Sallie Mae Outlines Strategic Shift, Projects Higher Revenues & EPS

In a new investor presentation, Sallie Mae Corporation SLM unveiled a significantly evolved strategy aimed at boosting long-term earnings growth, reducing credit volatility, and expanding its presence in the rapidly growing private credit market. The company emphasized that the plan positions Sallie Mae for sustainable earnings per share (EPS) growth and a more resilient operating model.SLM: From Loans to Capital-Light PartnershipsHistorically recognized for its dominant role in the U.S. private student-lending market, SLM is now deliberately repositioning its business model to capture growth in the rapidly expanding private-credit sector. This shift reflects a broader industry trend in which financial institutions seek diversified funding sources, enhanced liquidity, and more resilient revenue structures. In sync with this, last month, SLM announced a multi-year partnership with KKR & Co. KKR, marking its expansion into the growing private credit market. Such efforts offer Sallie Mae a pathway to generate recurring, fee-based income rather than relying solely on the cyclical and capital-intensive nature of originating and holding loans on its balance sheet.The company highlighted the rapid expansion of the private credit market, which is expected to reach $4.5 trillion by 2030. The total addressable market across segments such as consumer credit, fund finance and specialty lending now exceeds $50 trillion. The company believes that this expansion creates a compelling opening to build a capital-light, fee-based revenue business that complements its traditional bank-funded student loan portfolio.Total Addressable Market Image Source: Sallie Mae Sallie Mae Shift Toward Fee-Based, Off-Balance-Sheet GrowthTo capitalize on rising private credit trends, SLM plans to split growth across the traditional bank-funded loan portfolio and alternative, asset-light businesses, including strategic loan partnerships and recurring servicing and program-management fees. Sallie Mae expects that by 2030, 21% of the total revenues to come from partnerships, up from just 8% currently.Total Revenue Growth Image Source: Sallie Mae The total managed loan portfolio is projected to grow from $39 billion to $64 billion over five years, with fee-based revenue increasing as a share of the total.Total Managed Loan Image Source: Sallie Mae PLUS Loan Reforms to Drive Billions in New Volume for SLMSweeping changes to the federal PLUS loan programs — enacted through H.R.1 and signed into law on July 4, 2025 — represent one of the most consequential shifts in U.S. student lending policy. The reform eliminates Grad PLUS loans, caps Parent PLUS loans and expands Unsubsidized Stafford loan limits for professional graduate students.Sallie Mae projects these reforms to create $4.5-$5 billion in additional annual originations once the transition is fully complete, driven primarily by displaced PLUS borrowers migrating to the private market.Volume Scenarios Image Source: Sallie Mae Sallie Mae: Operating Leverage & Capital GenerationSLM expects a temporary rise in non-interest expenses initially as it builds capacity for the incoming PLUS-related volume and strengthens its risk-management systems. After this initial investment phase, the company projects steady gains in operating leverage.Available capital for shareholder returns, such as dividends and share repurchases, is expected to increase from $400 million in the first year to $550 million by the fifth year. Annual loan originations expand from $8.46 billion to $14.43 billion, driving earnings per share from $2.63 to $4.70, representing a 16% compounded annual growth rate (CAGR) over five years.EPS Growth ProjectionImage Source: Sallie Mae Final Words on SLM’s Strategic ShiftSallie Mae’s evolving strategy signals a decisive shift toward a more diversified, resilient and capital-efficient business model. By combining its legacy strength in private student lending with the scalability of fee-based partnerships, the company aims to position itself at the center of a rapidly transforming private credit landscape. Federal PLUS loan reforms provide a powerful tailwind, unlocking billions in new annual demand, while the expansion of asset-light partnerships offers a path to steadier earnings and reduced credit volatility.If executed effectively, SLM’s multi-year roadmap, combining higher originations, expanding fee income, growing capital generation and accelerating EPS, could redefine its long-term valuation profile and cement its role as not only a market leader in education finance but a competitive force in the broader private credit ecosystem.Sallie Mae’s Price Performance & Zacks RankSLM shares have gained 11.9% year to date compared with the industry’s growth of 52.6%.Price Performance Image Source: Zacks Investment Research The company currently carries a Zacks Rank #3 (Hold).SLM Peers Worth ConsideringA couple of better-ranked stocks are Enova International, Inc. ENVA and Encore Capital Group ECPG.Earnings estimates for ENVA for the current year have remained unchanged over the past 30 days. Over the past six months, Enova International’s shares have soared 40%. It carries a Zacks Rank of 2 (Buy) at present.ECPG's current fiscal-year earnings estimates have remained unchanged over the past month. Shares of Encore Capital Group have gained 38% over the past six months. At present, it sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.Radical New Technology Could Hand Investors Huge GainsQuantum Computing is the next technological revolution, and it could be even more advanced than AI.While some believed the technology was years away, it is already present and moving fast. 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(ENVA): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks