Sallie Mae (SLM)

Student loan provider Sallie Mae (NASDAQ:SLM) missed Wall Street’s revenue expectations in Q3 CY2025, but sales rose 42.2% year on year to $546 million. Its GAAP profit of $0.63 per share was 20.8% below analysts’ consensus estimates.

Company Overview

Originally created as a government-sponsored enterprise before privatizing in 2004, Sallie Mae (NASDAQ:SLM) is a financial services company that provides private education loans, savings products, and educational resources to help students and families pay for college.

Student loan providers finance higher education expenses. Growth opportunities exist in private loan offerings, refinancing existing debt, and international education funding. Challenges include political uncertainty around potential loan forgiveness programs, default risk correlation with employment markets, and increasing scrutiny of educational outcomes relative to debt burdens.

Sallie Mae's main competitors include Discover Financial Services (NYSE:DFS), Citizens Financial Group (NYSE:CFG), PNC Financial Services (NYSE:PNC), and private companies like SoFi, Earnest, and College Ave Student Loans in the private student loan market.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Sallie Mae struggled to consistently increase demand as its $1.92 billion of revenue for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result, but there are still things to like about Sallie Mae.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Sallie Mae’s annualized revenue growth of 6.1% over the last two years is above its five-year trend, but we were still disappointed by the results. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Sallie Mae achieved a magnificent 42.2% year-on-year revenue growth rate, but its $546 million of revenue fell short of Wall Street’s lofty estimates.

The yield on loans and financial instruments represents the interest income earned relative to the total amount of credit extended by financial institutions. This metric measures both revenue generation capacity and the risk profile of a firm's lending activities.

Sallie Mae’s yield has increased by 209.1 basis points (100 basis points = 1 percentage point) over the last five years but was flat on a two-year basis. Although the longer-term change is reassuring, the two-year result was worse than the financials industry. The firm’s average yield in the most recent quarter was 10.6%.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For Student Loan companies, we look at pre-tax profit rather than the operating margin that defines sectors such as consumer, tech, and industrials.

Financials companies manage interest-bearing assets and liabilities, making the interest income and expenses included in pre-tax profit essential to their profit calculation. Taxes, being external factors beyond management control, are appropriately excluded from this alternative margin measure.

Over the last four years, Sallie Mae’s pre-tax profit margin has risen by 47.5 percentage points, going from 89.7% to 42.1%. Luckily, it seems the company has recently taken steps to address its expense base as its pre-tax profit margin expanded by 15.4 percentage points on a two-year basis.

Sallie Mae’s pre-tax profit margin came in at 34% this quarter. This result was 49.5 percentage points better than the same quarter last year.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sallie Mae’s EPS grew at a solid 15.1% compounded annual growth rate over the last five years, higher than its flat revenue. However, this alone doesn’t tell us much about its business quality because its pre-tax profit margin didn’t improve.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Sallie Mae, its two-year annual EPS growth of 45.3% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, Sallie Mae reported EPS of $0.63, up from negative $0.23 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Sallie Mae’s full-year EPS of $2.85 to grow 16.5%.

Return on equity, or ROE, tells us how much profit a company generates for each dollar of shareholder equity, a key funding source for banks. Over a long period, banks with high ROE tend to compound shareholder wealth faster through retained earnings, buybacks, and dividends.

Over the last five years, Sallie Mae has averaged an ROE of 34.5%, exceptional for a company operating in a sector where the average shakes out around 10% and those putting up 25%+ are greatly admired. This shows Sallie Mae has a strong competitive moat.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Sallie Mae has averaged a Tier 1 capital ratio of 12%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

We were impressed by Sallie Mae’s optimistic full-year EPS guidance, which blew past analysts’ expectations. On the other hand, its net interest income missed and its EPS fell short of Wall Street’s estimates. Overall, this quarter could have been better. Still, it seems that expectations were low, and the stock traded up 5% to $28.10 immediately after reporting.

Updated: December 3, 2025 at 11:27 PM EST

Before making an investment decision, investors should account for Sallie Mae’s business fundamentals and valuation in addition to what happened in the latest quarter.

There are several reasons why we think Sallie Mae is a great business. Although its revenue growth was weak over the last five years, its growth over the next 12 months is expected to be higher. Plus, its stellar ROE suggests it has been a well-run company historically, and its rising yields show its credit portfolio is delivering higher returns than before.

Sallie Mae’s P/E ratio based on the next 12 months is 8.6x. Scanning the financials landscape today, Sallie Mae’s fundamentals really stand out, and we like it at this bargain price.

Wall Street analysts have a consensus one-year price target of $34.73 on the company (compared to the current share price of $30.11), implying they see 15.4% upside in buying Sallie Mae in the short term.