Slm Corp Earnings Call: Investing Now for Plus Upside

Slm Corporation ((SLM)) has held its Q4 earnings call. Read on for the main highlights of the call.

Slm Corporation Balances Strong 2025 Performance With Costly Pivot Toward Plus Reform Upside

Slm Corporation’s latest earnings call painted a picture of a company executing strongly today while asking investors to accept a step back in earnings in 2026 to fund a much larger opportunity ahead. Management highlighted robust 2025 performance—sharp EPS growth, rising originations, improving margins and efficiency, and significant capital returns—while candidly acknowledging that heavier spending, slightly weaker near-term credit trends, and a more complex loan-sale model will weigh on 2026 results. The overarching message was clear: short-term pain for what could be substantial long-term gain if the federal Plus loan reform opportunity materializes as expected.

Robust EPS Growth Caps a Strong 2025

Slm delivered a standout earnings performance in 2025, with GAAP diluted EPS rising to $3.46 from $2.68 in 2024, a 29% year-over-year increase that underscores strong underlying profitability and operating leverage. Fourth-quarter GAAP diluted EPS came in at $1.12, helping to cement the full-year momentum. For investors, the 2025 EPS result demonstrates that the core business—private education lending—remains highly profitable even before layering in the potential benefits of upcoming strategic initiatives.

Originations Expansion Sets the Stage for Growth

Private education loan originations reached $7.4 billion for 2025, up 6% from 2024, with $1.02 billion originated in the fourth quarter. Management framed this as a base from which growth will accelerate, guiding to 12%–14% origination growth in 2026, largely fueled by changes in the federal Plus loan program. The company is positioning itself to capture increased demand for private student loans as federal funding structures evolve, presenting a notable volume growth story even before the full Plus reform opportunity is realized.

Plus Reform Unlocks a Large New Addressable Market

A central theme of the call was the potential upside from federal Plus reform. Management estimates that, once fully phased in, the changes could add about $5 billion in incremental annual originations—roughly 70% growth over 2025 levels. This translates into a significantly larger total addressable market for Slm’s private education loans. While timing and policy execution remain key variables, management tied this opportunity directly to its expectation of accelerated EPS growth beginning in 2027, positioning Plus reform as the strategic catalyst behind its current investment cycle.

Strategic Private Credit Partnership Targets Capital-Efficient Growth

To support growth without overburdening its balance sheet, Slm launched an inaugural private credit strategic partnership in 2025. The structure, described as a first-of-its-kind for the company, includes a minimum commitment for an initial trust flow and is expected to drive both capital efficiency and more predictable earnings. The initial commitment is associated with around $2 billion of new originations, with management indicating that such partnerships will increasingly carry a sizeable portion of future loan volume. For shareholders, this model aims to marry growth in originations with disciplined balance sheet management.

Net Interest Margin and Efficiency Continue to Improve

Profitability metrics moved in the right direction in 2025. Net interest margin reached 5.21% in the quarter, up 29 basis points year-over-year, and 5.24% for the full year, up 5 basis points. These gains suggest Slm is lending at attractive spreads and managing funding costs effectively. The full-year efficiency ratio came in at 33.2%, reflecting disciplined expense control and operating scale. Management signaled that while 2026 will bring a temporary step-up in spending, the long-term goal is to keep efficiency metrics in a best-in-class range over time.

Credit Quality Solid for the Year Despite Near-Term Bumps

On a full-year basis, Slm’s credit performance remained well controlled. Net charge-offs totaled $346 million, or 2.15% of average private education loans in repayment, a four-basis-point improvement versus 2024. Management cited better collections and improved linkage between 30+ day delinquencies and ultimate charge-offs as evidence of strengthening credit operations. This backdrop offers some comfort to investors even as the company flagged more recent upticks in early-stage delinquencies and quarterly loss rates.

Capital Returns and Balance Sheet Strength Support Shareholder Value

Slm continued to prioritize returning capital to shareholders in 2025 while maintaining a solid capital base. The company repurchased 3.8 million shares for $106 million in Q4 and 12.8 million shares, or $373 million, over the full year. It also announced a new two-year, $500 million share repurchase authorization, signaling confidence in long-term earnings power. On the balance sheet, liquidity stood at 18.6% of total assets at year-end, with total risk-based capital of 12.4% and a CET1 ratio of 11.1%. These metrics indicate Slm has meaningful capacity to support growth initiatives and ongoing buybacks.

Deliberate Investments Set to Pressure 2026 EPS

Despite the strong 2025 showing, Slm guided to a sizable step down in earnings for 2026, with expected diluted EPS of $2.70–$2.80 versus $3.46 in 2025—a roughly 19%–22% decline. Management was explicit that this drop is largely self-inflicted, driven by strategic choices to invest aggressively in product, credit capabilities, and growth infrastructure ahead of the anticipated Plus-driven expansion. Investors are being asked to look through 2026 as a “build” year that lays the foundation for higher earnings growth in 2027 and beyond.

Planned Expense Surge to Fund Product, Credit, and Marketing

The clearest expression of this investment cycle is in the 2026 expense outlook. Non-interest expense is projected to rise to $750–$780 million, up from $659 million in 2025—an increase of roughly 14%–18%. Management broke the increase into three major components: about 20% from normal market-driven cost pressures, around 40% from one-time investments in product, credit, and strategic enablers, and the balance from higher marketing and customer acquisition spending. While this will compress near-term profitability, the company framed these costs as necessary to capture the larger Plus reform opportunity and to support partnership-driven growth.

Early-Stage Delinquencies and Charge-Offs Tick Higher

While full-year credit metrics remain solid, recent trends show some softening at the margin. Private education loans 30+ days delinquent rose to 4.0% of loans in repayment at year-end, up from 3.7% a year earlier; on a non-GAAP basis, the figure would be about 3.88%. Management pointed to volatility in early-stage delinquency buckets but nonetheless acknowledged the move higher. Quarterly net charge-offs also nudged up: Q4 private education loan net charge-offs were 2.42% of average loans in repayment, slightly above 2.38% in the prior-year quarter, with a non-GAAP adjusted rate of about 2.40%. The company is building in some caution via higher reserves as it navigates these trends.

Reserve Levels Increase as the Portfolio Evolves

Reflecting both the changing portfolio mix and the modest uptick in early-stage delinquencies, Slm increased its reserve coverage. The total allowance as a percentage of private education loan exposure rose to 6.00% in Q4 2025 from 5.83% a year earlier and 5.93% in the prior quarter. Management noted that reserve movements and the impact of portfolio sales played a role. For investors, the higher reserve rate suggests a more conservative stance on future credit losses as the company transitions to a model that more frequently sells and warehouses loans.

New Loan Sale Strategy Adds Complexity to the Story

Slm is shifting toward a model in which newly originated loans are increasingly sold, with representative portions warehoused for subsequent sale. This change alters the mix of loans held for investment versus held for sale and has already begun to influence reported credit and performance ratios. Management acknowledged that this makes cross-period comparisons more challenging and provided reconciliations in the appendix to help investors bridge the metrics. While the approach aims to improve capital efficiency and support partnership growth, it also adds a layer of modeling complexity that the market will need time to digest.

Investor Pushback on Near-Term EPS and Volatility

Management openly recognized that the market’s initial reaction to the new strategic model and guidance was negative. Investor concerns are concentrated on the expected EPS decline in 2026, the sharp increase in expenses, and the added volatility and complexity arising from the revised loan sale strategy. The company’s response has been to emphasize the long-term earnings potential tied to Plus reform and partnership scaling, while stressing that 2026 is a transitional year rather than a reset of the core earnings power of the business.

Guidance Points to a Transitional 2026 and Reacceleration Thereafter

Looking ahead, Slm’s 2026 guidance calls for private education loan originations to grow 12%–14%, with most of the Plus-cap impact skewed to the back half of the year. Non-interest expense is expected in the $750–$780 million range, with the majority of the increase tied to one-time strategic investments and stepped-up marketing. Net charge-offs are projected between $345 million and $385 million, broadly in line with recent levels, and diluted EPS is forecast at $2.70–$2.80, reflecting the investment drag. Management expects the bank portfolio to be flat to slightly negative in 2026, then grow roughly 1–2 percentage points per year as strategic partnerships ramp, ultimately targeting 30%–40% of originations through partnerships at steady state. They also anticipate that expense growth in 2027 will be about half the 2026 rate and aim to push the efficiency ratio back into the low-30s by 2030. A fully phased-in Plus reform is seen as adding about $5 billion of annual originations, driving EPS growth in 2027 into the high-teens to low-20% range.

In sum, Slm Corporation’s earnings call outlined a year of strong execution in 2025, marked by impressive EPS growth, expanding originations, improved margins, and significant capital returns, set against a deliberately less profitable 2026 as the company invests ahead of a potentially transformational Plus reform opportunity. While rising expenses, modest credit softening, and a more complex loan-sale model have stirred investor unease, management is betting that higher volumes, capital-efficient partnerships, and a growing addressable market will translate into faster EPS growth from 2027 onward. For investors willing to tolerate near-term volatility and a temporary earnings dip, Slm is positioning itself as a long-term growth story in private education finance.