Sallie Mae lowers 2026 EPS guidance to $1.95-$2.05 while raising net charge-off outlook to $400M-$420M

• "Tonight, we are pleased to announce that we have completed a strategic partnership with Sixth Street for an initial 3-year term" and "Sixth Street has committed to purchase a minimum of $1.5 billion in newly originated private education loans annually" with "an initial seed portfolio of $600 million in seasoned loans" (CEO Jonathan Witter).
• "Loan originations for the third quarter were $3.4 billion, representing 15% growth over the year ago quarter and the highest quarterly origination volume in our history" and "In Q3, graduate originations were up 119% year-over-year" (CEO Witter).
• "This peak season has been elongated" and "For October month-to-date, we have seen a 35% increase in disbursements year-over-year" while "by year-end, our full year originations will be in line with our guidance of 12% to 14% growth" (CEO Witter).
• "Private education loan net charge-offs were $90 million in the third quarter" and results were "modestly above our expectation" due to borrowers tied to "misaligned third-party debt resolution practices" (CEO Witter).
• "For the third quarter of 2026, we generated $339 million of net interest income and $46 million of other income" (Co-President, CFO & Treasurer Peter Graham).

Outlook

• "Primarily as a result of our decision not to execute an additional whole loan sale, we are lowering our full year 2026 EPS guidance to $1.95 to $2.05 a share" (CEO Jonathan Witter).
• "We are increasing our full year net charge-off guidance to $400 million to $420 million" while "reaffirming our noninterest expense and origination guidance" (CEO Witter).
• "At this time, we do not anticipate executing our final loan sale for the year, which was previously planned for October" because management believed "the likely premium we would receive... would be below our minimum acceptable threshold" (CEO Witter).

Financial Results

• "Net interest margin was 4.85% for the quarter, up 10 basis points from the prior quarter" (Co-President, CFO & Treasurer Peter Graham).
• "Private education loans delinquent 30 days or more were 4.2% of loans in repayment" and "our reserve rate was 5.89% at the end of the quarter" (CFO Graham).
• "Provision for credit losses was $214 million in the third quarter" and "noninterest expenses were $221 million" including restructuring actions taken "on October 1" (CFO Graham).
• "We continued to return capital to shareholders... repurchasing 5.1 million shares at an average price of $25.69" and "since the beginning of the year... 18.1 million shares... representing 9% of the shares outstanding" (CFO Graham).

Q&A

• Jeffrey Adelson, Morgan Stanley: asked about the foregone whole-loan sale size and 2027 outlook; Co-President, CFO Graham said skipping the sale was in "that $1 billion range" and added, "our base case is we return to an environment that allows for premiums" and then "we're probably looking at a flat balance sheet to maybe single-digit growth of the balance sheet."
• Jeffrey Adelson, Morgan Stanley: asked why net charge-off guidance midpoint moved beyond the $25M-to-$45M third-party estimate; CEO Witter said, "I don't think there's anything else" and CFO Graham added, "to be clear, it's all related to this third-party issue."
• Sanjay Sakhrani, KBW: asked about acceptable sale conditions and balance sheet capacity if markets stay volatile; CFO Graham said "we don't... price off a 10-year treasury" but argued conditions were "unique to this quarter," and added, "the balance sheet is in great shape" with "pretty substantial" capital buffers.
• Terry Ma, Barclays: asked whether Sixth Street gain-on-sale was in guidance and the duration of third-party impacts; CFO Graham said, "Yes, that's included in our guidance for this year," and CEO Witter said, "we expect next year's impact to be meaningfully less than what we saw this year."
• Donald Fandetti, Wells Fargo: asked about near-term NIM and brokered deposit competition; CFO Graham said the "biggest factor" was the Q1 pulled-forward loan sale and excess liquidity, adding, "as we funded peak season originations... we would get some normalization."
• Donald Fandetti, Wells Fargo: asked timing of the $600M Sixth Street seed sale and held-for-sale implications; CFO Graham said, "A portion of the seed portfolio closed just at the end of the quarter, and the remainder will close in the early part of the fourth quarter."
• Richard Shane, JPMorgan: asked whether held-for-sale growth implied timing issues from canceling a nonflow sale; CFO Graham said, "Not at all."
• Giuliano Anderes-Bologna, Compass Point: asked whether held-for-sale would largely clear in Q4 and if the forward-flow gain would be realized; CFO Graham said held-for-sale "will clear out" with partner takeout and confirmed, "Correct."

Sentiment Analysis

• Analyst tone was slightly negative to pressing, centered on the EPS cut mechanics and balance-sheet/loan-sale implications, including "help us understand" (Morgan Stanley) and concerns about a "substantially larger" held-for-sale portfolio (JPMorgan).
• Management tone was slightly positive but notably defensive/clarifying on credit and guidance drivers, using "to be clear" (Co-President, CFO Graham) and emphasizing discipline: "we are committed to being a disciplined capital allocator" (CEO Jonathan Witter).
• Versus Q2, management messaging shifted from early PLUS/peak optimism to greater emphasis on market volatility and near-term tradeoffs, including "we do not anticipate executing our final loan sale for the year" (CEO Witter), while analysts shifted from NIM/credit sensitivity to detailed questions on loan-sale sizing and accounting/held-for-sale mechanics.

Quarter-over-quarter Comparison

• Q3 introduced a new funding expansion: "completed a strategic partnership with Sixth Street" with "a minimum of $1.5 billion" annual purchases (CEO Jonathan Witter), compared with Q2’s description of a second partner still in negotiation and "likely close in the third quarter or early fourth quarter" (Co-President, CFO Peter Graham).
• Guidance language tightened materially in Q3, with "lowering our full year 2026 EPS guidance to $1.95 to $2.05" and raising net charge-offs to "$400 million to $420 million" (CEO Witter), versus Q2’s narrower net charge-off range action without an EPS cut.
• Credit narrative escalated from a contained recovery-timing issue in Q2 to a larger quantified impact in Q3, with management raising estimated third-party-related impact "from $25 million to $45 million" and stating adoption was "slower than we initially expected" (CEO Witter).

Risks and Concerns

• "Interest rates have moved significantly higher and capital market conditions have become more volatile and challenging" and management warned this could "create an in-year EPS impact for 2026" (CEO Jonathan Witter).
• Management cited concentrated credit pressure tied to "misaligned third-party debt resolution practices" and said it had increased the estimated annual impact, but also noted early signs of improvement, including "a 50% decline in mentions" in call reviews (CEO Witter).
• Restructuring execution risk was acknowledged with "a restructuring plan to better align resources" and one-time charges that move expenses "closer to the high end of the range" (Co-President, CFO Peter Graham).

Final Takeaway

Management framed Q3 around record peak-season volume and a second strategic funding partner, while simultaneously resetting 2026 expectations to reflect a weaker whole-loan sale environment and higher charge-off pressure tied to third-party debt resolution behavior. The company emphasized it chose to retain loans rather than sell below its pricing threshold, kept share repurchase expectations largely intact, and positioned Sixth Street and KKR flow commitments as key levers to fund continued growth—particularly in graduate lending following PLUS reform—while working to reduce the elevated credit impact into 2027.

Read the full Earnings Call Transcript

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