- Key insight: Sallie Mae, America's largest private student lender, predicted earnings per share for the next several years that fell short of analysts' estimates, alarming investors.
- Supporting data: The day after the new projections were released, Sallie Mae's stock dropped by 15%.
- Expert quote: "While the reset should ultimately create a more durable and stable EPS growth trajectory, the magnitude of the reset is too significant to ignore," wrote Giuliano Bologna, an analyst for Compass Point.
Sallie Mae has been telling investors for months that it sees a bright future ahead, thanks to the federal government's retreat from student lending. So it came as a surprise to many outside observers when the company forecasted earnings well below Wall Street's expectations.
Sallie Mae unveiled the new projections during an investor forum on Monday evening. The student loan giant released its expected earnings per share for the next five years, though it cautioned that these numbers were "not intended as guidance."
For each of the next three years, Sallie Mae's predictions fell short of analysts' consensus estimates, as compiled by S&P. For fiscal year 2026, the company predicted EPS of $2.63; analysts had predicted $3.38. For 2027, Sallie Mae predicted $2.87; analysts had expected $3.98. For 2028, Sallie Mae predicted $3.41; analysts had forecasted $4.86.
During Monday's webcast, Sallie Mae CEO Jonathan Witter described the hits to earnings per share as necessary growing pains as the lender transitions to a new business model.
"While there will be trade-offs inherent in shifting from the current loan sale model … we believe these are outweighed by the long-term benefits," Witter said.
Not all investors were convinced. On Tuesday, Sallie Mae's stock price fell by 15%. Several analysts expressed concern, and one investment firm, Compass Point, downgraded the lender from "Buy" to "Sell."
"The forum update signals a major reset, effectively wiping out" roughly two years of progress "before growth returns to the trajectory the market was expecting," Giuliano Bologna, an analyst for Compass Point, wrote in a note to clients. "While the reset should ultimately create a more durable and stable EPS growth trajectory, the magnitude of the reset is too significant to ignore."
Under the student lender's new projections, its earnings per share in 2026 would actually be lower than its full-year EPS in 2025, as predicted by analysts. Witter acknowledged this during the webcast.
"In year one [of the new model], we expect a modest decline in earnings per share as we transition to this new strategic partnerships model," Witter said. "However, by year two, we anticipate earnings per share growth should return to the high single digits … reflecting the strength and scalability of this strategy."
The new strategy, Witter said, is composed of two parts. The first is Sallie Mae's traditional business: Student loans funded by the firm's own bank. The second is an "alternative growth engine" involving "innovative funding strategies," including new partnerships with non-bank companies.
One example is the lender's new collaboration with the private equity firm KKR, which was
"This partnership is designed with both scale and strategic longevity in mind," Witter said on Monday. "We expect it to support significant annual volume while reinforcing our long-term growth objectives."
Sallie Mae, the nation's largest private student lender, is also looking forward to a political tailwind. As the federal government reduces its involvement in student lending, the company is expecting to
The One Big Beautiful Bill Act, which President Trump signed this past summer, eliminates the government's Grad PLUS loans for graduate students; phases out President Biden's SAVE repayment plan; and imposes new taxes on university endowments, which schools typically use to provide financial aid, among other measures.
These changes are set to take effect over time, beginning in July 2026. Witter said a few weeks after the law was passed that Sallie Mae expected to gain $4.5 billion to $5 billion per year in new loan originations thanks to the law, with the "bigger impacts" expected in 2027 and beyond.
All of these factors appeared to contribute to the puzzlement some analysts expressed during Monday's investor forum, as Sallie Mae dialed down their expectations for future earnings.
Jeffrey Adelson, an analyst at Morgan Stanley, asked if the company was being "conservative" in its new projections.
"I think the longer-term view on this is, it's a really strong growth framework, and it's worth a little bit of transition noise to get from here to there," replied Peter Graham, Sallie Mae's chief financial officer.
Sallie Mae declined to provide a comment for this story.
