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].

Financial Data and Key Metrics Changes - GAAP diluted EPS for Q4 2025 was $1.12, and full-year GAAP diluted EPS was $3.46, an increase from $2.68 in 2024 [7] - Private education loan originations for Q4 2025 were $1.02 billion, totaling $7.4 billion for the full year, representing a 6% increase over 2024 [7][8] - Net charge-offs for the private education loan portfolio were $98 million in Q4 2025 and $346 million for the full year, equating to 2.15% of average private education loans in repayment, down four basis points from 2024 [8][14] Business Line Data and Key Metrics Changes - The company reported a net interest margin (NIM) of 5.21% for Q4 2025, up 29 basis points year-over-year, and 5.24% for the full year, an increase of five basis points [9] - The total allowance as a percentage of private education loan exposure (reserve rate) was 6% at the end of 2025, up from 5.93% in the previous quarter and 5.83% at the end of 2024 [12] Market Data and Key Metrics Changes - College enrollment trends for Tier 1 schools are up, indicating continued value seen in higher education by students and parents [5] - The company anticipates that the recent federal student lending reforms could contribute an estimated $5 billion in annual originations, representing approximately 70% growth over 2025 [6] Company Strategy and Development Direction - The company is focused on supporting school partners and students as education evolves due to technological changes, emphasizing the importance of acquiring necessary skills for future competitiveness [5][6] - The strategic partnership with KKR aims to enhance capital efficiency and risk transfer benefits, with expectations of significant growth in private education loan originations [7][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the private student lending sector's robustness and a strong outlook for 2026, expecting private education loan origination growth of 12%-14% [18] - The company is prepared for potential economic uncertainties and believes that its strategic initiatives will lead to significant value creation opportunities [22] Other Important Information - The company repurchased 3.8 million shares for $106 million in Q4 2025, totaling 12.8 million shares for $373 million over the full year [9] - Non-interest expenses for the full year were $659 million, a modest increase of 2.6% year-over-year, reflecting disciplined expense management [16] Q&A Session Summary Question: Impact of postponement of wage garnishment on performance - Management indicated that while some customers have federal loans, most do not have Sallie Mae private student loans, and the postponement is not expected to significantly impact the business [24] Question: Modeling 1H vs 2H growth related to Grad PLUS - Management expects modest incremental volume in the first year of phase-in, with growth stepping up over the next two to three years [25][26] Question: Volumes for partnerships and loan sales in 2026 - The first strategic partnership has a minimum commitment of $2 billion in new originations, with expectations of designating about 30% of originations for sale [30] Question: ROI measurement for increased investment - Management emphasized the significant market opportunity for growth and the disciplined approach to measuring ROI on investments [40][41] Question: Confidence level on credit guidance for 2026 - Management expressed confidence in the performance of borrowers in modification programs, with positive payment habits indicating a strong likelihood of success [50][51]

Financial Data and Key Metrics Changes - GAAP diluted EPS for Q4 2025 was $1.12, and full-year GAAP diluted EPS was $3.46, an increase from $2.68 in 2024 [8] - Private education loan originations for Q4 2025 were $1.02 billion, totaling $7.4 billion for the full year, a 6% increase over 2024 [8][9] - Net charge-offs for the private education loan portfolio were $98 million in Q4 2025 and $346 million for the full year, representing 2.15% of average private education loans in repayment, down four basis points from 2024 [9][14] Business Line Data and Key Metrics Changes - The company reported a net interest margin of 5.21% for Q4 2025, up 29 basis points year-over-year, and 5.24% for the full year, up five basis points [10] - The total allowance as a percentage of private education loan exposure (reserve rate) was 6% at the end of 2025, up from 5.93% in the previous quarter [13] - Private education loans delinquent 30 days or more represented 4% of loans in repayment as of year-end, unchanged from Q3 and up from 3.7% at the end of 2024 [14] Market Data and Key Metrics Changes - College enrollment trends for Tier 1 schools are up, indicating continued value seen in higher education [5] - The company anticipates that the recent federal student lending reforms could contribute an estimated $5 billion in annual originations, representing approximately 70% growth over 2025 [6][7] Company Strategy and Development Direction - The company is focused on supporting school partners and students as education evolves due to technological changes [5][6] - A new two-year $500 million share repurchase authorization was announced, reflecting a commitment to returning capital to shareholders [10] - The company expects private education loan origination growth of 12%-14% in 2026, driven by the new PLUS caps [19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the private student lending sector's robustness and the company's strategic positioning for future growth [5][19] - The company is prepared for potential economic uncertainties and believes that improvements in collections effectiveness will mitigate risks associated with early-stage delinquencies [16][51] - Management anticipates EPS acceleration beginning in 2027, with high teens to low 20% growth expected as the PLUS opportunity materializes [22] Other Important Information - Non-interest expenses for the full year were $659 million, a modest 2.6% increase year-over-year, reflecting disciplined expense management [17] - The company ended the quarter with liquidity of 18.6% of total assets and total risk-based capital of 12.4% [18] Q&A Session Summary Question: Impact of wage garnishment postponement on loan performance - Management indicated that while many customers have federal loans, most federal loan customers do not have Sallie Mae private student loans, and the postponement is expected to have a minimal impact on business [25] Question: Modeling growth from Grad PLUS changes - Management expects modest incremental PLUS volume in the first year, with growth stepping up over the next two to three years [26] Question: Volumes for partnerships and loan sales in 2026 - The strategic partnership includes a minimum commitment of $2 billion in new originations, with approximately 30% of originations expected to be sold [30] Question: ROI measurement for increased investment - Management emphasized the significant market opportunity for growth, estimating a potential 70% increase in originations over the next few years [38] Question: Confidence in credit outlook for 2026 - Management expressed confidence in the performance of borrowers in modification programs, with 75% of the 2023 cohort current at the end of 2025 [46][48]