SLM (NASDAQ:SLM) Chief Financial Officer Peter Graham said the company is preparing for what he described as a “next phase” of growth, driven by changes to federal student lending rules and supported by a new strategic partnerships model that the company began building with an agreement signed with KKR in the fourth quarter of last year.
Speaking at a Bank of America conference in a session hosted by analyst Mihir Bhatia, Graham said the reforms to federal student lending passed last year create an opportunity for Sallie Mae to expand originations into portions of the market where it has not historically competed, particularly in graduate lending. He added that strategic partnerships are intended to provide durable and capital-efficient funding for that opportunity, while generating fee-based income over time.
Origination outlook tied to Grad PLUS changes
While he characterized the graduate segment as the larger incremental opportunity, Graham emphasized the phase-in timing. The new rules apply to new enrollments beginning in the second half of this year, which limits the first-year impact. He said the company estimates a $5 billion Grad PLUS-related opportunity once fully scaled, but expects it to ramp over a two- to three-year period as more cohorts come under the modified rules.
Graham also noted that Sallie Mae views “mid-single digit” origination growth as a normalized run rate, with the difference versus current guidance reflecting incremental volume from the program changes.
Balancing portfolio size with partnerships and loan sales
On balance sheet growth, Graham said the company expects its loan portfolio to be flat to slightly down year over year, reflecting the early stages of its partnership strategy. He described a three-part funding framework:
- Maintaining a “healthy and well-functioning bank” as a core part of the model
- Continuing seasoned portfolio sales as a funding source and balance sheet management tool
- Expanding strategic partnerships to fund originations in a “durable and programmatic” and capital-efficient way
Over time, Graham said Sallie Mae expects to return to balance sheet growth of about 1% to 2% per year and ultimately to a mid-single-digit growth rate, with the ability to adjust that trajectory using seasoned portfolio sales.
Discussing the KKR partnership specifically, he said the structure differs from prior seasoned loan sales because it involves selling newly originated loans, in some cases before full disbursement. He said the initial seasoned portfolio sale helped “seed” the structure so it would have cash flows that could support leverage. He indicated future structures may also require some element of a seed portfolio.
Graham said he expects that within the next 12 months, Sallie Mae could announce either an expansion with KKR, add another partner, or pursue a combination of both.
Economics, credit expectations, and reserve commentary
Graham described the partnership model as “superior” economically to holding loans on the balance sheet or executing traditional seasoned portfolio sales. He said it is designed to create a long-term source of fee-based income while Sallie Mae retains the customer relationship by continuing to service the loans.
On risk, he said the structure is intended as a true sale with “full risk transfer.” He added that a smaller, performance-based supplemental fee depends on meeting certain return-on-asset thresholds, but he said there is no clawback of other economics.
Regarding credit performance, Graham said the company’s guidance on net charge-offs implies stable credit in 2026 versus 2025, though metrics may shift due to balance sheet classification changes as the originate-to-sell model expands. He declined to forecast reserve builds or releases under CECL, but said that over time the graduate cohort is expected to be higher credit quality and shorter duration than the core undergraduate product, which could translate into a lower absolute reserve requirement as it phases in. He also said the shift to selling new originations could have only a modest effect on reserve rates because newer loans generally carry lower reserve rates than the broader portfolio.
Investment spending and marketing inefficiency expected early
Turning to expenses, Graham said the company expects roughly a 16% year-over-year increase to the midpoint of guidance and broke the drivers into broad categories:
- About 40% of the increase attributed to investments, including graduate product design, market research, new credit models, technology changes to the customer experience, and incremental headcount
- About 20% attributed to normal inflation
- About 35% to 40% attributed to increased marketing to reach a new customer profile in graduate lending
Graham said the first year of marketing for grad borrowers is expected to be inefficient, similar to peers, and that optimizing marketing costs is a key lever after the first year as the company builds a base of new-to-firm customers.
Asked why Sallie Mae is positioned to compete, Graham pointed to the company’s existing footprint in undergraduate lending, including what he described as the industry’s largest financial aid office sales force and relationships with over 2,100 schools. He also said the market should remain competitive but not necessarily more intense than the underwriting and pricing competition already present in undergraduate private student lending.
Capital return, NIM outlook, and borrower trends
On capital return, Graham said Sallie Mae has repurchased a little over 55% of its shares over the last five years and recently announced a $500 million share repurchase authorization covering a two-year period. He said the company expects the growth opportunity and partnership model to support continued capital return.
On net interest margin, Graham reiterated that the company runs a “matched book” and said its plan assumes two rate cuts, which he characterized as roughly in line with consensus expectations, supporting confidence in its longer-range NIM guidance in the low-to-mid-5% range.
Graham also addressed consolidation activity, saying the company has seen some uptick as rate cuts began, but from a low base, and he does not expect a return to the ultra-low-rate environment when consolidations peaked. He said Sallie Mae has not seen meaningful new entrants in consolidation.
On the labor market, Graham said new college graduate unemployment is modestly higher than last year and that the time to find a job post-graduation has extended by a month or two compared with historical levels, though he cautioned that the “doom and gloom” implied by some headlines is not reflected in underlying data. He said the company’s products and assistance programs are designed around the first 12 to 18 months post-graduation as the highest-stress period, and he highlighted the role of cosigners—citing a 90%+ cosigner rate on new originations—in supporting repayment performance.
Finally, Graham said Sallie Mae has not seen meaningful negative spillover in its borrower base from the resumption of federal student loan payments, noting that most of Sallie Mae’s borrowers also carry federal loans, but the company has not observed meaningful changes in payment patterns tied to the federal “restart.”
About SLM (NASDAQ:SLM)
SLM Corporation, operating as Sallie Mae Bank, is a leading U.S.-based consumer banking company specializing in education financing and related banking products. The company provides a range of private student loans for undergraduate and graduate studies, Parent PLUS loans, and specialized financing for career and certificate programs. In addition to its core lending services, Sallie Mae offers deposit products including savings accounts, checking accounts, money market accounts, certificates of deposit, and credit cards tailored to students and young adults.
Founded in 1972 as the Student Loan Marketing Association—a government-sponsored enterprise—Sallie Mae was privatized in 2004 and has since focused on expanding its private education loan offerings and digital banking solutions.
