SLM (NASDAQ:SLM), the company known as Sallie Mae, reported record third-quarter private education loan originations and announced a new funding partnership with Sixth Street, while lowering its full-year earnings outlook after deciding against a planned whole-loan sale amid elevated interest rates and volatile capital markets.
Chief Executive Officer Jon Witter said the company originated $3.4 billion of loans during the third quarter, a 15% increase from a year earlier and the highest quarterly volume in its history. Graduate loan originations rose 119% year over year, with borrowers in that category carrying average FICO scores nine points higher than the overall average for new originations, he said.
Witter said the peak lending season has extended into October because of late changes in federal rulemaking, systems challenges and delays in schools providing financial-aid packages. Month-to-date October disbursements were up 35% from a year earlier. Sallie Mae expects full-year originations growth of 12% to 14%, in line with its existing guidance.
Sixth Street Partnership Expands Funding Channels
Sallie Mae said it completed a strategic partnership with Sixth Street for an initial three-year term. Sixth Street committed to purchase at least $1.5 billion of newly originated private education loans each year. The first year includes an initial seed portfolio of $600 million in seasoned loans.
The agreement follows the company’s prior strategic partnership with KKR. Witter said the two partnerships expand origination capacity through scalable and capital-efficient funding, reduce dependence on short-term capital-market conditions, and create recurring program-management and servicing fees.
The company’s next priority is developing flow-sale capabilities for graduate loan products following changes to the federal PLUS program. Management said it remains encouraged by the opportunity to serve graduate borrowers after the reforms.
Chief Financial Officer Pete Graham said other income increased $15 million from the prior-year quarter, helped by recurring program-management fees from the strategic partnership business and higher servicing fee revenue. Net interest income totaled $339 million, down $34 million year over year, while other income was $46 million.
Credit Outlook Revised Higher
Private education loan net charge-offs were $90 million in the third quarter, modestly above management’s expectations. Witter said the increase was concentrated among borrowers affected by third-party debt-resolution practices that the company had discussed previously. Performance in the non-affected borrower segment was in line with or slightly better than expectations, he said.
The company raised its full-year net charge-off guidance to $400 million to $420 million from its prior range of $345 million to $385 million. Management now estimates that the third-party practices will add about $45 million to 2026 net charge-offs, up from its prior estimate of approximately $25 million.
Sallie Mae has changed aspects of its recovery approach and said early indicators have been favorable. Witter said the company’s review of relevant collection and recovery calls using artificial intelligence found a 50% decline in borrowers’ mentions of relevant players and practices during October to date. However, customer adoption of the company’s new approaches has been slower among borrowers already in later delinquency stages and more deeply engaged with debt-resolution providers.
The company said it has begun to see initial recoveries from the affected population and that, while the sample remains small, recovery rates have been meaningfully higher than those of historically charged-off borrowers. Witter said management expects the issue’s impact next year to be meaningfully less than it was in 2026, absent a material change in the strategies of outside parties.
Loans delinquent by 30 days or more represented 4.2% of loans in repayment, compared with 4% a year earlier. The reserve rate was 5.89% at quarter-end, down four basis points from the prior-year period. Provision for credit losses was $214 million, primarily reflecting the period’s significant originations growth.
Loan-Sale Decision Pressures EPS Outlook
Sallie Mae said it does not expect to complete its final planned whole-loan sale of 2026, which had been anticipated for October. Witter said management concluded that likely sale premiums were below its minimum acceptable threshold because of higher rates and more challenging market conditions.
Rather than sell loans at current indicated premiums, the company opted to retain them on its balance sheet and earn what Witter described as roughly a 5% net interest margin over time. He said the company’s deposit-funded bank and strategic partnerships provide flexibility to remain selective in loan sales.
Primarily because of the decision not to conduct the additional loan sale, Sallie Mae lowered its full-year 2026 earnings-per-share guidance to $1.95 to $2.05. Graham said the updated outlook includes the gain on sale related to the Sixth Street partnership’s second strategic arrangement.
Management said the decision does not represent a permanent change to its loan-sale strategy. Graham said the company’s base case for 2027 anticipates market conditions that support premiums above its minimum threshold, with loan sales continuing to help manage capital and support shareholder returns. The company expects to meet commitments to both strategic partners and said it could maintain a flat balance sheet or grow it at a single-digit rate under that scenario.
Expenses, Capital and Share Repurchases
Net interest margin was 4.85% in the third quarter, up 10 basis points from the prior quarter. Graham said Sallie Mae extended the duration of its funding earlier in the year to better match a growing share of fixed-rate loans. The weighted average life of deposits increased to 37 months from 23 months at the end of 2025, moving the company toward a more neutral interest-rate risk position.
Non-interest expense was $221 million, up $40 million from a year earlier, largely reflecting investments for the peak lending season and growth opportunities created by changes in federal student lending. Sallie Mae executed a restructuring plan on Oct. 1 to align resources with strategic priorities and improve operating efficiency. Management said it expects to absorb the related one-time charges within its full-year expense guidance, which it reaffirmed.
During the quarter, Sallie Mae repurchased 5.1 million shares at an average price of $25.69. Since the beginning of the year, it has repurchased 18.1 million shares at an average price of $23.02, representing 9% of shares outstanding. The company ended the quarter with liquidity equal to 15% of total assets, total risk-based capital of 12.5%, and common equity tier 1 capital of 11.2%.
About SLM (NASDAQ:SLM)
SLM Corp., commonly known as Sallie Mae, is a financial services company focused on helping students and families finance higher education. Its primary business is the origination and servicing of private education loans, which can help cover tuition, fees, books, housing and other eligible education-related expenses not fully covered by federal student aid.
The company offers private student loans for undergraduate and graduate education, as well as loans for career-training programs and other education needs.
