Earnings Call Transcript - SLM Q4 2024

Operator, Operator

Welcome to the Sallie Mae Fourth Quarter and Full Year 2024 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for your questions following the prepared remarks. I would now like to turn the call over to Melissa Bronaugh, Managing Vice-President, Head of FP&A and Investor Relations. Please go ahead.

Melissa Bronaugh, Managing Vice-President, Head of FP&A and Investor Relations

Thank you, David. Good evening, and welcome to Sallie Mae's fourth quarter and full year 2024 earnings call. It's my pleasure to be here today with Jon Witter, our CEO; and Pete Graham, our CFO. 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-K 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 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, January 23, 2025. Thank you, and now, I'll turn the call over to Jon.

Jon Witter, CEO

Thank you, Melissa, and David. Good evening, everyone. Thank you for joining us today to discuss Sallie Mae's fourth quarter and full year 2024 results. I'm pleased to report on a successful year and discuss our outlook for 2025. I hope you'll take away three key messages today. First, we delivered strong results in 2024. Second, we exceeded our expectations for originations, both in terms of volume and credit quality. And third, we believe that we have strong momentum entering 2025 and are well positioned to deliver on the strategy and investment thesis that we outlined a little over a year ago. Let's begin with the discussion of 2024 results. Private education loan originations for the fourth quarter of '24 were $982 million and our new unfunded commitments were $817 million. For the fourth quarter, our originated loan volume increased 17% compared to the prior year quarter. For the full year, we originated $7 billion of private education loans, 10% over 2023 and meaningfully ahead of our revised full year guidance of 8% to 9%. Going into 2024, we knew there would be opportunity for us to expand our share of the private student lending market and we were pleased to acquire what we believe to be our fair share, if not slightly more of the market opportunity created by the recent changes in competitive dynamics. Our total balance sheet growth was 3.1% for the full year 2024, inclusive of the Philip loan sale and our Private Education Loan portfolio grew at 5.7%. GAAP diluted EPS in the fourth quarter was $0.50 and our full year GAAP diluted EPS was $2.68 compared to $2.41 in 2023, an 11.2% increase year-over-year. Achieving originations growth greater than our revised estimates from Q3 did put some pressure on EPS as we built required reserves and incurred additional operating expenses. As a result, we finished the year $0.02 below our revised guidance range for 2024 full year GAAP diluted EPS. We are pleased that this growth was accompanied by an improvement in credit quality of originations for the year. Co-signer rates increased from 87% in '23 to 90% in '24, and the average FICO score at approval increased from 748 to 752 over the same period. Credit performance also remained strong throughout the year, partly due to the success of our enhanced payment programs that have proven to be a useful tool in helping borrowers work through periods of adversity, while also establishing positive payment habits. Net charge-offs for our private education loan portfolio were $93 million in the fourth quarter of '24 and $332 million for the full year, representing 2.2% of average private education loans in repayment, which is down 25 basis points from the full year of '23. We continued our capital return strategy in the fourth quarter, repurchasing 2 million shares at an average price of $23.05. We have reduced the shares outstanding since January 1 of 2024, by $11.6 million at an average price of $21.59, and by 52% since January 1st of 2020 at an average price of $16.22. Before I hand the call over to Pete, I am pleased to share that earlier this week, we reached a preliminary agreement on indicative pricing terms for the sale of approximately $2 billion of private education loans. We expect the transaction to close in early February. We are encouraged by the price we received, which is in line with our expectations for the year. We expect to sell additional loans in 2025 with market conditions dictating the timing and volume driven by our balance sheet growth targets. We expect our balance sheet growth to be in line with or slightly above the strategy we shared at our December 2023 investor forum for year two, or roughly 5% balance sheet growth in 2025. Pete will now take you through some additional financial highlights of the quarter and the year. Pete, over to you.

Pete Graham, CFO

Thank you, Jon. Good evening, everyone. Let's continue with the discussion of key drivers of earnings. For the fourth quarter of 2024, we earned $661 million of interest income, $8 million higher than the third quarter. For the full year, we earned $2.6 billion of interest income, $27 million higher than the prior year. Our net interest margin for the quarter was 4.92%, lower than both the previous and year-ago quarters. Our net interest margin for the full year was 5.19%. As mentioned in prior quarters, we expected to continue to see NIM compression in the short term due to our funding rates catching up to our asset yields, and this is what drove the majority of the decrease in NIM both on a quarter and full year basis. We continue to believe that over the longer term, a range of low to mid 5% is the appropriate NIM target. Our total provision for credit losses was $108 million in the fourth quarter of 2024, down from $271 million in the third quarter. While we did see an expected decrease to the provision from the third quarter, our fourth quarter originations and commitment volumes came in ahead of our own estimates, which coupled with an increase in funded disbursements in the quarter required a higher total allowance. The total allowance for credit losses as a percentage of the ending exposure, which includes the total loan balance plus unfunded loan commitments and accrued interest receivable on Private Education Loans was 5.83% at the end of 2024, down from 5.84% in the previous quarter and down from 5.89% at the end of 2023. We believe we will continue to see incremental improvements in our reserve rate over the coming quarters as we realize the benefits from our loan modification programs and improvements in the credit quality of originations. Net charge-offs for our Private Education Loan portfolio in the fourth quarter of 2024 were 2.38% of average loans in repayment compared to 2.43% in the year-ago quarter. Full year 2024 net charge-offs for Private Education Loans were $332 million or 2.2% of average loans in repayment compared to $374 million or 2.4% in 2023. Private Education Loans delinquent 30 days or more were 3.7% of loans in repayment as of December 31, 2024, an increase from 3.6% at the end of the third quarter but a decrease from 3.9% at the end of 2023. We believe this slight uptick in delinquencies from the third quarter is primarily driven by seasonality, as well as marginally impacted by continued refinements to the eligibility of our loan modification offerings. We remain pleased with the performance we're seeing from our enhanced loss mitigation programs as we have been able to observe that performance now over the course of a full year. As of the end of the year and over the past 12 months, we've observed that over 80% of borrowers in loan modification programs are completing their first repayments successfully and 70% of borrowers have completed their first six payments. This positive performance is an important step towards achieving our long-term net charge-off targets. Fourth quarter non-interest expenses were $150 million compared to $172 million in the prior quarter and $202 million in the year-ago quarter. For the full year, non-interest expenses were $642 million compared to $685 million in 2023 and below the midpoint of our guidance. We're pleased with this result, especially in light of the additional expenses associated with the higher originations growth in 2024. And finally, our liquidity and capital positions are solid. We ended the quarter with liquidity of 20.3% of total assets. At the end of the fourth quarter, total risk-based capital was 12.6% and common equity Tier-1 capital was 11.3%. 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 15.6%. We continue to believe we're well-positioned to grow our business and return capital to shareholders going forward. I'll now turn the call back to Jon.

Jon Witter, CEO

Thanks, Pete. I hope you agree that 2024 has been a strong year. We are pleased with our originations and balance sheet growth, both better than the strategy put forth at our investor forum. We expect to continue to grow originations and our balance sheet in 2025 and beyond. Let me touch briefly on the potential for Plus reform under the new Presidential administration. While there has been a lot of speculation around what might happen, there have been no specific proposals offered. Without a more specific picture of what might be proposed, we cannot make any predictions or estimates. As such, no assumptions about changes to Plus are included in our 2025 guidance. We are, of course, engaged in operational and financial contingency planning in the event that there are changes to the Plus program and stand ready to assist customers in achieving their dream of access to and completion of higher education. At the end of 2023, we introduced an evolved investment thesis built on four principles: strong and predictable balance sheet growth, strong EPS performance and return on common equity, meaningful capital return, and all with manageable risk. As we look back on 2024, we are pleased to have executed on the first year of this strategy, largely in line with or exceeding our expectations. We believe that meaningful origination expansion, coupled with loan sales to moderate growth and a steadfast focus on expense management will allow for both organic earnings growth and generous capital return to shareholders in 2025. It's in this context, I'd like to provide our guidance for 2025. Specifically, we expect full year Private Education Loan origination growth of 6% to 8%. We also expect total loan portfolio net charge-offs will be between 2.0% and 2.2% of average loans in repayment. Also, we expect our non-interest expenses for full year of 2025 to be between $655 million and $675 million. And finally, GAAP diluted earnings per common share between $3 and $3.10. With that, Pete, why don't we go ahead and open up the call for some questions. Thank you.

Operator, Operator

The floor is now open for questions. Our first question is coming from Terry Ma with Barclays. Please go ahead. Your line is open.

Terry Ma, Analyst

Hey. Thank you. Good evening. Maybe a question for Pete first. Can you maybe just talk about what NIM is contemplated in your EPS guide for the year? And maybe just talk about whether the funding pressures have largely played out already or can NIM go lower over the next few quarters and then maybe just what's the timing of getting back to the low to mid 5?

Pete Graham, CFO

Yeah. I would say the low to mid 5 is what we would point to in terms of our expectation going forward here. I talked on prior calls about the fact that we had some of the longer-term funding that we have put on at much lower rates that was maturing in the latter part of this year and into the first part of 2025. And once we get beyond that, I think we'll start to see that pressure abate. I think the other thing that impacted NIM in the quarter is really the build that we do around liquidity for the mini peak. And so I think there's opportunity for us to look at that as we go through this year as well.

Terry Ma, Analyst

Got it. And then maybe just on the topic of Plus reform, can you maybe just talk about your appetite to take on additional volume if it were to shift from Plus over to the private market and maybe just comment on the underwritability of the Plus program as it pertains to your credit box. I seem to recall back in 2017, I think it was Steve that put out the range of 50% to 70% underwritable from Plus. Like is that still kind of a good number to go off of?

Jon Witter, CEO

I don't recognize that number or recall it, and I don't think we provided specific guidance on the range. One reason we support Plus reform is that it acts as an unlimited and underwritten loan, which leads to several societal issues. Some customers borrow beyond their means, even if they receive a good college degree. Additionally, studies suggest that the unlimited funding is a significant factor in the higher education inflation we have observed. This results in higher borrowing and more inflation than necessary. Therefore, we are in favor of thoughtful Plus reform, as we hope it will encourage a reevaluation of the federal government's role in funding higher education. Regarding your specific question, I believe that many of the loans would not fit our credit criteria for the reasons mentioned. We would prefer other funding sources, such as expanded grants for students, or encourage them to consider different higher education options. We do anticipate some loans could transition to private student loans, although we haven't released specific estimates since it depends on the thresholds set by reforms and other policy changes. We have developed internal scenarios to guide our planning, but we haven't disclosed exact volumes externally due to uncertainty until we see a specific proposal. Nevertheless, we think it could be significant, but the figures you mentioned might exceed my expectations.

Terry Ma, Analyst

Okay. Got it. That's helpful. Thank you.

Operator, Operator

We'll take our next question from Mark DeVries with Deutsche Bank. Please go ahead. Your line is open.

Mark DeVries, Analyst

Thank you. I had a question about the 6% to 8% origination growth guide for the year. I was assuming the first half of 2025 should be close to the 13% rate realized in 3Q as you reap the benefits of Discover's exit, which I would expect to carry into the spring disbursement season. But if that's right, your full year guidance implies very low second half '25 growth that's well below the prior run rate, closer to 5% to 6%. So could you just help me connect the dots on kind of the full year expectation?

Jon Witter, CEO

It's difficult for me to respond without understanding your calculations. In terms of growth, we previously mentioned that we anticipate two medium-sized years rather than one large year. For 2024, we experienced a spring that was quite typical, followed by a significantly stronger fall. If you compare our quarterly figures with our annual figures, you'll notice that the total was 10%. Looking ahead to 2025, I expect a larger spring but a more typical fall, as we'll be comparing against the very high growth we saw last fall. Typically, spring presents a smaller opportunity than fall, which is why we refer to it as peak and mini-peak. So, considering a 10% growth in 2024, a midpoint of 7% doesn't seem like a significant discount based on this logic.

Mark DeVries, Analyst

Got it. And then just a question on buybacks. It appears that the total buybacks for 2024 were about $100 million less than what was outlined at the Investor Forum in 2023. I'm curious if I have those numbers correct and what led to a shift in priorities.

Pete Graham, CFO

Yeah. I think there's a couple of things in the capital allocation framework. One is the first sort of use, if you will, of capital is growth of the balance sheet and we grew the balance sheet a little bit more than what we had in that framework and so that took some capital. I think the other thing, which we've talked about on prior calls is we attempted to put plans in place that would tend to buy a little bit more stock on average when the price on the day was trailing below the trending price line and a little bit less on days when it was trending above. And in the latter part of the year, that trend line was moving up into the right pretty dramatically. And as a result, our plans bought a little bit less than the target amount. But we feel like that was appropriate and we like the result in terms of where we landed.

Mark DeVries, Analyst

Got it. Makes sense. Thanks for the comments.

Jon Witter, CEO

Thanks, Mark.

Operator, Operator

We'll take our next question from Michael Kaye with Wells Fargo. Please go ahead. Your line is open.

Michael Kaye, Analyst

I think you touched on this in the opening comments. We just wanted to go forward again. I didn't quite get it. I know last quarter you were saying there was going to be incremental improvement in the reserve rate and it was essentially flat quarter-on-quarter. Just wanted to understand what happened? And I think you said you still expect it to go down, but you're saying it last quarter and not happening. Could you just go over what's happening with the reserve?

Pete Graham, CFO

Yeah. I think, Michael, we did see some improvement in the quarter. We also had a much higher originations quarter than what we're originally forecasting. And that's the primary reason for where the provision came out. I think at the margins, there's a little bit around the mechanics of what's in the unfunded and how that moves into funding. But we look at it more on a longer term trend in terms of year-over-year improvement. And our outlook for the future and our guidance is based on having some level of continued improvement going into the future.

Michael Kaye, Analyst

I mean, you're talking about the reserve rate, right? I'm not talking about provision.

Pete Graham, CFO

Yeah.

Michael Kaye, Analyst

I thought the reserve allowance rate was generally flat from the previous quarter, possibly down by one basis point. Are you suggesting that increased originations made it seem flatter than expected, despite the origination quality appearing to be quite strong?

Pete Graham, CFO

The CECL process involves many different variables, and I view it in terms of an overall reserve rate while analyzing year-over-year trends compared to quarter-to-quarter. We saw improvements year-over-year, and we anticipate that this trend will continue in the future. If you're interested in the specifics of how the tables function and how to adjust your model, you can arrange a follow-up call with the IR team.

Michael Kaye, Analyst

All right. I wanted to just ask about the outlook for third-party loan consolidations. It looks like it ticked up quarter-on-quarter. I just wanted to see what the outlook for that loan consolidations this year, especially as rates could come down as the year progresses and perhaps maybe there's more borrower interest in loan consolidation this year given by a lesser chance of student loan forgiveness or generous income-driven repayment plans with the Republican administration?

Jon Witter, CEO

Michael, there's a lot packed into that question. I think we saw a very small uptick off of a very small base of consolidations in the quarter. I think that's certainly understandable given the moves in sort of interest rates. I think our broader view continues to be in the roughly 15 years after the financial crisis, we saw historically by any standards incredibly low interest rates. And for us, I would describe consolidations as a sort of a moderate cost of business, but not a major hindrance. I am sure over time we will see some uptick in consolidation activity. I don't think we have a view that we're ever going to go back in the near term to the kinds of ultra-low rates we saw. So, I think it is unlikely we will go all the way back to where we were. But again, it is sort of a part of the cost of us doing business. We think it is low today. We think it is likely highly manageable in the medium to long term, even with the potential for some reductions in rates going forward, which by the way, as I know, as well as I do, are less likely today than they were even a number of months ago. As to the individual behavioral economics questions of how do customers sort of weigh off income-driven repayment, many of those rules are established. If they are undone, it will take time. I still think if you are looking for payment relief and you have a portfolio of public and private student loans, your best deal is still through the IDR programs that are out there. I don't think that has changed. So again, I'm not sure we can comment on how sort of individual micro behavior may change in the future, but I think we feel pretty good about our standing and view that as something that we will always pay attention to and have strategies around. But at this point, it is not for us a major cause of concern.

Michael Kaye, Analyst

Okay. Thank you.

Operator, Operator

We'll take our next question from Moshe Orenbuch with TD Cowen. Please go ahead. Your line is open.

Moshe Orenbuch, Analyst

Great. Thanks. Jon and Pete, I'm hoping you could talk a little bit, given the balance sheet growth has come sooner, like how you're thinking about 2025? Obviously, you're starting off with an early loan sale, so you have the opportunity to sell more. Can you just kind of flesh out your thought process as to how that's going to shape up?

Pete Graham, CFO

Yeah. Sure. Moshe, thanks for the question. Again, we're kind of truing back to the framework that we laid out in the forum a year ago, December. We were able to fund a little bit more balance sheet growth this year than what we had in that original sort of strategy based on a variety of factors and felt good about where we landed in terms of results for the year and the ability to absorb that growth. And that carries forward into our outlook for 2025 and the guidance that we've given there contemplates a balance sheet growth that's roughly in line with what we laid out in the form. And to the extent we're able to, we'll modestly exceed that. But I think it's a good balanced framework because we're moderating the rate of growth. We're not putting too much pressure on funding or other aspects of the balance sheet. And we're going to continue to follow that framework.

Moshe Orenbuch, Analyst

And maybe just a follow up on Mark's question on originations. I mean, there is a serialization effect from the new discovered borrowers that are earlier than seniors in their life cycle of education, right? So, I mean, shouldn't there be some extra pickup from that factor as well?

Jon Witter, CEO

Yeah, Moshe. And I think we have incorporated that into our guidance and our outlook.

Operator, Operator

We'll take our next question from Jeff Adelson with Morgan Stanley. Please go ahead. Your line is open.

Jeff Adelson, Analyst

Hey, good evening. Thanks for taking my questions. I appreciate the color so far on how you're thinking about the Graph Plus opportunity. If you do originate more of these loans going ahead, if it comes through, would you look to maybe execute on more sales and buyback of the stock or maybe let the portfolio grow a little bit further than what you've laid out at the Investor Forum or just how you’re thinking about that?

Jon Witter, CEO

Yeah, Jeff. I think Pete sort of touched on this with relation to Moshe's sort of general organic growth question. And I'm not sure that the answer is different. We really like the notion of modest balance sheet growth that where we use loan sales as effectively the governor on our ability to do that. And so look, if we all of a sudden ended up with meaningfully more originations than we expected for any reason. And let me just caveat this, it's always hard to give hypotheticals, but I'll do my best in this case. I think our view would be we would expect to carry most of that probably through to additional loan sales. If that gave us the EPS and sort of capital headroom and we felt like the rest of the organization, the funding engine and so forth could handle it, which I'm confident could. Might we carry a little more growth in like we did this year? Yeah, we might do that. But I think you should expect that the kind of moderate growth strategy that we laid out in the form is very much sort of our thought process and it's not absolute, but I think it's a pretty good indicator.

Jeff Adelson, Analyst

Thanks. And as you look at the loan yields you're putting on the portfolio, your average loan yields are coming down a little bit. Can you talk a little bit about where you're putting on your new loans relative to where you've been holding the portfolio previously in that kind of high to 10% to 11% yield? And is that a function of maybe some higher quality loans you're putting on? Or is that more just the market and rates coming down on you? Thanks.

Pete Graham, CFO

Yeah. I mean, there's both factors at play there, but the higher credit quality loans that we're putting on book are priced differently for obvious reasons on a risk-adjusted return basis.

Jon Witter, CEO

Yeah. And Jeff, I would just add to that. I think we are really beholden to the ROE on our loans, less so to the yield on our loans. And I think we have described on past calls the pretty exacting process that we go through where we attribute marketing and cost to acquire, we attribute servicing costs, we attribute credit costs by individual credit note and really look at the individual ROEs on all of those things and that drives our pricing. And so at the end of the day, you would absolutely expect that if you see a material sort of change in credit quality, it can have an impact on yield. I think the real question is, is it having an impact on ROE. And in fact, we are very pleased with the stability and the performance of our ROEs on the originations we've been putting on the books.

Operator, Operator

We'll take our next question from John Hecht with Jefferies. Please go ahead. Your line is open.

John Hecht, Analyst

Good afternoon. Thank you for answering my questions. You mentioned the preliminary pricing for the transaction scheduled for this quarter. While I understand you might not be able to provide detailed insights, I've noticed a significant amount of inflows into private credit markets, some of which are likely going into consumer finance. To what degree do you believe this affects your confidence in the market or your outlook for better execution, or is it too soon to determine?

Pete Graham, CFO

I think the private credit shift is one that's been kind of in play for a couple of years now. And certainly, that's at play in terms of the investors that are buying into these loan transactions. So yeah, I think the market is very supportive in the current environment. We were anticipating that at the turn of the year and coming into the new year, the markets would be very supportive of a transaction. So we were ready to go.

John Hecht, Analyst

Okay. And then maybe like you've talked about interest rates and impact on NIM and so forth. I'm wondering maybe kind of over the next few quarters, things outside of like forward curve or this and that, maybe like CD maturities and things of that nature, how do we think about the puts and takes of those on NIM in the next two, three quarters?

Pete Graham, CFO

Yeah. I kind of touched on this in the third quarter call. We're getting to a point where the final maturities on some things we put on three and four and five years ago are coming up for renewal, obviously at much higher rates. But we also have one-year maturities that we put on a year ago or 18-month maturities that we put on in that same time period that will be repricing at lower rates than what they're on the books. So again, I think we'll be completely through that repricing as we get, call it, the next couple of quarters, and our overall guidance around kind of the target for us for NIM, I think is about as much as we can give you in terms of forward-looking guidance on NIM.

John Hecht, Analyst

Okay. And just a quick third, if it's possible. I mean I forget the Plus program. I think there are some other potential regulatory effects because of the incoming administration, maybe such as a lower probability of debt forgiveness and maybe some general weakening of the DOE framework. Is there anything else for us to consider regarding the potential regulatory changes that you all are aware of that may influence the business or the strategy over the course of the year?

Jon Witter, CEO

John, I've now been in this job exactly long enough that someone asked me the reverse question of that when the last administration came in. And I'll give you sort of the mirror or the exact answer there. We have really sought to build a company that is run in the right way, that is thoughtful and wide-eyed about our regulatory obligations and that is effectively doing the right things each day independent of what might be slightly different political points of emphasis. And as a result, you sometimes go through periods where there's a little bit more sort of weight in a particular regulatory area or a little bit less weight, we really try not to sort of optimize or sort of respond to that, I think is probably a better word. And so there is certainly a lot of talk. I've heard it, I'm sure you all have of a lightening regulatory regime. Maybe that could happen, maybe it couldn't. We work very constructively with all of our regulators from a safety and soundness and compliance perspective and really try to adopt views and policies that can stand the test of multiple administrations. So I could be surprised, but I think we kind of like the business we have. I think we like the relationships that we have. And I think we feel like we're operating things in the right way and we'll sort of continue to have that view of it as we move forward. And if we're surprised by something, we'll obviously respond quickly.

John Hecht, Analyst

Okay. I appreciate the color. Thank you.

Operator, Operator

We'll take our next question from Nate Richam with Bank of America. Please go ahead. Your line is open.

Nate Richam, Analyst

Hi. Thanks for taking my questions. Your guidance for loss rates at the midpoint suggests about 10 basis points of improvement from 2024 and it's still a little bit above your through-the-cycle loss rate target of like 1.9%. I was wondering if you could discuss like the factors that would prevent losses from falling below the low end of that guidance range or just how you're thinking about further credit improvement from here.

Jon Witter, CEO

Certainly, Nate. We're pleased to share that we've made significant progress in our loss mitigation programs over the past year since their implementation. We believe there is still room for further optimization and refinement. For instance, there are certain customer scenarios for which we lack the most appropriate loss mitigation solutions, indicating we need to develop more tailored models. Additionally, we recognize that there are opportunities to fine-tune access to these programs for different customers. As we've consistently noted, we expect long-term net charge-off performance to be influenced by both new loss mitigation initiatives and enhancements in underwriting and credit quality that we've enacted over the last couple of years. Given the extended timeline for loan repayment, particularly for some students who may not start repaying until several years after taking out their loans, it will take time for these changes to impact loss rates effectively. We acknowledge that this is a multi-year process, and we’ve been encouraged by the performance we've observed from our programs. Our data shows that the programs are yielding positive results, and we are collectively observing favorable performance patterns. We also anticipate continued improvements in credit quality from our portfolio, which should contribute to a reduction in net charge-offs over time. Overall, we are content with our current trajectory and believe there’s still more potential for improvement as we move forward.

Nate Richam, Analyst

Got it. That's very helpful. Thank you. And then apologies this was already asked before, but have you seen any changes to payment or credit behavior of your borrowers who went into federal loan repayment like late summer last year?

Jon Witter, CEO

We observe that every quarter and Nate, we can and I've said this on a few other calls, we can only do that imprecisely. We know through bureau and other data if people have a trade line open of a particular type, but we can't know whether they're using an IDR payment or whether they're using the on-ramp or some of those other more detailed pieces. So it's a little bit of a crude measure, but we think it's a good one and we can look at sort of differential loss rates for our customers with and without those trade lines. We have not seen any sort of sustained pattern that would suggest that there's divergence on those lines. We watch it every quarter and that will be something that we will continue to sort of pay attention to. I think it's important to also remind you though that we underwrote our loans with the assumption that these borrowers would also have a certain level of federal debt; they always have, and the payment holiday was something unique that was spawned out of COVID. So I think we feel pretty confident in our historic underwriting and believe we've taken the right underwriting precautions for folks to be able to manage their full debt load, but we will continue to watch it carefully.

Nate Richam, Analyst

That's all from me. Thank you.

Operator, Operator

We'll take our next question from Rick Shane with JP Morgan. Please go ahead. Your line is open.

Rick Shane, Analyst

Hey, guys. Thanks for taking my question this afternoon. Love to talk a little bit and not going to be a huge surprise about performance on the forbearance program. Curious what you're seeing there. When we look at the metrics in terms of loans being in the program, the percentage has gone up at a materially higher rate than the portfolio growth. I'm just curious how we should be thinking about that and sort of any updates on performance.

Pete Graham, CFO

I think in terms of the ratio of people in the programs, I think the key thing to remember there is we kind of rolled those programs out about a year ago. And in general, they have a two-year kind of cycle and so we expected to see continued build of participation in the programs as we came through this year. So that really didn't seem unusual to us. As we said in the prepared remarks, we've got a year under our belts, so to speak, in terms of performance of the programs. And we feel pretty good about the payment rates of folks that are enrolled in the programs. Again, we wouldn't want it to be 100% and we feel good that the balance that we've struck is meeting a borrower need in a prudent way. So I think over time, our expectation is we'll continue to see good payment rates coming out of this. The expectation would also be that the performance as they come out of the programs at the end and start to sort of migrate back to their original contractual terms that we'll have good success rates there as well.

Rick Shane, Analyst

I understand. It's interesting to note that I've been analyzing the figures and I see your point regarding the year-over-year migration. However, it seems there is a significant increase between the third and fourth quarters this year. Is this a seasonal trend, or does it reflect the fact that after completing beta testing for the program, you're starting to expand its scope?

Pete Graham, CFO

Yeah. No, that's primarily seasonal. Because of the pattern of sort of graduation and the initial grace period that's built into the loans, we tend to see in the same way that we have peak and mini-peak around originations, we have a similar profile of repayment waves. And so the additional sort of factor that's impacting this year is the fact that we rolled out an extended Grace program a year ago. And those are sort of moderately impacting those seasonal waves as well.

Jon Witter, CEO

Yeah. And Rick, maybe the last… I would like to point out that approximately more than half of the financial difficulties faced by our borrowers occur within the first year of repayment. The remainder of these difficulties tends to be distributed evenly over the loan's life, largely in response to typical life events that affect consumers. This pattern is not just due to the payment fluctuations we see; it also relates to the vintage loss curve, which tends to be more weighted towards the beginning. This explains the noticeable growth, as individuals are likely to seek out our programs when facing financial challenges, particularly during the initial phase of principal and interest payments.

Rick Shane, Analyst

That absolutely makes sense. I mean, it strikes me that it probably takes one year to sort of get habituated to that, so totally makes sense to me. Last question and I'm not asking this…

Jon Witter, CEO

Rick, I want to add a bit here, particularly after Pete shared some valuable insights which are completely accurate. We have the ability to analyze the details segment by segment, considering time, program, and vintage perspectives. What gives me the most confidence is that when someone starts a program, if they are going to struggle, it typically happens early on. As they remain in the program, we have data demonstrating that their success increases, or conversely, the loss rates decrease over time. I understand the ongoing interest in assessing creditworthiness. We're feeling optimistic because, while there may be some buildup, the more experienced participants in that buildup are showing the encouraging trend of lower loss rates compared to the earlier stage of that group. So, just by sticking with it, I wanted to touch on that point. Again, I would emphasize that we're very satisfied with the advancement of these programs.

Rick Shane, Analyst

I appreciate that a great deal. I'll follow up on my other question offline. I've taken enough time and I'm sure there are others in the queue. Thank you, guys.

Jon Witter, CEO

Thanks, Rick.

Operator, Operator

We'll take our next question from Sanjay Sakhrani with KBW. Please go ahead. Your line is open.

Sanjay Sakhrani, Analyst

Thank you. Jon, could you just sharpen the pencil a little bit on your comments on the underwritability piece of the Plus loan opportunity? When you say the majority wouldn't be underwritable, is that like 60% or 80% that's not underwritable? And then I'm just curious in terms of like other planned changes to policies that are being discussed, could you just talk about those a little bit in terms of what those might be?

Jon Witter, CEO

Sanjay, I'm not sure I can really sharpen the pencil again. I think we were pretty clear. Without there actually being a specific proposal, I just can't do that. I think you should expect that as proposals begin to take form, if they take form, we will certainly do our best to provide that information. But I would rather not sort of suggest sort of numbers without actually being in response to a real proposal. To the second part of your question around the nature of reforms, we have been tracking a whole host of different reforms over the course of the last couple of years. This is obviously a place where we dig in deeply. I'm not going to try to describe every reform that's out there, but I will tell you sort of our, sort of house position on this, which is it is our belief, Sanjay, that the federal government does too much for too many and not enough for those who really need it. And so what do I mean by that? I mean loans really being kind of a little bit of an overused and primary instrument. Yes, there are some grants, but they tend to be a little smaller and a little bit sort of narrowly curtailed in terms of eligibility. And so what you end up happening is you make a lot of underwritten and uncapped loans to a lot of people, many of them who don't need the federal loans and have other access to funding and many of whom can't actually afford the loans. And because they're not underwritten, you can't pay them back at the end. And then we get into from a society perspective, a really unfortunate discussion of what do we do about folks who have a couple hundred thousand (ph) of federal loans and don't have the professional sort of prospects to make good on those loans, and you're into the kind of discussions that I think we've seen play out over the last roughly four years. So I think our position has been the government should do more to provide access to and completion of higher education for folks who are really economically disadvantaged. I think we see a college education and I would even broaden it, a higher education experience because it could be a certificate program, a non-traditional program, has been an incredible driver of social and economic mobility. So I think it's our view that there should probably be thoughtful consideration to are we providing the right amount of money that those really economically disadvantaged cohorts don't have to pay back. I think we would really propose pretty actively a limit on the kind of sort of open and underwritten loans to make sure that those do not get out of hand. And I think what that means and a few of you have asked about it in different ways is that there's probably then a different role for the private sector going forward and potentially a different role or a different set of choices that students can make, state schools versus private schools or the case. So, I think that's one piece of it. Kind of an expansion of sort of grants where appropriate, a curtailing of loans. There's other things that we would be very open to. I think bankruptcy reform is one that gets talked about from time to time. Student loans generally are not dischargeable today in bankruptcy, that really does put customers in a place where they're burdened for a lifetime with decisions that they may have made 15 or 20 years ago. I think we would favor some thoughtful bankruptcy reform, especially after some kind of a seasoning period to make sure you didn't get into sort of misaligned incentives. But I think it's our thought that bankruptcy is a well-established process for folks to clear their debts. And with the right protections and the right thoughtful process, there's no reason in our minds why student loans should not necessarily be considered as a part of that. So there's a lot of those different pieces. I know there's other thoughts being put out there about trying to tie schools into the quality of the degrees. That all gets to me very complicated and I'm not actually sure how it's administered and how it's worked. So I'm not going to try to comment on all of that. But I think if you take away nothing else, I would sort of fall back to this too much for too many, not enough for those who really need it. And I think if nothing else, there's a real opportunity for us to have thoughtful discussion across both sides of the aisle on these kinds of proposals, and we certainly hope that this Congress and this administration takes that up.

Sanjay Sakhrani, Analyst

Thank you for that. I appreciate all the insights. As a follow-up, it's clear that the excellent work you've done has led to the stock reaching five-year highs. I’m curious about your thoughts on balancing the portfolio versus selling. Given that ARB is not as strong as it used to be, have you considered increasing your portfolio, or do you feel adequately compensated through the gains from sales?

Pete Graham, CFO

No. I think, look, we've had an established framework that we use to evaluate the relationship between share price and loan premium and what that means in terms of implied value in different aspects and that continues to hold true. Again, we come back to the strategy we laid out at the forum and we think that's a good framework for balancing the risk in the balance sheet and not creating undue pressure on that, both from funding and/or regulatory pressures as well as managing the rate of growth and the need for capital. So we feel it's a good flexible framework for us to use and it's the one that we're employing and that's what our guidance is based on for this year.

Sanjay Sakhrani, Analyst

Thanks.

Operator, Operator

We will take our next question from Giuliano Bologna with Compass Point. Please go ahead. Your line is open.

Giuliano Bologna, Analyst

Good evening, and thank you for taking my questions. I'll keep it brief as we near the end of the call. Referring to the Plus programs, I understand there are limitations on what can be discussed. However, considering your current range of products, do you see enough overlap with the Parent Plus and Grad Plus programs? Additionally, are you looking into adding more programs or new categories to reach parts of the market not currently covered by the Plus programs? Lastly, do you make a distinction between the Parent Plus and Grad Plus opportunities in terms of balance sheet management or loan sales? Thank you.

Jon Witter, CEO

Hi, Giuliano. There's a lot to unpack here. I'll do my best to address your questions. What we know for sure is that a significant portion of our customers also hold federal loans. This makes it relatively straightforward for us to consider offering them a private loan. Given their awareness of their federal loan obligations, there's a strong likelihood we would also be open to providing federal loans. More specifically, we could consider partial loans under a Plus cap. What’s a bit more challenging to gauge is identifying the customers we currently do not serve who have Plus loans, as well as assessing their overall creditworthiness. This is something we have explored internally. However, I believe it's not appropriate to disclose those details publicly. As I mentioned earlier, we've engaged in operational and financial readiness planning. We feel confident that we have the necessary products or could quickly adapt our existing offerings to cater to both Grad and Parent Plus needs. We've done this analysis and believe we can respond effectively. Therefore, I don't foresee a significant amount of new work required. Whether we implement this through different programs would depend on specific proposals that arise. To be clear, we believe that if there are beneficial reforms involving caps, we are well-positioned to take advantage of them. From a balance sheet perspective, we would likely approach it similarly to how we manage the growth of our traditional private student loans, with this representing an additional element of volume affecting our balance sheet growth compared to our loan sale strategies.

Giuliano Bologna, Analyst

That's very helpful. I appreciate that and I'll jump back in the queue.

Operator, Operator

And we'll take our next question from Jon Arfstrom with RBC Capital Markets. Please go ahead. Your line is open.

Jon Arfstrom, Analyst

All right. Thanks. We can make these quick. Pete, is it safe to assume for the buyback amount that year two amount that you talked about in the December '23 form, is that where you're telling us and we should be thinking about $250 million plus?

Pete Graham, CFO

We still have around $400 million remaining under the multi-year authorization, and we will continue to evaluate share buybacks in the context of our plan for this year. As we complete a loan sale that generates capital, we aim to use that for a programmatic repurchase of our stock. We will establish plans to take advantage of price trends, allowing us to buy more shares at a lower average price. The share buyback is a crucial part of our strategy. While I don't have a specific number to share, this framework should serve as a good reference point.

Jon Arfstrom, Analyst

Okay. And then, Jon, just for you. I've been scrolling through this back to the framework from December '23. Is there anything in that framework that you feel like you'd like to alter? I mean, we're a year out from that and things changed, and I'm just wondering if there's anything that you think needs some alteration? Thank you.

Jon Witter, CEO

Yeah, Jon. I mean, first of all, I think I would want to remind everyone that was not intended to be multiyear guidance, but more of a kind of thought process for you all to go through and thinking about our business. I don't think that thought process, Jon, has changed at all. And I think we've sort of hit that a couple of different ways. And I think it really goes back to the kind of investment thesis points that I made before, strong and predictable balance sheet growth. So we're not looking to blow the lights out in one year. We want to step this up. We want it to be accelerating, 5%, 6%. Might we flex that a little bit on the margin as we've already said? Maybe, but I think the general trend and pattern is what one might expect from this strategy. Again, you can't speak to every future contingency. Strong EPS performance and return on common equity, so we really do see sort of this notion of sort of good operating expense, highly profitable loans, sort of mid to upper single-digit balance sheet growth as a very sort of powerful EPS growth and ROE machine. We love the amount of capital that that generates both in terms of a growing dividend and the kind of share repurchases that Pete was just asked about. And I think we've loved the capital return strategy, share buyback strategy over the last five years. And even as we move to balance sheet growth, we want to keep that moving forward. And I think we've talked a lot about risk and sort of the attractive risk profile of this franchise. So, I don't think it's any more complicated than that. That's our strategy, that's our investor forum, the sort of analytics that we put in there were really meant to be sort of an illustration of that thought process. And I wouldn't change any of it. And by the way, if anything, I think the last year has shown the power of it. We can drive meaningful EPS growth year in and year out. We can return significant shareholder capital, and I think start to capture over time a more attractive growth multiple in our stock. We like all of that and think it's a winning formula.

Jon Arfstrom, Analyst

Great. Thank you very much.

Operator, Operator

And there are no further questions on the line. I'd now like to turn the floor over to Mr. Jon Witter for any closing remarks.

Jon Witter, CEO

Well, thank you, David. Thank you, everyone, for joining. I know we went a little bit more than an hour, but great questions and appreciate the chance to talk about Sallie Mae. Obviously, the team is standing by to answer questions and do whatever necessary follow-up and look forward to answering more detailed questions and seeing you all in about three months to report out on our first quarter progress. With that, Melissa, I'm going to turn it back over to you for a little closing business.

Melissa Bronaugh, Managing Vice-President, Head of FP&A and Investor Relations

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

Operator, Operator

Thank you. This does conclude today's Sallie Mae fourth quarter and full year 2024 earnings conference call and webcast. Please disconnect your line at this time and have a wonderful evening.