SLM Eyes Next Growth Phase as Grad PLUS Reforms Fuel 12%-14% Origination Outlook

Core Insights - The company is poised for growth driven by federal student lending reforms, particularly in the graduate lending segment, which is expected to present a $5 billion opportunity over the next two to three years as new rules take effect [1][3][7]. Growth Outlook - The company anticipates a year-over-year growth of 12% to 14% in private loan originations by 2026, with the impact of Grad PLUS reforms expected to begin influencing results during the peak season this year [2][7]. - The management views mid-single digit origination growth as a normalized run rate, with the current guidance reflecting incremental volume from program changes [7]. Strategic Partnerships - The company is implementing a strategic partnership funding model, starting with KKR, to enhance capital efficiency and generate fee-based income while expanding into new market segments [4][6][11]. - The partnership model is designed to create a long-term source of income while maintaining customer relationships through loan servicing [11]. Financial Projections - Operating expenses are projected to increase by approximately 16% year-over-year as the company invests in graduate product development and marketing, with initial marketing efforts expected to be inefficient [5][14]. - The loan portfolio is expected to remain flat to slightly decrease in the near term, with a return to modest growth anticipated later [6][8]. Market Position - The company leverages its established presence in undergraduate lending, including a significant sales force and relationships with over 2,100 schools, to compete effectively in the graduate lending market [15]. - The company has repurchased over 55% of its shares in the last five years and has announced a $500 million share repurchase authorization for the next two years, indicating confidence in its growth strategy [16]. Economic and Credit Performance - The partnership model is expected to be economically superior to traditional loan holding, with a focus on fee-based income and stable credit performance projected for 2026 [11][13]. - The company anticipates that the graduate cohort will exhibit higher credit quality and shorter duration compared to the core undergraduate product, potentially leading to lower reserve requirements [13]. Labor Market Insights - The company has noted a modest increase in new college graduate unemployment and a longer job search duration, but does not see significant negative impacts on borrower repayment performance from the resumption of federal student loan payments [20][21].