SLM Q3 Deep Dive: Loan Sales, Credit Quality, and Strategic Partnerships Shape Outlook

Student loan provider Sallie Mae (NASDAQ:SLM) fell short of the market’s revenue expectations in Q3 CY2025, but sales rose 42.1% year on year to $545.7 million. Its GAAP profit of $0.63 per share was 20.8% below analysts’ consensus estimates.

Is now the time to buy SLM? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Sallie Mae’s third quarter results were met with a positive market reaction, despite falling short of Wall Street’s revenue and earnings expectations. Management credited loan origination growth and strong credit quality as key performance drivers, noting a 6.4% year-over-year increase in new loans and improved borrower profiles. CEO Jonathan Witter emphasized the company’s disciplined underwriting, highlighting that “the credit quality of originations remain strong, showing incremental improvement year-over-year.” The quarter also benefited from a completed loan sale, which generated significant gains and contributed to a more favorable operating margin.

Looking ahead, Sallie Mae’s guidance is shaped by anticipated changes in federal student lending policies and an evolving strategy to expand fee-based revenue streams. Management is optimistic about the forthcoming partnership in private credit, positioning the company for capital-light growth. Witter stated, “We are actively exploring alternative funding partnerships in the private credit space to expand our ability to serve students,” with plans to designate a portion of loans as held for sale. The company expects these efforts, along with federal reforms, to drive sustainable growth and enhance its ability to support students and families.

Key Insights from Management’s Remarks

Management pointed to loan origination growth, stable credit performance, and the strategic execution of loan sales as the main drivers of the quarter, while also detailing changes in delinquency management and capital allocation.

• Loan origination momentum: The company reported 6.4% year-over-year growth in loan originations, driven by continued demand in undergraduate and graduate student segments. Management noted increased focus on graduate loans as a response to upcoming changes in federal loan programs.

• Credit quality improvements: Underwriting standards continued to tighten, resulting in higher average FICO scores and a 95% cosigner rate on new loans. Net charge-offs declined and the company reported that 80% of borrowers in modification programs have consistently made payments after one year, supporting portfolio stability.

• Strategic loan sales: Sallie Mae completed the sale of $1.9 billion in loans, generating $136 million in gains for the quarter. This transaction contributed to a release of credit loss provisions and was described as part of a broader move toward partnerships that could create capital-light, fee-based revenue streams.

• Delinquency management changes: Management clarified that the uptick in reported delinquencies stemmed from stricter modification eligibility criteria rather than deteriorating borrower performance. The shift aims to allow early-stage delinquent borrowers to self-cure, which has stabilized late-stage delinquencies and roll rates.

• Capital return strategy: The company continued aggressive share repurchases, reducing its outstanding shares by 55% since 2020. Management emphasized that additional buybacks will depend on the timing and completion of new partnership arrangements and loan sales.

Drivers of Future Performance

Sallie Mae’s outlook centers on capital-light growth from new partnerships, federal student loan policy changes, and disciplined credit management.

• Private credit partnership launch: Management is preparing to announce a multiyear private credit partnership, aiming to sell both seasoned and recent loans. This is expected to generate fee-based revenue and reduce reliance on balance sheet growth, supporting higher capital returns.

• PLUS reform opportunity: Federal changes to the PLUS loan program are anticipated to expand the addressable market for private student loans. Management sees this as a multi-year opportunity, particularly as the reform phases in for both undergraduate and graduate borrowers, potentially driving significant origination growth over several years.

• Stable credit performance focus: Leadership remains cautious about broader economic uncertainty but is confident in its credit mitigation measures. The company expects net charge-offs to remain within historical ranges, with ongoing investment in borrower outreach and modification programs to support repayment success.

Catalysts in Upcoming Quarters

Looking ahead, our analysts are focused on (1) the formal launch and initial economics of Sallie Mae’s new private credit partnership, (2) the pace of origination growth in graduate and undergraduate segments as PLUS reform phases in, and (3) evidence that credit quality and delinquency management remain stable despite broader economic uncertainty. The evolving federal policy landscape and execution of loan sales will be critical to monitor as well.

Sallie Mae currently trades at $28.51, up from $26.75 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free for active Edge members).

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