results. Building on that, regarding the $4.5 billion to $5 billion, as mentioned, it's about two-thirds Grad PLUS. Historically, we've seen 8% to 9% of graduate loan originations in our mix, and a significant growth in graduate loans is likely to impact your balance sheet. Would you consider selling loans differently or selling Grad loans separately in the future to maintain your current mix? Also, how should we assess those loans compared to your current core loans? For instance, how much shorter is their duration and how much lower would the yield be? I'm looking for some rough parameters rather than exact figures.

Yes, I'll give it a try and Jon can add anything I might overlook. The grad programs we currently have represent a small portion of our portfolio, and our main competitor is the federal program. As we evaluated this opportunity, we gathered some bureau data regarding federal programs to analyze the credit quality of both the Parent PLUS opportunity in undergrad and the grad space. Our analysis indicates that the credit profiles are largely similar to what we currently underwrite on a small scale with our existing programs. In fact, the Grad product tends to incur lower losses and offers higher returns. Typically, individuals in these programs already possess an undergraduate degree, have worked for a period, and have established credit profiles. They are also committed to pursuing higher education with the expectation of attaining higher earning potential in their careers. Overall, we anticipate that grad loans will perform better than undergrad loans on the whole. The repayment structures will vary depending on the type of program; for instance, business school programs usually have shorter durations and quicker paybacks compared to medical programs, which are more intensive, have longer course durations, and result in higher outstanding balances and repayment periods. Until we have concrete underwriting data on actual volumes, it will be challenging to provide more than the preliminary benchmarks we have shared so far.

That's very helpful. I just want to clarify something regarding a previous question. There seemed to be an implication that you might be assuming a market share of around 60%. Is that figure specifically for the undergraduate or Parent PLUS capture? In your prepared remarks, you mentioned that the graduate opportunity is roughly one-third to half of the overall opportunity. I want to confirm if I should view it as a separate 60% for undergraduates and one-third to half on the graduate side.

Yes. Interestingly, the numbers aren't actually all that different. The federal government has been the primary player in the graduate loan space. We are involved in graduate lending today, and various data providers offer insights into the level of private graduate loans. Based on the interval data, the annual figure is approximately $927 million, which is likely reflective of 2024. We contributed about $623 million to that total, which equates to around a 67% market share. This is slightly higher than what we have in the undergraduate sector, but still within the same general range. We view this data as more indicative than exact. In our perspective, there isn’t a significant difference in our current market share between graduate and undergraduate loans. However, Pete's point is very valid. This marks a fundamental shift in how graduate students and institutions finance their higher education. It enables us to cater to customers and compete for opportunities that were previously unavailable to us. We believe there is no reason we shouldn't retain our market share and compete vigorously in this area.

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

Well, thank you, everyone, for your time and attention today. Hopefully, you got a sense about sort of the pride we've taken in our second quarter and first half performance. I hope you likewise sort of sense the momentum that we expect to carry into the second half of the year. But really, most importantly, I hope you hear in our voice the excitement about us being able to work closely with our university partners, a new group of students, some of whom we've served before, some of whom we haven't, to really continue our mission of providing access to and completion of financing for higher education. We think this is a really important and pivotal moment for the company. We think this opens up an expanse of new strategic opportunities for us, and we look forward to continuing these discussions in the quarters and years ahead, recognizing these opportunities and sort of our excitement about pursuing them. So I hope everyone has a great rest of your day, and we look forward to talking next quarter, if not before. Thank you. I'll now turn the call back over to Kate.

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

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