SLM Corporation (SLM) Earnings Call Transcript & Summary

Everyone, thank you for attending our fireside chat with Sallie Mae. My name is Vincent Caintic, I'm the Stephens' specialty in consumer finance analyst. And I'm pleased to be hosting the Sallie Mae executive team to my [ immediate ] left this is Pete Graham, a new CFO of the company; and to this left John Witter, CEO of the company. I also want to introduce Melissa Bronaugh, Head of Investor Relations. So interests [indiscernible]. Maybe just to start off, John, if you can give some introductory comments and then Bronaugh on Sallie Mae.

Sure. Sallie Mae is technically a 45-year-old or so company, but it's really a relatively new company in the last 7 years -- 8 years since we executed our spin from our sister company, Navient. We focus primarily really exclusively in the private student lending space. So we consider ourselves to be a GAAP financer. So when people have found all the subsidized money family support, scholarships and other sources of higher education financing. There's usually a small increment that's left. They tend to come to us for that amount. So our average loan size is about $12,000 per loan, a typical customer has somewhere between 1 and 2 loans with us. And we really do consider ourselves to be the last sort of marginal dollar that enables access to and completion of higher education to become a reality for those students. We originate every year sort of roughly $6 billion to $7 billion of loans. Those loans tend to be highly attractive loans. Think of them as sort of low to mid-20% ROE loans. And we do that through a variety of school channels and traditional marketing channels that I'm sure Vincent we can talk about in more detail. We are the market leader. We've got mid-50% market share depending on the quarter, and we think that allows us to both invest appropriately in the business and really have sort of the right brand for continued success. Pete, I don't know if you have any opening comments?

Yes. No. I'm new in the chair. I've been with the company a couple of months now and just in the CFO chair post earnings. So taking over from Steve who's been in the company for an extended period of time. Really excited to be joining this company. It's very mission-focused and higher education was transformative for my life. I'm also the parent of 2 college graduates. So I think the mission really resonates with me. And the other great thing about this company is, as John highlighted, strong financial profile and equally focused on shareholder value creation. So it's a good combo, excited to be here.

[indiscernible]

Sure. So previously, I was the CFO at PRA Group in Norfork, Virginia. And I was in that role for about 7 years. I spent about 1.5 decades at GE Capital prior to that and start in my career with TPG.

Great. Thanks for that. And I do love having frequent audience participation, so every 10, 15 minutes or so, I'll pull line for questions, always feel free to interject definitely would love the investor questions. So maybe just starting to set the stage for the industry dynamics student lending. We've been hearing a couple of things. We've got the government effectively extending student loan payment moratoriums through October of 2024. During the earnings season, we've heard at least 2 of the in-school private student loan competitors, they're starting to question their involvement in the business and then the refi market is tough with higher rates. So if you could maybe set the stage for how you see your portion of this student loan environment?

Yes. We are optimistic about the private student lending space and our particular prospects, recognizing it continues to be an uncertain economic environment. But if I sort of dig down a little bit, Vincent, into why we're optimistic, and I'll touch on some of the things you asked about. One, yes, the federal loan payment holiday has ended for the last couple of months. Students have been making payments. We look at that both in aggregate and in a segmented view best we can. We can't do it perfectly, but we can do it pretty well. As of yet, we've not seen any material impact on our business from the restart of federal student loans. As you said, consolidations, which is not our business, continue to, I think, be challenged by a force of -- a combination of sort of economic and sort of other factors. But the net -- sort of implication for that is our consolidations depending on what quarter-to-quarter you're looking at are down somewhere between 35% and 50% sort of year-over-year. And that's on the back of some previous reductions in past years. So we're really seeing the rate of consolidation to slow dramatically. That's obviously a good thing in terms of us being able to see more value from the loans that we originated along the way. It doesn't get a lot of attention, but I think the legislative climate has changed pretty dramatically in the student lending space. I joined the company 3.5 years ago, and I can tell you the discussions in D.C. about the federal program, sort of the right and appropriate role of the private program. And I think the sort of proposed perform agendas and sort of thoughts that are circulating, I think are really very, very thoughtful and very, very additive to our business. So I think this is probably the best legislative agenda that maybe we have seen, sort of, let's say, an environment that we have seen in our history. And there's been a lot of talk recently about the regulatory environment. And certainly, since the early part of this year when some banks face some difficulties. There has been an enhanced and increased level of regulatory conversation. But Vincent, our philosophy has always been to be really proactive with our regulators to try to sort of work in a very collaborative way to try to make investments ahead of their expectations. So we're not having to catch up to or respond quickly. It sounds like not all of our competitors have found themselves in that exact same position. We certainly understand that. That happens from time to time. But we really appreciate the sort of relationship we have with our regulators and feel like we continue to try to live that philosophy of staying sort of ahead of expectations and sort of managing our business in the right way. And so when you put all of that together, I think the market remains competitive. We like the market to be competitive. We think we're better when we face good competition. We think our customers are better served. But I would describe it as sort of reasonable and manageable levels of competition and one that's, I think, really productive for us to continue to do well going into the future.

Great. Maybe if you can talk about the student lending product and your student loan product, and talk about the advancement you've made. I mean when we think about student may be lending tends to be sort of a commodity, but yet you have the largest market share by far, you've been in many different products. So if you could talk about that in your [ operations ]?

Yes. Gosh, there's a bunch of different ways that we could go into that question. I think we tend to think about innovation in our core business on a couple of different sort of axes or themes. Number one, I think there's a real question of how do we effectively market and acquire new customers. And if you think about where this market has transformed from and where we think it's going, it's pretty preventive. If you go back 10 or 15 years, it was all about direct mail and relationships with school. Direct mail is still a channel for us. It's a more important channel for some others. The school channel is always going to be important. That direct connection to schools is sort of a critical part of our lifeblood. But the rest of, I think, the marketing formula has really evolved pretty dramatically. And clearly, it went to a much more digital and search-oriented model. And I think what we're seeing today is it's even evolving beyond that. So I think the idea of buying search terms and sort of showing up on Google, that will always be a part of our business. But we really fundamentally believe that the best way to sort of drive cost-effective, low CTA, high market share is to really pursue a more content-based and relationship-based marketing approach. And so our goal is to establish relationships with as many customers as we can, who're thinking about higher education. To deepen those relationships by adding real value to them and engaging them in a particular dialogue with the brand. And then if they have a need for a student loan to be the natural choice there. And so if you think about, for example, some of the investments we've made in helping people fill out their federal aid form, they're fast performed. If you think about some of the investments and acquisitions we've done around helping people find and apply for and get access to scholarships. Those are things that you might raise your eyebrow and say, well, how is that in the direct benefit of a private student lender. And the answer is those are real sources of value for those customers, it attracts customers to the brand, and it allows us to have a much more organically derived acquisition strategy. So lots of work, I think, on the marketing side. I think secondly, there's a lot of innovation going on, on the customer services side. And we are blessed to have a really young, really vibrant, really digitally oriented core group of customers. If you have teenage kids, you probably know they're more comfortable texting you than they are talking to you. And that is a wonderful opportunity for us to continue to invest in capabilities that better serve our customers and, quite frankly, are also cost advantage to us. And so I think the servicing environment continues to change pretty dramatically. And then I think if you think about sort of the third core of our business and sort of the third driver of economics, it's really around sort of loss mitigation and credit. And there, I think we continue to innovate pretty significantly. We, I think, are continuing to refine and get even better and better at underwriting. And every year, we sort of continue to fine-tune and make better hours sort of both pricing and decision engines. We are getting, I think, even more sophisticated when it comes to what I would call general credit administration. So how do we work with customers even before they experience financial distress to really make sure that we're doing all weekend to put them on a path to viability. And then lots of work around what do we do with customers when they become delinquent and even eventually when they charge off. And that can be new collection strategies, new platforms, new sources of data that we look at to figure out programs that might be available to them. And it goes all the way through to how do we collect and recover. And I think we outlined on our last earnings call, some of the enhanced recovery strategies, for example, that we're putting in place that we think will be better for us going forward. So those 3 areas of innovation, innovation around cost to acquire and market share, innovation around servicing and innovation around sort of overall credit performance from cradle to sort of grade, if you will, not to use a negative example there. But I think those are really sort of the areas that we're focused on to drive performance and enhancement of the business.

That's great. It's -- You also acquired some other value-added products like Nitro and Scholly. So if you could talk about that? Is there the other capabilities or adjacencies that you're...

Yes. Our acquisition strategy, and if you know us at all, you know we are really obsessed about the notion of capital allocation and sort of use of capital. And so we don't consider ourselves to be a broadly acquisitive company. But we like doing acquisitions if they fit into a very specific mold or a very specific sort of set of criteria. And what we think about are what are acquisitions that have real benefit to our core business. So they can be paid for really directly by very tangible benefits of the core. What are the ones that are relatively small in scope. So if we can keep the price tag low, that obviously reduces the risk of us doing any particular acquisition. But I think, Vincent, to your point, what are also the acquisitions that have some interesting options in them. That we're not basing the purchase price and the valuation on, but they could grow into something that's a little bit more interesting going forward. And I think both Nitro and the Scholly acquisition fit those criteria, right? They were hugely beneficial to the core through the marketing advantages that I just described. They were all rightsized when it came to price, really pretty de minimis in the grand scheme of what Sallie is all about. And they all have these interesting growth options. So for example, in Scholly, Scholly has embedded in it a really nice little business posting scholarships. And so they not only help connect people to other scholarships. But if you want to sort of issue a scholarship, if you're a not-for-profit organization, if you're a celebrity, if you're someone who wants to do that, there's a great little revenue business there that probably should be bigger than it is today. They have a great business there, around sort of offers and monetizing the customer traffic that comes through to their website. And when you think about the fact that we have now as a company, a relationship with half of all households whose kids are thinking about higher education then next year seniors. That's a pretty powerful group of customers and a pretty large group of customers that we can start to think about sort of serving up offers to that might be of real value to them and have a true revenue creation potential for us. Now to set everyone's expectations, those businesses are really small today. When I use the word option, I use that really purposefully. But I think they all have the ability to turn into something bigger. But again, done in the context of what we call a surefooted strategy. Paid for by the core, small in size, interesting option value, and I think we'll look forward to doing acquisitions and building businesses that continue to meet those 3 criteria.

I wanted to pause to see if there's any audience questions. All right. Great. Maybe switching to credit a bit. It was nice to see the benign credit trends this quarter. What is your confidence level that credit tent that may have made benign and your expectations with it?

Yes. Look, for anyone who's ever heard the answer credit question, you know I'm going to start with my usual disclaimer, which is the credit gods come down and punish those who say, that the economic environment is benign and there's not going to be any issue. So I obviously can't have any better crystal ball on what's happening macroeconomically and macroeconomic conditions, obviously, can have a big impact on credit. So with that disclaimer, we are feeling really pretty good about the normalization of credit. And I think what we've described in past calls as sort of the return to normalcy. So for those who haven't followed us as closely a couple of years ago, we implemented a number of changes to our credit administration practices. We did that for a host of reasons that we thought were really important and value-adding at the time. But 1 of the impacts of that is some of the programs that we either altered or moved away from -- were programs that were effective. And we saw an increase in delinquencies, and we saw an increase in charge-offs during that period of time, in addition to some of the sort of normalization of things coming out of COVID. I think this year, we've worked really hard, and we've made and continue to make changes, again, sort of from beginning to end of starting with underwriting, credit administration, collections practices, recovery practices, legal strategies and the like. And I think we've been pleased with what we've seen as the sort of stabilization of credit in 2023. But our goal, make no mistake, and we think it's still very achievable is to get back to a what we think is a more normalized level of annual net charge-offs kind of in the high 1% to low 2% range. It may take us another year or 2 to get fully back to that. But I think you should expect we will continue to show regular and persistent improvement on that path. And we continue to implement new programs, some as recently as this week that we think will continue our journey back in that area, and we'll continue to monitor performance and sort of tailor and modify and evolve our strategies as we see fit.

You spoke about the credit gods. So maybe I'll delve into -- and actually, maybe if you could take a step back and talk about your customer. How it is the potential -- the student and the potential student thinking about entering college or engaging with the product? And then how is -- what do you think about credit trends broadly?

Yes. So as I said at the beginning in the intro, we really consider ourselves to be predominantly the gap funder. And so the way we work with our customers is -- what we would say is, look, first of all, you should find all the money that you don't have to pay back and whether that's scholarships, whether that's financial aid from your university, whether that's family assistance. I think our view is it is prudent for every student to get all the free money as they possibly can. And so when you look at the tools that we create digitally when you look at the advice that we give customers, when we talk to them, it's always starting with, let's find the free money. Right behind that, the question is, let's find the subsidized money. And for many of our students, there are subsidized federal loans out there that they qualify for. And because they're subsidized by the government, not cost or sort of economically feasible for us compete with that. I think our view is for what you have left, we'd love to be helpful to you. And so we engage with customers around that through our school channels where we show up as preferred lenders on over 2,000 schools list out there or roughly 2,000 schools list. We do that through our tools that we provide for free to our customers as they sort of engage and do their planning. We do that through our sales channel. So if customers call up and have questions about the products that we offer, we've got a great team of folks who will help work with them on that. But the goal is really to sort of engage in sort of that gap funding phase. When I think about the broader credit trends, and I think it also bears true for the broader origination trends. I think the real question that sort of is at the center of our thinking is, do we believe in the future that the world is going to be a more skilled place than it is today. And that having more skills will earn you higher lifetime wages and compensation than if you have fewer skills. And I don't feel like I'm going at it all on a limb by saying we believe the world will be a more skilled place in the future. And we believe that most students will need training, education that may look different from a traditional 4-year college to actually go and to get that training. In fact, our fastest-growing school and our best credit performing school is not a traditional 4-year college. It is something different. And so we really feel like as long as skills are in demand as long as skills are garnering higher lifetime wages as long as the unemployment rate for folks with those skills remains low, and college unemployment continues to be probably the single best proxy for our credit performance. It's a complicated formula, but it's probably the single best one. We think our credit outlook will be sort of, again, relatively small with the right tip of the hat to credit gods notwithstanding.

A bit deeper on some of the profitability metrics. If you can -- let's touch on NIM. It's held steady for a while. Maybe the market expectations maybe changed a little bit this week. But if you could talk about how the rate environment whether it's higher for longer or it's moving [ deals ] for you? And how do your deposit rates, your yields, [indiscernible] comparatively?

I'll take that one. So yes, so you've pointed out our NIM has been relatively steady, sort of approaching 5.5% currently. And we've had some benefit from repricing as we've come through sort of a step change in rates. We run a match book. So it's not we're taking a position on rates necessarily, but our assets have tended to reprice quicker than our liability stack has. So it's been a little bit of a tailwind that we think will normalize. And because we're running a match book sort of higher for longer doesn't really matter. It's more about how do you move through that transition period, either a step change of which we've just experienced, or what happens when rates start to flip down. So I think we're in a position that based on how we're running our funding book, we can maintain that kind of low 5% range.

One of the -- I think, so been funding a lot your balances to [indiscernible] a positive growth has been strong. Maybe you can talk about the loan sales side of the business a bit. So I think it's been impressive you've been able to sell and you're able to execute another $1 billion kind of [indiscernible] executing history on that. I think in the third quarter, you also gave commentary maybe implying a slowdown maybe on sales going forward. Can you talk about why? And how should we think about that crossover between selling loans and maintaining loans on the balance sheet?

Why don't I take the first part on sort of the market dynamics and you can take the second part after. So think about it as whether we're although we do deposit fund in large part, we also fund ourselves to the ABS markets with on-book securitizations. And when we're doing these whole loan sales, the buyers typically are going to be a large financial institution either a bank or an insurance company. And they're taking down the whole portfolio, but then they're turning around and securitizing those loans through the ABS market. And we have a premier platform in the space. Many of the loan sales we've done, the buyers have turned around and used our platform and to securitize the assets. So there's a broad overlap of the investors in our funding securitizations versus the investors that are sort of backstopping and funding the loan sale process. As I said, we've got a pre-eminent permanent platform in the space and broad investor coverage and interest in the asset class in general. So we feel like that's an ongoing strength and one that will continue to be able to leverage, whether that's from both funding of balance sheet growth for continued loan sales.

Yes. Vincent, if I pick up and talk a little bit about sort of how we see the balance sheet and capital allocation strategy evolving going forward. Let me first start by backing up a little bit and again, for folks who have watched us for a while, you will remember that our current strategy of maintaining a flattish balance sheet, selling loans and buying back shares was really born of 2 parents. We had kind of an arbitrage parent. We saw a huge disconnect between the premiums and the value of our loans as whole loan sales versus the implied value in our equity, and we saw there being a very clear opportunity to sell loans and buy back stock and create real value. But it also had a second parent called capital management. And for those of you, again, who have been studying us, you know that we are approaching the tail end here of our CECL phase-in. And every year for the last few years, and we have 2 payments left one this January, one January of '25. We're allocating roughly $0.25 billion, I think it's $225 million or so each year to those CECL top-up payments. By the way, we have loved our historic strategy. The recent dip in financial stocks, notwithstanding, if you look at our TSR over the last 3.5 years since we've implemented that strategy, we are really pleased with it on both an absolute and a relative basis. But what has changed is we are now in our planning horizon, and my guess is many of you in your planning horizons, able to start to look past the end of that seasonal phase. And so we have, I think, the really exciting opportunity to think about how do we want to sort of deploy that roughly $0.25 billion of incremental capital each year to best create value for shareholders going forward. Well, what I said before is true, and we've loved the TSR performance of our stock. I think if we're self-critical, the 1 thing we haven't seen is as much of an improvement in the multiple of our stock as I would have liked to have seen and I would have expected. And so I think going forward, our thinking is to try to balance 2 things. Number one, we want to absolutely continue to embrace the strategy that we have been employing that I think has worked really, really well. And I do not anticipate -- can't predict it perfectly, but I do not anticipate that we would be meaningfully stepping away from our current strategy of selling loans and buying back stock as long as that arbitrage exists. But secondly, and at the same time, I do think that showing some degree of balance sheet growth and organic earnings growth is important to really demonstrating the higher multiple that I think this business deserves. So we are working through the finer points of it, but I think I would expect, again, can't promise absolutely, but I would expect that 2024 would probably be the last year that we would maintain a flattish balance sheet. And that my guess is, after that, we would expect the balance sheet to grow at a modest pace. Think of that perhaps as sort of mid-single digits. The nice thing about that level of growth is if you combine that with really strong operating leverage, sort of mid-single-digit balance sheet growth can translate into upper single or lower double-digit organic earnings growth. And really, I'm just thinking there of EPS growth, minus the loan loss reserve and premium that we would free from any loan sale. And we feel like that level of balance sheet growth allows us to start to create a real appreciation of the organic growth story that, again, we think is really important for a higher multiple. It's also important to note that if you model that out, because of the strong originations we have because of the slowdown in consolidations that we've talked about, we can do that and continue to sell a very meaningful number of loans and continue to engage in very meaningful share buyback. And so I think at times, I've gotten sort of a little bit of a sense that investors view this as an either/or. We do not view this as an either/or. We view this as a both and. We can both grow the balance sheet at a measured pace and I think begin to create an organic growth story that is exciting. And I think we can very credibly continue the strategy that has created so much value over the course of the last, sort of, call it, 3.5 years. And of course, that also gives us the dials to be dynamic over time. So if we see that the multiple is really starting to expand, and we're getting paid for that balance sheet growth and that organic earnings growth. We can always do slightly more of that. And if we find that we're not getting paid for that and the multiple continues to be low, then, of course, great capital allocation suggests you sell more loans, you buy back more undervalued stock and you continue the strategy that, again, has been really, really working for us. So we think that there's a wonderful opportunity here. Again, I would encourage investors to think about this as the both and. And I would encourage investors to think about this as a strategy that we will lean into as opposed to a dramatic change in any 1 given year. And we think that demonstrates sort of the exact kind of balance that we're looking for. We do know that this is a topic of real interest. So we are planning in the early to mid part of December, what I think will be sort of a call where we will go through some more of our detailed thinking on this to really help sort of outline what this would look like kind of over the course of the next couple of years and maybe even a little bit further out. And we hope that, that will give folks a bunch of good information as they start to think about modeling and guidance and projections for 2025.

Okay. Great. So other than [indiscernible] [indiscernible]?

There's a bunch of theories. And we have a pretty robust strategy process. And I think low implied sort of high-quality organic growth, I think is certainly at the top of the list, and I think we would work that. I think you could argue being a relatively small monoline could have an impact on that as well. We would hope that investors would see the value creation potential and sort of look through that, but we know that, that may not be happening. But I think my view is let's solve this 1 piece at a time. And I think coming out of CECL, the 1 thing we know we can solve next is starting to show some really good high-quality organic growth. Not to the detriment of what we think is the core strategy that has been powering our TSR so far. I think we'll solve that next. And then hopefully, we'll see the multiple expansion. And if we don't, then we'll figure out what's after that.

So I do think that the stock is cheap, but I think you've touched on a couple of things. So one, people are worried about credit duration. So you get a couple of those questions I hear a lot. When we see some of the competitors start -- are voicing concerns about student loans, that's intents to maybe generate a contagion, but I think you've differentiated your business and your strength and your market share versus others, but that's another conversation. Some of the regulatory aspects as well but I think for as long as I've covered Sallie Mae, there's been this question about whether, soon the planning is going to exist? In what form and all that. So we had those discussions over the year as well. But I think through all that time, you've been posting high single-digit EPS growth in terms of capital generation. So it's just looking at the financial performance through all the headlines and the noise you've been consistent.

Yes. And I think I would add to it. I think what we have shown over the last couple of years is we can generate really significant total shareholder return without multiple expansion. And I think what every investor should understand is we live and die by our TSR. It is the #1 thing that I focus on. I can assure you my management team knows it's the #1 thing. They know it's the #1 thing that I focus on. And I think if the answer is we continue to generate superlative TSR by doing what we're doing, we're going to do that. I think if there is a chance for us to solve the multiple questions, we're going to do that, but we're going to do that smartly. We're going to do that in a measured way. We're going to do that in a way that doesn't forget what has driven the value for us over the course of the last 3.5 years. And so I view this again, I used this word before as a dynamic opportunity. We have post January of 2025 $0.25 billion every year of excess capital that we can figure out how to deploy. So logic tells you life should only be better all other things being equal after the end of CECL phase-in than before. And so the question is, how do we take advantage of that great opportunity and how do we do that in the smartest way. And we think the plan that we're putting together now allows us to start again to lean into that, how about to lean into that with a real reference for not abandoning or walking too far away from a strategy that has served us well.

Do correct me if I am wrong. [indiscernible] [indiscernible]?

Yes. I would answer that question, I think, in 2 ways. One, enrollment has been pretty flat. Cost of attendance has been going up, that's obviously a benefit to our business.

How much of the cost of attendance [indiscernible] in current environment?

It depends on the year, but can be 5%, 6%, 7%. And I would also sort of say this. I think it is true that cost of attendance at traditional 4-year colleges has been flat. I think the question that I would ask is, do you believe over the next 5 or 10 years, we are going to be living, as I said before, in a more or less skilled world than we are today. And I would argue we're going to be living in a more skilled world. And I think the second question is, are people able to afford to acquire those skills more or less than they have been in the past. And I think it's certainly not going to be more. So they're going to need financing. They're going to need help in being able to acquire those skills, to create the economic sort of life and trajectory that they want for themselves and for their families. And we love our traditional 4-year business, but we love our other school partners who are innovating and creating other kind of programs that add skills to investors. And we look forward to meeting schools and students wherever they are in realizing their higher education dreams and if it's in traditional 4-year attendance, great. If it's in high-quality, underlying high-quality alternative programs, and we have a very robust process for ensuring that, then we're happy to meet them there as well.

Let's see here if there is any more investor questions. There's a lot to deconstruct in your comments. I appreciate that detail there. So first on that $225 million of capital that you are allocated to CECL and now you're going to have that. So maybe if you could talk about the 3 -- or the different ways you can deploy that capital. So how much can $225 million generate in terms of the on-balance sheet growth versus [indiscernible] our return capital to shareholders? And I guess a third view would be you had these tuck-in M&A opportunity like how would you want to may be define that?

Do you want to take that? Do you want to make to?

You take that.

It is obviously hard to sort of give projections of capital going forward. But I think some rough justice numbers and Pete keep me honest here. But the way I think about it is if we have $225 million today that's been going to CECL, if you have may be just under $100 million today that's going to dividends, and if you have, over the last couple of years, it depends a little bit, but think of it as probably $300-ish million going to share repurchases, and that's maintaining sort of a relatively flattish balance sheet. I think that's sort of the excess capital stack that we've been talking about because obviously, during that time, the balance sheet has sort of grown and changed a little bit, but it's relatively in that mix. I think our view would be loan sales probably don't change all that much as we start to grow the balance sheet. Again, you guys can run your own projections, but it may surprise you 5% balance sheet growth is relatively modest when you look at what's happening from an origination perspective and a consolidation perspective. So that loan sale and sort of share buyback pieces is probably not moving a lot. And my guess is, if you think about -- and again, I'm doing quick math here, but call it, 13% capital and a 6% or 6.5% sort of loan provision, 6% loan provision you can sort of envision the kind of balance sheet growth that, that $250 million can start to fuel. So that's sort of the basic math of it. To your question of how do you use capital, you can pay dividends, you can grow the balance sheet, you can sell loans and buy back shares and/or you can buy things. I would expect the buy things part would be relatively small or 0. Again, I think I've been pretty clear about our acquisition strategy, which 1 of my 3 sort of defining characteristics is they have to be small. So those should not be big numbers that have a material impact on sort of the rest of the strategy. I think we are fine-tuning what we think is the right division between dividend growth and balance sheet growth, and that's certainly something that we'll talk about in more detail in December and when we get into more specific guidance in January and beyond. But I would think about those 3 things: dividends, balance sheet growth, and loan sale share buyback, as the sort of 3 primary avenues for capital use. And I think we are excited about the ability to pull on the levers to get to the most value-creating combination of each of those 3.

So maybe 2 more topics on what you discussed. So can grow the -- so if you grow the balance sheet mid-single digits with operating leverage, I think you should be able to grow earnings high single to low double. Can you talk about the operating leverage in more detail of your ability to scale expenses?

Yes. The last couple of years from an OpEx perspective, I think, have been challenging for every company, and I think for us. We're not pleased with the year-over-year OpEx increase that we've seen, for example, in the last year, if you decompose it, there's a chunk of that, that I think is really inflationary driven. And certainly, I think wage inflation and the great resignation and the challenges that I think we and every company have had on attracting and retaining talent have certainly been a part of it. Those factors certainly seem to be waning. And I think we're getting back to a far more normalized environment. And I think we've been very clear and transparent that for the last couple of years, we have also made what we think have been some really important investments, investments in our MarTech stack, which I think have help to drive some of the market share and origination gains we've seen. But I think we've also made investments in risk and regulatory and other areas, certainly the changes, for example, that we've made in our credit administration practices, I think, are well communicated and well understood. Obviously, any business will always make some level of investments, but I think it is our expectation that the sort of timing and temperament of those investments should again normalize back to some more historically kind of average levels. And on top of that, I think we've shared pretty broadly. Our cost structure is roughly a 60% plus fixed cost structure. And fixed costs don't stay flat. There was some inflationary pressure in fixed costs, but they certainly don't go up with volume. And so I think when you put all of those things together, thinking about getting strong operating leverage and is that cost going up $0.50, $0.60 for every dollar of revenue, like I think we're still working through the exact details of what we think we can do and continue to be well managed doing what we need to do from a regulatory expectations perspective and investing appropriately for the business. But I think we believe there's a really nice opportunity to get more operating leverage going forward than what we've seen during this I think, very unusual COVID inflationary period that we've been living through. And again, our expectation is we'll give sort of more thoughts on that in December. That will obviously be baked explicitly into guidance when we get to January and giving explicit guidance for the year. But I think we are optimistic that with the right effort and the right focus, the combination of moderate balance sheet growth and operating leverage is a pretty powerful combination for a business like ours, and we look forward to trying to deliver that for our investors.

So we are out of time, but if there's any last audience questions, you could see probably.

[indiscernible]?

Yes. I am probably not the right person to comment on the balance sheet for universities. I think the only thing I might feel comfortable saying is I am sure it is a tale of an infinite number of cities. There are certainly -- and we see it universities out there that I think are more stressed. And there are certain cases of universities merging or closing that have made the press recently. And I think at the other end of the spectrum, I think there are universities that are doing really extremely well. I think there is no doubt that universities will continue to need to innovate, to both increase the value of their degrees, but to also make sure that the cost of that attendance is linked to the value of those degrees. But I think we feel strongly that there's lots of universities engaged in that work, but I'm probably not the right person to comment more broadly on that.

Any last closing remarks?

I think I would just say in closing, thank you, everyone, for your interest in Sallie Mae. We think it is a really exciting business. It is a unique business. And between Melissa, Pete and myself, and the rest of our team, we are happy to engage to help people understand our business and get your questions answered. So if we didn't answer them here or during one of the sessions during the conference here today, we hope folks will reach out and happy to engage as appropriate.

Thank you, John. Thank you, Pete. Thanks for your time.

Thank you.