Sallie Mae's earnings took a dive in the second quarter, dented by a large increase in its provisions for credit losses. But thanks to recent legislation, the student loans giant sees a big, beautiful future ahead.
"We're optimistic about the long-term outlook for private student lending, particularly in light of the recently passed federal student loan reforms," CEO Jonathan Witter said on a call with analysts late Thursday.
Witter was referring to the One Big Beautiful Bill Act, which President Trump signed into law on July 4. Among other provisions, the legislation limits the amount of money graduate students can borrow from the government, phases out President Biden's SAVE repayment plan and imposes new taxes on the university endowments, which schools typically use to provide financial aid.
All in all, the law substantially scales back federal student lending, which is likely to push many borrowers toward private lenders. Sallie Mae expects to gain $4.5 billion to $5 billion per year in new loan originations thanks to the legislation, Witter said.
"As the leading private student lender, we believe we are uniquely positioned to serve students and families and support our school partners through this period of transition," the CEO said.
Because the new law will take effect in July 2026, he added, "the bigger impacts are expected to be in 2027 and beyond."
This prediction of a bright future came after a quarter that fell far short of Wall Street's expectations. Earnings per share fell to 32 cents in the second quarter, missing analysts' consensus estimate of 49 cents, according to S&P.
The results also marked a steep drop from the same period last year, when earnings per share were $1.11, though Sallie Mae made loan sales during the second quarter of 2024 that boosted its earnings per share.
Net income came out to $71.27 million, well below estimates of $106.05 million, per S&P. In the second quarter of 2024, net income had been $252 million.
The quarter saw a dramatic jump in loss provisions, which reached $149 million — up from just $17 million one year ago.
This difference was partly attributable to a $103 million reserve release during last year's second quarter, according to Sallie Mae Chief Financial Officer Pete Graham. But he said a "more cautious macroeconomic outlook" was also a factor.
Net charge-offs for private education loans came out to $94 million during the second quarter — or 2.36% of average loans in repayment, up from 2.19% in the same period last year.
Graham said this increase was mainly due to forbearance that Sallie Mae granted during the California wildfires earlier this year.
"While some of the borrowers that were granted disaster forbearance in the first quarter were able to return to make the payments, a portion of those borrowers ultimately charged off in the second quarter," Graham said during the earnings call, adding that this was a "unique event."
Weaker credit metrics were not the only reasons Sallie Mae came up short. Loan originations for the quarter came out to $686 million, down $5 million from the second quarter of 2024. Meanwhile, noninterest expenses rose to $167 million, up $8 million from the year-ago period.
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During the second quarter, Sallie Mae repurchased 2.4 million shares of its own stock, at a total cost of $70.7 million. "We expect to continue programmatically and strategically buying back stock throughout the year," Witter said.
Sallie Mae's history dates back to 1972, when it was founded as the Student Loan Marketing Association, a government-sponsored enterprise that serviced federal student loans. The entity privatized in the 1990s, and today Sallie Mae is the nation's largest private provider of student loans.
Over the past few years, the firm has seen some of its biggest competitors drop out of the market. Wells Fargo
Now, under Trump's leadership, the federal government is stepping back as well. And no one stands to benefit more than Sallie Mae.
