NEWARK, DE — Sallie Mae (Nasdaq: SLM) sharply reduced its 2026 earnings forecast on October 22 after reporting a $32.3 million third-quarter loss, as rising credit costs and operating expenses outweighed record private student loan originations driven partly by changes to federal student lending programs.
The Newark-based lender, formally SLM Corporation, lowered its full-year earnings guidance to $1.95 to $2.05 per diluted share from its previous forecast of $3.10 to $3.20. The revision represents a reduction of approximately 36% at the midpoint.
Sallie Mae also raised its projected annual net loan charge-offs to $400 million to $420 million, up from an earlier estimate of $365 million to $385 million, reflecting increased expectations for loans that will not be repaid.
The revised outlook followed a third-quarter net loss of $32.3 million, compared with net income of $135.9 million a year earlier. The company reported a loss attributable to common shareholders of $35.9 million, or 19 cents per share, reversing a profit of $131.9 million, or 63 cents per diluted share, in the prior-year quarter.
The deterioration came despite a record $3.4 billion in private education loan originations, a 15% increase from the third quarter of 2025.
Graduate student loan originations surged 119% as changes to federal PLUS lending programs increased demand for private financing.
The results illustrate the competing pressures facing Sallie Mae as federal student loan changes create opportunities for private lenders while higher loan volumes require additional credit reserves and operating expenditures.
Sallie Mae recorded a $213.7 million provision for credit losses during the quarter, up from $179.5 million a year earlier and $126 million in the second quarter.
Net charge-offs totaled $90.4 million, compared with $77.5 million in the third quarter of 2025, an increase of approximately 17%.
The company attributed much of the increase to what it described as misaligned third-party debt resolution practices affecting a relatively small group of borrowers with greater ability to repay their loans.
According to Sallie Mae, those practices contributed to some borrowers progressing through delinquency into default. The company has adjusted its recovery strategies but acknowledged that borrowers have adopted those alternatives more slowly than anticipated.
Delinquent loans represented 4.2% of private education loans in repayment at September 30, compared with 4% a year earlier. Loans in forbearance increased to 2.3% from 2%.
The company’s allowance for credit losses represented 5.89% of private education loan exposure, down slightly from 5.93% a year earlier.
Sallie Mae maintained that the credit quality of newly originated loans remained strong. The average qualifying FICO score at approval was 757, and 92% of originations involved a cosigner.
Net interest income declined 9% to $339.3 million from $373 million a year earlier, reflecting lower interest income despite a modest reduction in funding costs.
The company’s cost of funds decreased to 4.21% from 4.24%, partly because of measures taken to extend the duration of fixed-rate financing.
Non-interest income fell sharply to $36.1 million from $172.7 million, largely reflecting a decline in gains from loan sales.
Net gains on loan sales totaled $3.7 million, compared with $136 million in the prior-year quarter. The company also recorded a $14 million net loss on securities, compared with a $4.9 million gain a year earlier.
Operating costs added further pressure.
Total non-interest expenses increased 22% to $220.7 million from $180.4 million as Sallie Mae expanded spending to support student loan demand following the federal lending changes.
Compensation and benefits expenses rose to $98.4 million from $83.7 million, while other operating expenses increased to $116.2 million from $89.4 million.
Chief Executive Officer Jonathan Witter characterized the quarter as the strongest lending season in the company’s history.
“We delivered a record peak season, highlighted by the largest single quarter of originations in the Company’s history,” Witter stated.
He also pointed to growth in graduate lending following federal student loan changes and the company’s expanding strategic partnerships business.
Despite reducing its earnings outlook, Sallie Mae maintained its forecast for full-year private education loan origination growth of 12% to 14%.
The company also left its projected annual non-interest expenses unchanged at $750 million to $780 million.
Sallie Mae continued adjusting its balance sheet during the quarter, entering a partnership with a global investment firm that included the sale of a $143 million seasoned private education loan portfolio.
The portfolio comprised $129 million in principal and $14 million in capitalized interest.
The company also repurchased approximately 5.1 million common shares for $132.2 million during the quarter.
Through September 30, Sallie Mae had repurchased 18.1 million shares for $415.6 million, leaving $111 million available under its 2026 share repurchase authorization.
Total assets stood at $29.84 billion at quarter-end, compared with $29.75 billion at December 31, 2025.
Deposits declined to $20.76 billion from $21.06 billion over the same period, while loans held for investment, net of allowances, increased to $20.63 billion from $20.33 billion.
For the first nine months of 2026, Sallie Mae earned $334.2 million, compared with $511.7 million during the corresponding period of 2025.
Diluted earnings for the nine-month period fell to $1.68 per share from $2.35.
The company’s revised guidance signals that stronger student loan demand is unlikely to offset the immediate earnings effects of increased credit provisions, higher operating costs and reduced gains from loan sales during the remainder of 2026.
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