Independent Research Uncovers Alleged Disclosure Gaps in SLM Student Loan Portfolio [Litigation Update – December 2025]

The Information Gap: When Internal Disclosures Fall Short

In modern securities markets, third-party financial analysts serve a critical function beyond merely interpreting company statements—they independently verify operational metrics that management presents to investors. A new federal securities fraud lawsuit against SLM Corporation (SLM), the private student loan servicer commonly known as Sallie Mae, illustrates how external research can reveal significant discrepancies between executive narratives and underlying business performance.

The case, filed December 19, 2025 in the United States District Court for the District of New Jersey (Zappia v. SLM Corporation et al., Case No. 2:25-cv-18834), centers on allegations that company leadership provided misleading characterizations of loan portfolio health during a critical three-week period in summer 2025. What makes this litigation noteworthy is the pivotal role an independent investment bank’s analysis played in bringing alleged misrepresentations to light.

Background: SLM’s Business Model and Market Position

SLM operates in the private education loan sector, originating and servicing loans to students and families seeking to finance higher education costs not covered by federal programs. Unlike government-backed student lending, private education loans carry credit risk that directly impacts the company’s financial performance and stock valuation.

Investors in loan servicers closely monitor specific credit quality indicators, particularly delinquency rates across different aging buckets. Early-stage delinquencies (loans recently past due) serve as leading indicators of potential losses, while later-stage delinquencies represent loans approaching charge-off status. The effectiveness of loss mitigation strategies—programs designed to help struggling borrowers avoid default—directly influences ultimate recovery rates and profitability.

For a company like SLM, the trajectory of these metrics matters enormously. Seasonal patterns are well-established in student loan portfolios, with predictable fluctuations tied to academic calendars and borrower payment cycles. Deviations from historical seasonal norms can signal fundamental shifts in portfolio quality or emerging stress in the borrower base.

Summer 2025: Management’s Narrative of Stability

In late July 2025, SLM’s executive leadership presented their second-quarter financial results to investors and analysts. According to the complaint, CEO Jonathan W. Witter emphasized what he described as the “strength” of core operations and “resilience” of the customer base. These characterizations set a tone of confidence about business fundamentals.

CFO Peter M. Graham provided specific metrics during these communications, noting that loans classified as 30 or more days delinquent represented 3.5% of the in-repayment portfolio—a decrease from the prior quarter. Graham reportedly expressed satisfaction with loss mitigation initiatives, particularly highlighting that late-stage delinquencies remained flat year-over-year despite portfolio growth.

Critically, according to the lawsuit, Graham specifically addressed seasonality, stating that observable trends in delinquencies and grace period utilization were “following the normal seasonal trends” expected for that time of year. This language is significant because it established a baseline expectation: whatever movement was occurring in portfolio metrics fell within anticipated parameters based on historical experience.

These July 24, 2025 statements—delivered just before the class period commenced on July 25—shaped market expectations about portfolio stability heading into the late summer months. Investors had reason to believe, based on management’s characterization, that credit performance was tracking predictably.

The Analyst Discovery: TD Cowen’s August Report

On August 14, 2025, TD Cowen, an investment banking firm providing independent research, published findings that sharply contradicted the stability narrative. The bank’s analysts had conducted their own examination of SLM’s publicly available July 2025 portfolio data and identified troubling deviations from historical norms.

According to the lawsuit’s account of the TD Cowen report, overall delinquencies increased by 49 basis points on a month-over-month basis during July 2025. This figure becomes meaningful only when compared to the historical benchmark: July typically produces a seasonal increase of approximately 10 basis points. The observed increase was thus roughly five times the expected seasonal movement.

More specifically, TD Cowen’s analysis attributed the unusual spike primarily to early-stage delinquencies, which alone jumped approximately 45 basis points. Early-stage delinquency deterioration is particularly significant because it represents fresh borrower stress rather than the aging of already-troubled accounts. This metric serves as a leading indicator of potential future losses and suggests emerging problems in the borrower base.

The investment bank’s quantitative findings stood in stark contrast to CFO Graham’s late-July assurance that delinquency movements were following “normal seasonal trends.” An increase five times larger than the seasonal norm, driven heavily by new borrowers falling behind, does not fit any reasonable definition of normal seasonal variation.

Market Response and Subsequent Revelations

The market’s reaction to TD Cowen’s research was swift and severe. On August 15, 2025—the trading day immediately following the report’s publication—SLM’s stock price declined by $2.67 per share, representing an 8.09% drop that brought the closing price to $30.32. This single-day correction effectively marked the market’s reassessment of the company’s near-term prospects in light of the newly revealed portfolio dynamics.

The picture continued to develop in subsequent months. When SLM reported third-quarter results on October 23, 2025, CFO Graham disclosed that 30-plus-day delinquencies had reached 4% of the in-repayment portfolio at quarter-end, up from 3.6% a year earlier. Management attributed this increase primarily to modifications made to loan modification eligibility criteria during the prior year—an explanation that acknowledged deterioration but framed it as a consequence of intentional policy changes rather than spontaneous credit deterioration.

Then, following an Investor Forum presentation held after market close on December 8, 2025, shares experienced another significant decline. On December 9, 2025, the stock fell $4.61 per share, a 14.94% drop that closed at $26.24. While the complaint does not detail specific disclosures made at this forum, the market reaction suggests additional information emerged that further revised investor expectations downward.

Cumulatively, these events painted a picture substantially different from the stability and normal seasonality management had described in July. The question at the heart of the litigation is whether executives possessed information about emerging portfolio stress during the class period but failed to disclose it adequately.

The Legal Framework: Securities Fraud Claims

The lawsuit brings claims under two provisions of the Securities Exchange Act of 1934. Section 10(b), along with SEC Rule 10b-5 promulgated thereunder, prohibits fraudulent or deceptive statements in connection with securities purchases or sales. Section 20(a) establishes control person liability, allowing investors to hold senior executives accountable for corporate misstatements if they exercised sufficient control over the company’s operations or the statements at issue.

The complaint names three defendants: SLM Corporation as the corporate entity, CEO Jonathan W. Witter, and CFO Peter M. Graham. Plaintiffs allege these parties made materially false or misleading statements about delinquency trends and loss mitigation program effectiveness, and omitted to disclose material facts about early-stage delinquency deterioration.

The defined class includes all persons and entities (excluding defendants) who purchased or acquired SLM securities during the class period spanning July 25, 2025 through August 14, 2025. This three-week window captures the time between management’s July earnings statements and the corrective disclosure triggered by TD Cowen’s research.

To prevail, plaintiffs must establish that defendants made material misrepresentations or omissions, that they did so with scienter (a mental state embracing intent to deceive or extreme recklessness), that plaintiffs relied on these misstatements, and that the reliance caused economic loss. The role of the TD Cowen report is central to establishing both the falsity of prior statements and the causal connection to subsequent stock price declines.

What This Case Illustrates About Information Asymmetry

This litigation highlights a fundamental challenge in securities markets: the information gap between corporate insiders and public investors. Company management has real-time access to operational data—in this case, daily or weekly reports on borrower payment behavior, delinquency aging, and modification program outcomes. External investors, by contrast, receive information on a quarterly reporting cycle, supplemented by periodic statements during earnings calls and presentations.

When executives characterize trends as “normal” or describe performance as “strong,” investors must generally accept these characterizations at face value, lacking access to the underlying granular data. This information asymmetry is precisely what securities fraud laws aim to address by requiring honest, complete disclosures and prohibiting misleading characterizations.

Independent research analysts partially bridge this gap by conducting their own examinations of publicly available data, industry metrics, and comparative performance indicators. In this instance, TD Cowen’s analysis of July 2025 delinquency statistics—data that was presumably available to management weeks earlier—revealed patterns that contradicted executive statements.

The question in securities fraud cases often comes down to timing and knowledge: when did management become aware of adverse trends, and what obligation did they have to update prior statements or provide additional context? If executives knew in July that early-stage delinquencies were spiking at five times the normal seasonal rate, their characterization of trends as “normal” and “expected” could constitute actionable misrepresentation.

Procedural Roadmap and Timeline

Securities class action litigation follows a well-established procedural path. The first major milestone is lead plaintiff appointment. Under the Private Securities Litigation Reform Act, the court must designate a lead plaintiff within 90 days of published notice. For this case, motions for appointment as lead plaintiff are due by February 17, 2026.

The lead plaintiff, typically the investor with the largest financial stake who can adequately represent the class, then selects lead counsel to prosecute the case. Following lead plaintiff appointment, defendants will file a motion to dismiss, arguing that the complaint fails to state a valid claim. This motion tests whether plaintiffs have alleged sufficient facts to support each element of their securities fraud claims, particularly materiality and scienter.

If the case survives dismissal, litigation proceeds to discovery, where plaintiffs can obtain internal company documents, communications, and testimony that may shed light on what management knew and when. After discovery, the court will consider a motion for class certification to determine whether the case can proceed as a class action or must be litigated through individual claims.

Most securities fraud cases that survive the motion to dismiss phase ultimately settle before trial, often during or shortly after discovery when the strength of evidence becomes clearer. Settlement amounts typically reflect the magnitude of alleged losses, the strength of the fraud claims, and the defendants’ ability to pay or obtain insurance coverage.

Investors who purchased SLM securities during the July 25-August 14, 2025 class period and wish to participate have several options. They may join the class action passively (requiring no action unless they choose to opt out), seek appointment as lead plaintiff (requiring a motion by February 17, 2026), or pursue individual claims outside the class action structure.

Important Notice: This article provides information about pending litigation and does not constitute legal advice. Securities laws are complex, and outcomes in any individual case depend on specific facts and legal arguments. Investors considering participation in this or any securities litigation should consult qualified legal counsel to understand their rights and options. Past results in other cases do not guarantee outcomes in pending matters.