SLM Corporation (NASDAQ:SLM) Q4 2024 Earnings Conference Call January 23, 2025 5:30 PM ET

Company Participants

Melissa Bronaugh - VP & Head, IR
Jon Witter - CEO & Director
Pete Graham - EVP & CFO

Conference Call Participants

Terry Ma - Barclays
Mark DeVries - Deutsche Bank
Michael Kaye - Wells Fargo
Moshe Orenbuch - TD Cowen
Jeff Adelson - Morgan Stanley
John Hecht - Jefferies
Nate Richam - Bank of America
Rick Shane - JPMorgan
Sanjay Sakhrani - KBW
Giuliano Bologna - Compass Point
Jon Arfstrom - RBC Capital Markets

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. [Operator Instructions] 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

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

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 and 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, in part 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 and 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

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 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 and 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 and repayment compared to $374 million or 2.4% in 2023.

Private Education Loans delinquent 30 days or more were 3.7% of loans and 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 80% plus 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

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 standby 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 and 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

The floor is now open for questions. [Operator Instructions] Our first question is coming from Terry Ma with Barclays. Please go ahead.

Your line is open.

Terry Ma

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

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

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

Yeah, Terry. I don't recognize that number or recall that number and I don't think we put out any specific guidance on what the range would be. I think a couple of thoughts.

One, if you take a step back, part of why we believe Plus reform is appropriate is that it is effectively an unlimited and underwritten loan. And I think in our mind, that causes sort of several broader societal issues. One, there's a number of customers who simply borrow beyond their means, even assuming that they get a good college degree as a part of the bargain.

And two, that unlimited amount of resources. I think a number of studies have shown are a meaningful driver to the kind of higher education inflation that we have seen. So, you get higher borrowing than you should and you get more inflation than you should.

And so we are supportive of broader Plus and thoughtful Plus reform in the context of what we hope to be a broader rethink of the role of the federal government in funding higher education. To your specific question and I think in that context, not all of the loans, and I would actually venture to guess, a majority of the loans would not fit our credit box for the exact reasons that I just described. And I think we would look for and I think hope for either other sources of funding, maybe expanded grants to be available to those students and/or look for them to make a different set of choices about what higher education options to pursue.

We do expect though that there will be a meaningful sort of opportunity for some of those loans to shift into private student loans. We have not put out specific estimates on that and a lot of it depends, Terry, on exactly where they set the sort of thresholds should there be reform and the other moves and changes that they make in the policy. So we have put together internal scenarios, which inform our sort of operational planning, but we have not put forth anything externally in terms of the exact volume because we just don't know until we see a specific proposal to respond to.

But again I think we believe it is -- it has the potential of being meaningful, but I think the numbers that you were talking about would probably be north of what I would expect.

Terry Ma

Okay. Got it. That's helpful.

Thank you.

Operator

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

Mark DeVries

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

Yeah. Mark, it's hard for me to comment without seeing it on your math. I think the way that I think about it, I think we talked about this when the news came out about the changes in sort of the competitive set.

I think what we said is people should expect there to be sort of two medium sized years in terms of growth and not one sort of large year. And so what we saw in '24 was a spring that looked pretty typical, followed by an outsized fall. And I think if you look at our sort of quarterly numbers versus our annual numbers, you sort of see that with 10% being the total.

And I think if you look at the second -- at 2025, what you should expect is a sort of larger spring, but a pretty typical fall because we're now comping back over sort of the ultra-high growth of this last fall. We know that spring typically is a little bit of a smaller opportunity than its fall. That's why we call it peak and mini peak.

So I think if you think about 10% growth in 2024, 7% at the midpoint doesn't seem like to me a meaningful discount sort of off of that logic if that makes sense to you.

Mark DeVries

Got it. And then just a question on buybacks. It looks like the full year buybacks for '24 were about $100 million below the plan laid out at the Investor Forum in 2023.

I'm just wondering what -- if I've got those numbers right, if kind of what changed the priorities.

Pete Graham

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

Got it. Makes sense. Thanks for the comments.

Jon Witter

Thanks, Mark.

Operator

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

Michael Kaye

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

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

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

Pete Graham

Yeah.

Michael Kaye

So I thought that reserve -- the allowance rate was basically flat quarter-on-quarter. It might have been like down 1 basis point. You're saying that higher originations made it more flattish than you would have thought despite the fact that it seems like the origination quality is pretty strong.

Pete Graham

Yeah. Look, the CECL process is -- lots of different variables that go into that. And I think about it as an overall reserve rate and looking at year-over-year trends versus quarter-to-quarter.

We did have improvement year-over-year and we expect to continue to see that improvement going into the future. So, I mean, I guess if you want to get into the mechanics of how the tables work and how to tune your model, you can have a follow up call with the IR team.

Michael Kaye

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 less chance of student loan forgiveness or generous income driven repayment plans with the Republican administration.

Jon Witter

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 sort of 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

Okay. Thank you.

Operator

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

Moshe Orenbuch

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

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

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

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

Moshe Orenbuch

Great. Okay. Thanks very much.

Operator

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

Jeff Adelson

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 are you thinking about that.

Jon Witter

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 an absolute, but I think it's a pretty good indicator.

Jeff Adelson

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

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

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 attributing servicing costs, we attribute credit costs, buy individual credit note and really look at the individual ROE's 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.

Jeff Adelson

Great. Thank you, guys.

Operator

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

John Hecht

Good afternoon. Thanks for taking my questions. You did talk about the preliminary pricing on the transaction that you're going to do this quarter.

I'm wondering -- I know you probably can't give us any detailed insight, but yeah, just we've heard and seen in the markets just this huge amount of inflows to private credit markets and some of that flow is certainly going into consumer finance. I'm wondering to what extent do you guys feel like that the market -- maybe you have a higher degree of confidence in the market or better -- you would outlook for better execution because of those factors or is it just too early to call.

Pete Graham

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

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

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

Okay. And just a quick third, if it's possible. Just -- yeah, I mean I forget the Plus program.

I mean there's some other, I think, potential, I don't know, regulatory effects because of the incoming administration, maybe such as a lower probability of debt forgiveness and maybe just some generally kind of -- I don't know, maybe some weakening of the DOE framework of some type. Is there anything else for us to think about other -- that of the regulatory potential changes that you're all aware of that may influence the business or the strategy over the course of the year.

Jon Witter

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 lightning 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

Okay. I appreciate the color. Thank you.

Operator

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

Nate Richam

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

Yeah. Nate, happy to. I think one, we have obviously made up a lot of improvement in our loss mitigation programs over the course of the last year since we really started to put those into effect.

I think we believe we have some additional optimization and refinement potential on those. We know, for example, there are certain use cases that customers still have that we don't have exactly the right loss mitigation program for. And so there's a little bit more, I think, kind of proliferation of that to just really get the right tailored model.

And I think we know that there are places where we can continue to refine exactly who we give and don't give access to those programs too. So I think there's still a bit of potential on that. And I think as we have said pretty repeatedly through this journey, we see the long-term NCO performance really being driven by a combination of both new loss mitigation programs, but also thoughtful underwriting and credit -- sort of credit quality enhancement changes that we've implemented over the last two or three years.

And candidly, given the long lead time and delayed sort of repayment of our loan type. If you take a loan out as a freshman, it might be for in the case of some kids, five years before we see you in repayment. And it takes a little while for that second set of changes to really start to flow through and work their way into loss rates.

So I think we have said this would be a multi-year journey. We've been really excited, as Pete said, with the performance of the programs we've seen. We've seen people have what we believe is the right degree of success with the programs. We've seen vintage curves sort of perform in the right way.

We know that there is continued credit enhancement of what we're putting on our books and that will unquestionably result over time an additional sort of NCO reduction. So we like where we are, we like while -- where we're tracking and we believe that there is a bit more powder to spend here on this journey.

Nate Richam

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

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 spawn 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

That's all from me. Thank you.

Operator

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

Rick Shane

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

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

Got it. Well, and it's interesting. So I've been looking at the numbers, I see what you're talking about in terms of the migration on a year-over-year basis.

But it actually kind of looks like there's a -- unless I'm misreading the numbers, a pretty big uptick between the third and fourth quarters this year. Is that seasonal or is that a function of sort of now that you're through beta testing the program, you're widening the aperture a little bit.

Pete Graham

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 many 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

Yeah. And Rick, maybe the last….

Rick Shane

Got it.

Jon Witter

Fact I would just offer, rough justice and this is sort of an approximation, probably upwards of half of the financial distress that one of our borrowers will experience over the course of their life. This will happen within the first, call it, roughly 12 months of repayment with the other half being sort of equally spread over the life of the loan really in result -- in sort of response to sort of the normal types of life events that would hit any consumer credit piece. So it's not just that we have the payment sort of waves that come through.

We also have the sort of vintage loss curve view, which is a bit front end loaded. And so that really explains why you see that growth clearly, people are going to turn to these programs when they're in financial distress and that happens much more often when they're first entering P&I.

Rick Shane

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

Rick, I am going to [Multiple Speakers] one little bit here, just at the sort of risk of selling past the close, Pete gave you a lot of good facts in his talking points and they're exactly right. We obviously have the ability to look in a much more detailed way under the -- sort of under the curtain segment-by-segment, sort of time and program, vintage views and the like. And I think the thing that gives me the most confidence is when someone enters a program, if they are going to be unsuccessful, they tend to be unsuccessful at the very beginning of that program.

And the longer they are in the program and we now have enough data to show this, the more successful they are or said conversely, the lower the loss rates are as we go out. And so that sort of follows the same logic. And so I know there is sort of always a desire to really understand the credit worthiness here.

I think we feel great because while there may be a build, the fact is the more seasoned in those -- in that build is actually displaying what you would want to see, which is reducing relative loss rates versus the earlier part of that cohort. So again, just because you stuck with it, it's late in the question around, we want to give you a little bonus topic there. But again, I would reiterate what Pete said.

I think we're very pleased with the progress of these programs.

Rick Shane

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

Thanks, Rick.

Operator

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

Sanjay Sakhrani

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

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 them 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 bit 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 un-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 $100,000 (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

Got it. Thank you. Thank you so much for all of that.

And then just a follow up. Obviously, a byproduct of all the good work you guys have done is the stock is now pushing five year highs. I'm just curious, as you think about -- you've been asked about balance sheet versus selling, I mean, has there been any thought of portfolioing more given like that ARB is not as strong as before or do you feel like you're getting compensated on the gain on sales.

Pete Graham

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

Thanks.

Operator

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

Giuliano Bologna

Good evening, and thank you for taking my questions. I'll try to keep it quick because I'm sure we're running towards the end of the time for the call. Yeah, kind of going back to the Plus programs for a second and I realize that there's a lot of the inability to answer questions.

I don't know the plans that are -- could hypothetically be proposed. But when I think about your current suite of products that you have, yeah, looking at the different programs, do you have enough overlap as it stands today with the, let's say, Parent Plus and/or Grad Plus programs. And then as an add on to that, would you explore more programs or explore adding more programs or new categories that could potentially satisfy parts of the market that you may not touch in those Plus programs.

And do you think -- do you differentiate between the Parent Plus opportunity and/or Grad Plus opportunity when it comes to potentially balance sheeting or selling the loans. Thank you.

Jon Witter

Hi, Giuliano. There's a lot in there. I'll do my best.

I think what we know for certain is a large percentage of our customers also have federal loans. That is a relatively easy thing for us to get our head around if we were willing to make them a private loan. There is a pretty -- with awareness of their federal loan obligations, there's a pretty good chance we would be willing to make them a federal loan.

I think that's -- or to take out part of a Plus cap is really what I mean to say. What I think is a little bit harder to estimate and it really comes down to the programs and the other moving pieces is who are the customers that we do not serve today that have Plus loans and what is their full credit worthiness and how would we think about that. That's -- that is work we have done internal scenarios on.

But again, as I said before, I don't think it's appropriate for us to be sharing that externally. As I said in my talking points, we have done a degree of sort of operational and financial readiness planning. I think we believe that we have the products that we need or could very quickly sort of tailor and evolve the products that we have to meet both the Grad and the Parent Plus opportunity.

And so we have gone through and done that work and again feel like that is something that we could respond to. And so I don't think there would necessarily be huge amounts of new work. Whether we actually achieve that through some different programs, again, I think we would make that decision in the context of a specific proposal that was laid out.

But to say it directly, I think we feel like if there is what we hope to be thoughtful reform and that involves capping, I think we feel like we are in a good position to catch that. My guess is from a balance sheet perspective, we would probably again think about that in the same way that we would think about sort of managing the balance sheet growth of the traditional private student loans that we've originated and this would just be a -- an element of outsized volume that we would put into our balance sheet growth versus loan sale planning process.

Giuliano Bologna

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

Operator

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

Jon Arfstrom

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 (ph) plus.

Pete Graham

Yeah. I mean we still have roughly $400 million left under the multi-year authorization and we're going to continue to sort of evaluate share buyback in the context of the plan as we laid it out this year, which is as we complete a loan sale and that generates an amount of capital, we're going to direct that into a programmatic repurchase of our stock and look to set up plans that will take advantage of any sort of trends in price that allow us to buy more at a lower average price. But the share buyback is a key part of the strategy.

And I don't have a specific number on it per se, but that's -- the framework is a good reference point probably for you.

Jon Arfstrom

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

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 a 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

Great. Thank you very much.

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

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

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

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.