Sallie Mae (SLM)

Student loan provider Sallie Mae (NASDAQ:SLM) beat Wall Street’s revenue expectations in Q4 CY2025, with sales up 16.4% year on year to $454.1 million. Its GAAP profit of $1.12 per share was 19.7% above 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. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Sallie Mae’s 2% annualized revenue growth over the last five years was sluggish. This wasn’t a great result, but there are still things to like about Sallie Mae.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Sallie Mae’s annualized revenue growth of 4.7% 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 reported year-on-year revenue growth of 16.4%, and its $454.1 million of revenue exceeded Wall Street’s estimates by 1%.

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.

Interest income and expenses play a big role in financial institutions' profitability, so they should be factored into the definition of profit. Taxes, however, should not as they are largely out of a company's control. This is pre-tax profit by definition.

Over the last five years, Sallie Mae’s pre-tax profit margin has risen by 14 percentage points, going from 75.1% to 50%. Luckily, it seems the company has recently taken steps to address its expense base as its pre-tax profit margin expanded by 7 percentage points on a two-year basis.

Sallie Mae’s pre-tax profit margin came in at 69.6% this quarter. This result was 35.7 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 an unimpressive 9.3% compounded annual growth rate over the last five years. This performance was better than its flat revenue but 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 20.2% was higher than its five-year trend. This acceleration made it one of the faster-growing financials companies in recent history.

In Q4, Sallie Mae reported EPS of $1.12, up from $0.50 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Sallie Mae’s full-year EPS of $3.47 to shrink by 20.4%.

Return on equity (ROE) measures how effectively banks generate profit from each dollar of shareholder equity - a critical funding source. High-ROE institutions typically compound shareholder wealth faster over time through retained earnings, share repurchases, and dividend payments.

Over the last five years, Sallie Mae has averaged an ROE of 32.9%, 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 11.9%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

It was good to see Sallie Mae beat analysts’ EPS expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street’s estimates. On the other hand, its net interest income slightly missed and its full-year EPS guidance fell slightly short of Wall Street’s estimates. Overall, we think this was still a decent quarter with some key metrics above expectations. The stock traded up 4.3% to $27.86 immediately after reporting.

Updated: January 22, 2026 at 11:48 PM EST

Before deciding whether to buy Sallie Mae or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Sallie Mae possesses a number of positive attributes. Although its revenue growth was weak over the last five years and analysts expect growth to slow over the next 12 months, Sallie Mae’s stellar ROE suggests it has been a well-run company historically.

Sallie Mae’s P/E ratio based on the next 12 months is 9.6x. Looking at the financials space right now, Sallie Mae trades at a compelling valuation. If you’re a fan of the business and management team, now is a good time to scoop up some shares.

Wall Street analysts have a consensus one-year price target of $31.64 on the company (compared to the current share price of $27.86), implying they see 13.6% upside in buying Sallie Mae in the short term.