SLM - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered a clean beat versus Wall Street on both EPS and revenue: GAAP diluted EPS was $1.40 versus $1.18 consensus, and “revenue” (SPGI net revenue definition) was $557.7M versus $360.5M consensus; management reaffirmed full‑year 2025 guidance rather than raise it, noting the quarter’s large loan‑sale gain was anticipated when guidance was set.
• Net interest margin expanded 35 bps sequentially to 5.27% as deposit costs eased and mix helped; non‑interest income was buoyed by a $188M gain on a $2.0B loan sale (high single‑digit premium).
• Credit trends improved ahead of plan: annualized net charge‑offs were 1.88% (down 26 bps YoY), 30+ DPD delinquency was 3.58% (vs. 3.68% at YE’24), and hardship forbearance remained stable at 0.92%.
• Capital return remains active but paced to loan sale proceeds: $31M of buybacks (1.0M shares) in Q1; $372M remains under the 2024 program; CET1 11.6% and Total RBC 12.9% provide capacity; Q2 common dividend declared at $0.13 per share.
• Near‑term stock catalysts: sustained NIM improvement, additional loan sale timing/pricing, and confirmation that loss‑mitigation/extended‑grace programs keep delinquency and NCOs on the favorable trajectory discussed on the call.

What Went Well and What Went Wrong

• What Went Well

  • Strong gain‑on‑sale execution: $2.0B loan sale generated $188M gains (up $45M YoY; high single‑digit premium), materially lifting non‑interest income and EPS.
  • Credit outperformed: net charge‑offs at 1.88% (down 26 bps YoY), with management attributing improvement to seasonality, optimized loss‑mitigation, and underwriting enhancements; 30+ DPD improved sequentially to 3.6% of loans in repayment.
  • NIM inflected: 5.27% in Q1 (up 35 bps QoQ), with CFO reiterating a long‑term NIM target in the low‑to‑mid‑5% range.

• What Went Wrong

  • Provision rose YoY to $23M (from $12M), driven by growth in commitments; though partially offset by a $116M reserve release tied to the sale (non‑recurring).
  • Delinquencies up modestly YoY (3.58% vs. 3.41% in Q1’24), with early‑stage buckets influenced by customers in qualifying periods of modification programs (management-adjusted view ~3.0%).
  • Guidance not raised despite a sizable beat; management cited that the February loan‑sale gains were embedded when they issued the 2025 outlook and maintained a cautious macro stance.

Transcript

Operator (participant)

Please stand by, your program is about to begin. If you need audio assistance during today's program, please press star zero. Welcome to the Sallie Mae Q1 2025 earnings conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the prepared remarks. If you would like to ask a question at that time, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. So others can hear your questions clearly, we ask that you pick up your headset for best quality. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Kate DeLacy, Senior Director and Head of Investor Relations. Please go ahead.

Kate DeLacy (Senior Director and Head of Investor Relations)

Thank you, Kate. Good evening and welcome to Sallie Mae's Q1 2025 earnings call. It's 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-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, April 24, 2025. Thank you, and now I'll turn the call over to Jon.

Jon Witter (CEO)

Thank you, Kate and Margo. Good evening, everyone. Thank you for joining us today to discuss Sallie Mae's Q1 2025 results. I'm pleased to report on a successful quarter and progress toward our 2025 goals. I hope you'll take away three key messages today. First, we're off to a strong start for 2025. Second, we are encouraged by our early credit performance. Third, we believe we have positive momentum for the rest of the year despite uncertainties in the broader macroeconomic environment. Let's begin with the quarter's results. GAAP diluted EPS in the Q1 was $1.40 per share as compared to $1.27 in the year-ago quarter. Loan originations for the Q1 were $2.8 billion, an increase of 7.3% from the year-ago quarter, a strong start to 2025. The credit quality of originations continues to be solid, with incremental improvement compared to Q1 of 2024.

Our co-signer rate for the Q1 was 93% compared to 91% in the year-ago quarter, and average FICO at approval was 753 for the Q1 compared to 748 in the Q1 of 2024. The Q1 also reflected strong credit quality. Net private education loan charge-offs in Q1 were $76 million, representing 1.88% of average loans in repayment. This is down 26 basis points from the Q1 of 2024 and ahead of expectations. Our positive credit performance in the Q1 of this year was driven by several key factors. Seasonality played a role, as the Q1 historically delivers stronger credit outcomes compared to the rest of the year. We also continue to see benefits from enhancements in our collection practices and the effectiveness of our expanded loss mitigation programs.

While we are pleased with this early performance, we remain mindful of the uncertainty created by recent policy changes and their potential implications for the broader macroeconomic environment. The $2 billion loan sale that we executed in the Q1 generated $188 million in gains, a high single-digit premium, and an increase of $45 million from our Q1 2024 sale. We expect to sell additional loans this year, with market conditions dictating the timing and our private student loan portfolio growth targets dictating the volume. For the Q1 of 2025, we continued our capital return strategy, repurchasing 1 million shares at an average price of $29.65 per share. We have reduced the shares outstanding since we began this strategy in 2020 by 53% at an average price of $16.29. We expect to continue to programmatically and strategically buy back stock throughout the year.

Pete will now take you through some additional financial highlights of the quarter. Pete, over to you.

Pete Graham (EVP and CFO)

Thank you, Jon. Good evening, everyone. Let's continue with a discussion of key drivers of earnings. For the Q1 of 2025, we earned $375 million of net interest income. This is down $12 million from the prior year quarter, but ahead of the Q4 of 2024 by $13 million. During the Q1, we completed a $500 million unsecured bond transaction, which was used to redeem our November 2025 maturity. Our net interest margin was 5.27% for the quarter, 35 basis points ahead of the prior quarter. We continue to believe that over the longer term, low to mid-5% is an appropriate NIM target. Our provision for credit losses was $23 million in the Q1 of 2025, up from $12 million in the prior year quarter.

The increase was largely driven by loan growth related to the mini-peak origination season and partially offset by a $116 million reserve release associated with the $2 billion loan sale completed during the quarter. Despite the higher provision, our allowance as a percentage of total private education loan exposure was 5.97%, slightly down from 5.99% in the year-ago quarter. This represented a 14 basis point increase from the Q4, which is consistent with the seasonal impact of higher originations in the Q1 of the year. Our reserve rate has remained relatively consistent year over year, reflecting a balanced view of credit performance and the broader macroeconomic environment. While we are encouraged by the ongoing benefits from our loan modification programs and the continued strength in the credit quality of originations, we remain cautious.

The economic outlook continues to be a key variable in our reserve modeling, and we will closely monitor any changes in the environment that could impact future estimates. Private education loans delinquent 30 days or more were 3.6% of loans in repayment, a decrease from 3.7% at the end of 2024, although higher than the 3.4% at the end of the year-ago quarter. We remain pleased with the performance of our enhanced loss mitigation programs, which we've now had the opportunity to observe over more than a full year. The volume of loan modification enrollments has decreased by approximately 50% from highs in the Q3 of 2024, as we have optimized our eligibility criteria. We're pleased with the trajectory of this program, and the positive performance is an important step towards achieving our long-term net charge-off targets.

Q1 non-interest expenses were $155 million compared to $150 million in the prior quarter and $162 million in the year-ago quarter. This was a 4% decrease compared to the Q1 of 2024, despite an increase in application and originations volume in the quarter. Finally, our liquidity and capital positions remained solid. We ended the quarter with liquidity of 16.8% of total assets. At the end of the Q1, total risk-based capital was 12.9%, and Common Equity Tier 1 capital was 11.6%. 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 16.4%. 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 we executed well in the Q1 and that you share my belief that we have positive momentum for the full year of 2025. Let me close with a few comments on our 2025 guidance. As I mentioned earlier this evening, the strength of our Q1 origination season, the positive momentum in credit performance, and the successful execution of our first loan sale this year reflect a solid start and meaningful progress toward our goals. While we remain confident in our trajectory and expect performance of our programs over the medium term, we also recognize the broader macroeconomic uncertainty that persists. As such, we will continue to monitor developments closely and will provide updates in future earnings calls as we gain greater clarity throughout the year.

At this time, we are reaffirming the 2025 guidance that we shared on our last earnings call for all key metrics. With that, Pete, why don't we go ahead and open up the call for some questions?

Operator (participant)

Thank you. As a reminder, ladies and gentlemen, if you'd like to ask a question, that is star one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Again, that is star one for a question. We'll take our first question from Jeff Adelson with Morgan Stanley. Please go ahead.

Jeff Adelson (Executive Director)

Yeah, hey, thanks for taking my questions. Your credit, your charge-offs did really well this quarter. I know you gave some color on the seasonality, and you continue to be pleased with the loss mitigation programs. Would you attribute most of that outperformance versus what you've seen over the last few years to the loss mitigation programs you're putting on, or is there anything else we should be aware of under the hood? Any sort of early color or anything you're noticing or expecting from some of the impacts of the government programs where, you know, recently we saw the announcement that the government is intending to turn back on collections and wage garnishment for those in default, and, you know, there's been a number that in the federal program have not been paying their loans for some time?

Jon Witter (CEO)

Yeah, Jeff, it's Jon. Let me take both of those, and I'll invite Pete to chime in if I miss anything. You know, on the charge-offs, I think we've been pretty consistent about this. I think we would point to a number of contributing factors. As I said in my comments, there's obviously a little bit of seasonality. If you looked back at Q1 of last year, for example, you would see, you know, a net charge-off rate that was, you know, a little bit lower than the full year. That is certainly a part of it. I think the loss mitigation programs is a part of it, and it's not just the introduction of those programs, but really the continued optimization of those programs over time.

I think Pete mentioned, you know, the fact that we're optimizing around enrollments, but we're also optimizing around other components of the programs as well so that they better meet the needs of our customers. As I think we've said sort of repeatedly, you know, we've also, over the last, you know, number of years, engaged in on the margin, but we think powerful sort of changes and enhancements to our underwriting capabilities. Those are a little bit of a longer burn time item, just given the amount of time our students spend in school before they enter repayment. That is obviously a part of the answer as well, and will continue to be a part of the answer in the future. I don't think there's anything new that I would add to that. I think it's the same basic recipe that we have that we've talked about.

You know, to your second question, which we could probably spend all night talking about, you know, obviously there's a lot of changes in sort of focus of this administration. They have talked about a whole variety of different things. You know, first and foremost, reporting of delinquency and default status in federal loans to the bureaus. You know, there was a number of articles that came out several weeks ago about that. You know, I think really spearheaded by an op-ed piece in the last couple of days by the Secretary of Education, you know, a focus on, you know, more active sort of collections and sort of payment activities related to that population. You know, we've dug into this a number of different ways.

You know, I'll preface this by saying we don't have perfect data on our customers and their federal loan programs in use. You know, we look pretty carefully, for example, at FICO, and we have seen, you know, for our customers who have federal loans, no material sort of change in the average FICO performance. You know, there's always, as you would expect, you know, some people who go a little bit up and some people who go a little bit down, but the averages have stayed very, very steady. Even as we've dug into some of those sort of joint customers, you know, customers of us and the federal government whose FICOs have declined, we've not seen any material or meaningful reduction in their ability to pay or payment sort of metrics, you know, or behaviors or patterns.

You know, the FICO stuff seems to be really pretty steady. We also did a fair amount of sort of what I would describe as one-time special analysis on this. We looked at all of our customers who also have federal loans. I think there were some things that we saw that were pretty interesting there. You know, our joint customers, again, federal and Sallie Mae, seem to have a lower delinquency rate on their federal loans than the federal population as a whole. I need to caveat that by saying the data on delinquencies out of the federal loan program is not great, but the best that we've been able to piece that together.

I think, you know, even more interestingly, if you look at those customers, those joint customers who are delinquent on their federal loans, 85% of those joint customers are actually current on their Sallie Mae loans. I think when you put all of that together, Jeff, it says, you know, at least to me, you know, it suggests two really important things. You know, one, our average customer is just different from the federal customer as a whole. Said simply, you know, most of Sallie Mae's customers have a federal loan, but lots of federal borrowers do not have Sallie Mae loans, right? The two populations, you know, we really believe are different.

I think, you know, that performance also speaks to the strategy that we enacted several years ago of getting our customers back into positive repayment habits sort of early after the, you know, the coronavirus situation abated. I think, you know, we are seeing sort of the positive impact of those credit habits. You know, I think that says, you know, or at least validates to a certain amount that overall strategy. Probably more data than you were looking for, but at least as of this time, we're just not seeing a lot of impact of that. Obviously, as those federal strategies continue to season, we'll continue to monitor. If we see something different, you know, that we think is material, you know, of course, we'll talk about that.

Jeff Adelson (Executive Director)

No, that's great. Thanks for all that color. That's really helpful. Maybe the other side of that coin is some of the changes or, you know, forthcoming changes of the Department of Education are also maybe incentivizing some more activity from borrowers to go private. I'm just wondering if you're seeing any of that yet. I know we're still waiting on changes in the PLUS programs potentially down the line, but are you noticing an uptick in, you know, graduate borrowers maybe coming to you? Or maybe you could share any, you know, what percent of your originations are coming from graduate if that's increased at all?

Jon Witter (CEO)

Jeff, yeah, first of all, I think it is, you know, it is sort of early and hard to know. You know, as we have talked about, I think often in our business, spring follows fall, fall does not follow spring. So an awful lot of the originations and disbursements that we are doing, you know, now are really follow-on business from the fall. You know, with that said, you know, I think there are some very sort of, you know, initial signs that there may be some increased activity there, but it is way too early for us to have, you know, a strong point of view on that. I think in terms of that swap-in, swap-out behavior, if that happens, you know, we would really expect to see that during peak season this summer.

Jeff Adelson (Executive Director)

Great. Thanks for taking my questions. Good night.

Operator (participant)

We'll next go to Terry Ma of Barclays. Please go ahead.

Terry Ma (Senior Equity Research Analyst)

Hey, thank you. Good evening. Just wanted to follow up on credit. The delinquency rate improved sequentially, but it was up 18 basis points year over year. A lot of that was driven by the early stage bucket. That bucket was pretty flat year over year the last two quarters. Any color on kind of what went on there?

Pete Graham (EVP and CFO)

I think one of the things that's, you know, sort of impacting delinquencies in the quarter is the, you know, sort of the impact of the folks that are in their qualifying periods in the mod programs. You know, comparing prior Q1 to this quarter, you know, that's a significant change in practice. If you adjust for those folks in the mod programs that are in the delinquency buckets, you know, that number for this quarter is a 3% number. I think that's a big piece of some of the trend that you're referring to there.

Terry Ma (Senior Equity Research Analyst)

Got it. All right. If I look at kind of your extended grace, there's been much higher usage over the last year. I guess, like, how should we kind of interpret that? Is there kind of any color that you can give on borrower behavior kind of once they exit extended grace? Thank you.

Pete Graham (EVP and CFO)

Yeah, I think, you know, the changes we made to the, to, you know, provide that extra assistance that was allowed under the regulations for those borrowers that are new to repayment, that's the highest period of stress that, you know, that we see in the portfolio as people are, you know, graduating, getting their lives in order and going into, you know, establishing good payment patterns in their life. We feel like the usage of that, you know, as we've rolled out that program is probably indicative of it operating as intended. You know, at the margins, the level of people, you know, applying to that, I don't think are indicative of anything broader in the overall economy. We view that as, you know, a very strong program that are helping people be successful.

Operator (participant)

Thank you. We'll next go to Moshe Orenbuch with TD Cowen. Please go ahead.

Moshe Orenbuch (Managing Director and Senior Analyst)

Great. Thanks. Jon, I know that you mentioned, you know, that the, you know, the growth of the balance sheet would kind of be driven, or I should say the amount of the loan sales would be driven by your balance sheet growth targets. Maybe if you could just kind of talk a little bit about now that, you know, the CECL is in the rearview mirror, the CECL phase-in, you know, how you are thinking about both, you know, growth in the balance sheet and, you know, capital return.

Jon Witter (CEO)

Yeah, Moshe, happy to. Again, Pete, jump in if I miss anything here. You know, for anyone who was not a part of it, I would encourage folks to go back and look at our December 2023 investor forum presentation. You know, while that was certainly not meant to be, you know, kind of a multi-year commitment in any way, shape, or form, I think it was really meant to sort of give as clear evidence as we can of sort of how we think strategically about the business. I think, you know, Mosha, to answer your question, you know, what we really like in the business right now as we move past full CECL phase-in is, you know, moderate, accelerating, and predictable balance sheet growth. We think there's a real value in growing the balance sheet.

We think there's a real value in the kind of growth of predictable, steady, kind of NIM-based, you know, earnings that come from that. You know, we like that overall, you know, that overall view. We do, though, want to put, you know, sort of thoughtful kind of limits or governors, if you will, on how quickly we do grow the balance sheet. You know, growing the balance sheet consumes meaningful capital. Growing the balance sheet, you know, puts stress on the liquidity portion of our business. By the way, you know, you know how our strategy has evolved over the last five years. I am as committed to strong capital return and capital discipline as I think anybody. We also like saving room in our plan to continue to return meaningful capital to shareholders.

That kind of moderate plan allows us to, in our mind, get a little bit of a Goldilocks where we can grow the balance sheet thoughtfully and still every year, you know, have meaningful capital to return in the form of share buybacks, you know, really fueled through our loan sale proceeds. What we also like is sort of the potential for, you know, a strong and over time potentially growing dividend, you know, that would really be fueled by that balance sheet growth. I think we laid all of that out in sort of that investor forum document in more detail. I think the guidance that we've given for this year is completely consistent with that.

In fact, I think we're sort of a year ahead of where we thought we would be on that journey on sort of virtually every metric. We feel great about the value that that's been able to create for us so far.

Moshe Orenbuch (Managing Director and Senior Analyst)

Great. You did mention that expenses were down 4% year on year despite, you know, higher applications. I know that, you know, kind of driving that better unit economics has always been part of the thesis. Just talk a little bit about, you know, what you've done to achieve that and, you know, how sustainable is that or how you think about that going forward?

Pete Graham (EVP and CFO)

I'll take that one. Yeah, I think, you know, as you stated, you know, it's been an ongoing focus of ours to continue to drive operating leverage in the business. Each year, as we set out our guidance, we have that in mind as we set our targets for the year. I think in regards to any one quarter, there can be gives and gets in the quarter that, you know, swing things one way or the other. We are happy with the expense performance we've had and committed to, you know, to the overall guidance that we've put out for this year.

Moshe Orenbuch (Managing Director and Senior Analyst)

Thanks very much.

Operator (participant)

Thank you. We will take our next question from Michael Kaye with Wells Fargo. Please go ahead.

Moshe Orenbuch (Managing Director and Senior Analyst)

Hi, good evening. You know, EPS, you know, is off to a really good start this year, you know, much higher than, you know, Q1 consensus estimates. Though, you know, your EPS guidance for the year was unchanged. Trying to figure out, is that just cautiousness as we're early in the year and maybe some pickup in macro uncertainty that's keeping the guidance unchanged or is something else at play? Are you actually running ahead of plan thus far?

Pete Graham (EVP and CFO)

Yeah. Hey, Michael, it's Pete here. I guess what I would say is I would break that down as follows. You know, kind of one of the key performance drivers for the quarter was the loan sale that we completed in February. You know, we knew what the results of that were when we set our guidance out for this year. You know, again, we're committed to our overall guidance for the year. I think, you know, there is some amount of macro uncertainty in the world, but we haven't seen anything that's impacting our results yet. We haven't made any real adjustments yet as regards to that.

Moshe Orenbuch (Managing Director and Senior Analyst)

Just back to the buybacks, it seems like it's off to a very slow start this year, just, you know, just like $31 million. I mean, do you plan to come anywhere near close to completing that? I think it's $372 million that that's left.

Pete Graham (EVP and CFO)

Yeah, I think if you look at the share buyback pattern that we had in 2024 and you compare that to, you know, our start to the year, I think they're relatively consistent. I'll remind, you know, everyone that last year we set out to create a more programmatic approach to share buybacks and we fund those share plans with the proceeds from the loan sales as they occur. We're running the same, you know, sort of playbook this year. We completed a loan sale in February and we put in a program, you know, with the proceeds from that loan sale that started executing very shortly thereafter. I wouldn't necessarily read anything into the pace of the start to the year.

Moshe Orenbuch (Managing Director and Senior Analyst)

Okay. All right. Thank you.

Operator (participant)

We'll next go to Nate Richam with Bank of America. Please go ahead.

Nate Richam (Equity Research Associate)

Good afternoon and thanks for taking my question. Originations in the quarter were pretty solid, but I would have thought growth would have been a little faster given the share gains you made late last year and the strength we saw in, you know, two weeks 2024. I realize you were reiterating, you know, guidance for the full year, but just curious to hear your thoughts on how the quarter shook out versus your expectations and, like, if you expect a relatively consistent growth rate from here or the normal step down that we'd probably expect from, like, a from a year lapping that share gain.

Jon Witter (CEO)

Yeah, Nate, I think in terms of originations, I think we're, you know, sort of well within our expectations for the year. You know, we had a lot of discussion last year when we set guidance about the fact that, you know, with the competitive changes in the marketplace, you know, those changes would be spread over two years. There'd be a fall effect, which we really experienced last year, and there'd be a spring effect, which we experienced this year a little bit smaller. I think we feel like we're, you know, sort of right on our plan and right where we expected to be for the spring effect.

You know, I do think you should expect that this fall will not, you know, sort of match last fall in terms of, you know, the overall growth rate because, you know, you do not get competitors leaving the marketplace, you know, the same competitor leaving the marketplace two years in a row. I think we believe what we are seeing in the Q1 is consistent with the guidance that we have given for the year.

Nate Richam (Equity Research Associate)

Got it. Thank you. I want to go back to Moshe's question really quickly. The expense efficiencies were really solid in one key, but I'm just curious if you can give us some additional color on, like, the puts and takes for the full year outlook and, like, what could push it to the high end of the range at this point? Is it, like, variability on the loan volumes you do in the fall season or is it other spending, like, investments and just marketing in general?

Pete Graham (EVP and CFO)

Yeah, again, we're off to a good start for this year. We, you know, we feel good about the level of efficiency we've been driving into the business to a degree that we can generate more efficiencies that'll, you know, give us some flexibility to accelerate investment in other, you know, technologies or other things that'll, you know, have further efficiency gains in the future. You know, we've got a fairly tight expense range of guidance for the full year. I think that's appropriate for us to, you know, sort of keep to our commitment at this juncture in the year. I don't see anything that's going to wildly swing us beyond the guidance that we've given.

Nate Richam (Equity Research Associate)

Got it. Thank you.

Operator (participant)

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

John Hecht (Managing Director)

Good afternoon. Thanks for taking my questions. First question, I'm just going back to some policy stuff. You know, I think we've all become aware of some headlines about some potential changes or reduction in funding of several large universities, you know, along with just sort of general over, you know, government cutbacks and a lot of factors or segments. You know, I'm wondering if that happens, it seems like some of that would also, some of that deficit would go to the private markets. Have you guys given that much consideration? Is there anything else we should be thinking about if that trend does occur?

Jon Witter (CEO)

Yeah, John, it's Jon. You know, we've been following the same news reports that you are. You know, I think it's a little bit of a difficult question because the unknown at this point is how do colleges and universities respond and how long lasting and how, you know, sort of how fully, you know, are the various proposed actions followed through on. You know, I think there are gives and gets. You know, certainly if universities are under greater financial pressure, it, you know, it implies perhaps for some that there's less money there for financial aid. That probably leaves a larger gap for families to make up on. You know, that is the core of our business, that gap financing. You know, that could certainly be, you know, a slight positive to, you know, to our originations outlook.

You know, I would also say, you know, on the, you know, on the opposite side, just as an example, you know, if, for example, fewer international students come because of visa or other issues, that's not a big part of our business today. But, you know, we do do business with, you know, with some international students if they have an appropriate co-signer, you know, and that could be a very slight sort of, you know, headwind to the overall origination. I think it's really too early to tell. I think there's too many gives and gets there. I don't think we are envisioning it having a material impact as we know it at this point for this year.

You know, certainly as the breadth and depth of those policy changes comes more into focus, breadth being number of schools impacted and, you know, depth, of course, being the magnitude of the impact, I think we'll be in a better position to understand. You know, if that changes our originations outlook, we'll, of course, update that in a future earnings call.

John Hecht (Managing Director)

Okay. That's helpful. Thanks. Then a second question, you know, big, big sale this quarter and a really strong gain. I'm wondering, is the character of the buyers, has that been changing? I mean, you know, I think we're all aware of the massive amount of flows in the private credit funds. Are you seeing a shift toward more bids from that group? Is it still, or is it still kind of ABS and more general credit buyers at this point?

Pete Graham (EVP and CFO)

No real difference in the process this year versus last. No real change in makeup of the bidders on the transactions. You know, although it hasn't occurred yet, my expectation is that, you know, the buyer will be using our securitization framework for, you know, for their funding takeout sometime here in the near future.

John Hecht (Managing Director)

Okay. Thanks very much.

Pete Graham (EVP and CFO)

Yep.

Operator (participant)

We'll take our next question from Rick Shane with JPMorgan. Please go ahead.

Rick Shane (Head of Consumer & Specialty Finance Research)

Hey, guys. Thanks for taking my questions. Look, one of the things that's, you know, emerging is that the job market for graduating seniors is going to be a little bit more challenging this year than we've seen in the last four or five years. I'm curious when you might start to see that or how that plays through your numbers. Is it something we would see in the Q3, or does it not really emerge until the following year if that becomes a challenge?

Jon Witter (CEO)

Yeah, Rick, you know, I've seen, I'm sure some of the same, you know, articles and coverage there that you have seen, you know, a couple of thoughts and perspectives. You know, one, as you can imagine, we do regular kind of research and touch bases with our customers and try to understand how they are feeling about things. You know, as recently as work that we did, you know, late last fall, you know, we were still seeing a very high degree of optimism among, you know, sort of recent grads about their ability to meet their financial obligations. A lot can change in a few months, but I think that is sort of a relevant, you know, sort of data point or sort of factoid to sort of start with.

You know, I think the second thing is, you know, college kids transitioning and, you know, finding that first job and recognizing that it may take in some instances more or less time for people to find and land their right first opportunity. That's been happening to greater or lesser extents since we started in this business. There is a reason why we invest as deeply and thoughtfully in communication programs, readiness programs, but also things like, you know, our Extended Grace Program and really target them at that transition point because we know it's always going to be a hard point. You know, and quite frankly, if there's a little more or a little less unemployment during that period, I'm not sure it changes sort of the stress of that, you know, sort of materially.

I think kind of a good case in point of that is, you know, even with the slightly elevated unemployment rates that we're seeing today among recent college grads, you know, you're not seeing that flow through into our net charge-off rates in the quarter. You know, this is a part of the business we are well familiar with. This is not a new phenomenon for us. This is something that, you know, if you're a private student lender and you're good at your craft, you kind of know how to deal with it. You know, to answer your question specifically, I think if you were to see stress, it would be associated with the same kind of repayment waves, you know, the fall and the spring repayment waves that you're used to seeing.

I think if you look back at sort of, you know, delinquency trends over quarters, you would expect, you know, if you were to have real issues being caused by early to graduate unemployment rates, I think you would expect them to play out over roughly those same timelines.

Rick Shane (Head of Consumer & Specialty Finance Research)

Got it. Okay. That's helpful. Look, it actually ties into the second part of my question, which is that I assume that the extended grace forbear or extended grace loans, loans on extended grace period are particularly correlated to loans in the 1 to 12 month payment bucket, perhaps leaking into the 13 to 24. If we look at the growth in extended grace, it's been about 2x the growth of loans in the first 12-month bucket. Is that really a reflection of the change in policy? Is that what we should sort of expect to see going forward, or is that starting to incorporate some of the economic factors that we're describing here?

Jon Witter (CEO)

Yeah, Rick, my sense of it, extended grace is a program that has a tight eligibility window. You are only eligible for that program within very certain time periods of coming out of school. One of the strategic decisions that we made as we transitioned away from our former forbearance programs, because that is a, you know, kind of a stipulated program, was to do a lot more work about educating, you know, our customers as to the availability of that program for them. Because if you miss the on-ramp, you miss the on-ramp, you know, as the regulations go. I think our view is what we're seeing is a very positive outcome. We are educating our students on the programs that are available to them. We are helping them make use of a program that's only available to them at the very beginning.

If they miss that on-ramp, they would have to go to a different program, which then limits their eligibility for other programs down the road, you know, through, you know, through various restrictions and counters. We view this as a really positive thing. As Pete said, you know, we do not view those volume trends as being, you know, sort of unhealthy. We view it as a really positive step in us helping these customers as they go through that transition.

Rick Shane (Head of Consumer & Specialty Finance Research)

Got it. I appreciate it. As the parent of a graduating senior, I will embrace your enthusiasm for the market as it evolves.

Jon Witter (CEO)

Yep. Appreciate that, Rick. Good luck to your child.

Rick Shane (Head of Consumer & Specialty Finance Research)

Thank you. Take care, guys.

Operator (participant)

We'll take our next question from Mark DeVries from Deutsche Bank. Please go ahead.

Mark DeVries (Director)

Yeah. How has student loan ABS traded since you did your loan sale? Any sense for, you know, what type of gain you would generate today if you sold at the current spreads?

Pete Graham (EVP and CFO)

That's a very good question. I think there's been, as with all the markets, there's been a good amount of volatility in the last, you know, call it month or so. You know, my understanding, the market currently is fairly stable. You know, there's somewhat of a cyclicality of issuances coming after, you know, earnings calls, typically led each quarter by the auto issuers primarily. That those have been in market this week. My understanding is the market's functioning pretty well. I don't have a specific answer in terms of, you know, the gain on sale as it pertains to spreads in February versus now. I don't believe that there's been a material widening of spreads, you know, that has been persistent.

I think there's been some points in time, obviously, where because of the broader, you know, macro volatility, spreads have blown out and then, you know, come back in. Yeah, that's my point of view. I think the market's functioning, you know, well. You know, we'll monitor it as we go into the rest of the year here for the optimal time to do the next sale.

Mark DeVries (Director)

Okay. Got it. That's helpful. Thanks.

Operator (participant)

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

Jon Witter (CEO)

Thank you, everyone, for dialing in. I'm sure everyone is anxious to get off to the NFL draft this evening. I hope your team gets the selection that they wanted. Appreciate your interest in Sallie Mae. Obviously, if you have follow-up questions, Kate and her team are more than happy to be standing by and will take whatever you need from here. I think with that, Kate, I'm going to turn it back over to you for some last-minute business.

Kate DeLacy (Senior Director and Head of Investor Relations)

Thanks, Jon. 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 (participant)

Thank you. This concludes today's Sallie Mae's Q1 2025 earnings conference call and webcast. Please disconnect your line at this time and have a wonderful evening.