$22.71
$71.68
bear $22.71
base $42.17
bull $71.68
margin of safety $19.00
market price* $21.81
SLM Corporation (Sallie Mae) is the largest private student lender in the United States. Through Sallie Mae Bank it makes Smart Option undergraduate, graduate and parent loans to cover college costs above what savings, grants and federal loans pay, funds them mostly with FDIC-insured deposits (about $19.9 billion, of which $8.2 billion is brokered) plus securitizations, and sells part of each year's production to outside investors while keeping the servicing. It originated $7.4 billion of loans in 2025 and holds about $20.8 billion of loans at face value (June 30, 2026). How we measured earning power. For a lender, deposits and securitization debt are raw material and their interest is an ordinary cost, so we value profit after interest and do not subtract those funding sources as if they were corporate borrowings. Reported operating cash flow is not usable here: interest on in-school loans is added to balances rather than paid ($1.18 billion in 2025), and loan originations, sales and charge-offs run through investing activities. So we started from net income, replaced the accounting loss provision with the loans actually written off net of recoveries (after tax), and treated stock-based pay as the real cost it is, counted once. On that basis owner earnings were $650 million in 2022, $560 million in 2023, $666 million in 2024 and $735 million in 2025. Owner-earnings figures in our previous analysis were built on a different basis and are not comparable. What changed since our previous estimate ($38 / $60 / $81). The business changed in 2026. (1) Premium on loan sales: loans sold in 2025 earned about 7.4 percent over book ($369 million on $4.95 billion); sales in 2026 are earning about 3.6 to 4.4 percent ($161 million on $3.75 billion in the first half), because the new KKR partnership buys loans at a low premium and pays Sallie Mae servicing and program fees instead. Those fees are growing (other income $86 million in the first half, up from $58 million) but do not replace the lost premium. (2) Costs: operating expenses were $366 million in the first half, up 14 percent, and the company guides $750-780 million for 2026 against $659 million in 2025, to build products for the federal PLUS loan changes effective July 1, 2026; the 10-K itself warns of margin and expense pressure from these investments. (3) Net interest income fell 5.8 percent in the first half as the loan book shrank through sales; the second-quarter margin was 4.75 percent versus 5.3 percent a year earlier. Offsetting this, the share count fell to about 190 million from 211 million average in 2025. First-half owner earnings were about $300 million versus about $375 million a year earlier; we estimate $495 million for all of 2026 and about $465 million a year afterwards. Base case ($42 per share). 2026: $495 million (first half about $300 million; second half about $195 million, with net interest income recovering to about $357 million a quarter, little gain on sale, costs about $400 million and charge-offs about $178 million). From 2027: net interest income $1.43 billion, plus loan-sale gains of $150 million and servicing and program fees of $180 million, less operating costs of $765 million and charge-offs of $375 million (about 2.3 percent of loans in repayment, in line with 2.15-2.55 percent in each of the last four years), taxed at 25 percent: about $465 million. Growth of 1 percent a year from 2028 through 2035, below the roughly 2 percent a year the business delivered from 2019 to 2025 while originations grew about 5 percent a year and the loan book stayed near $20-22 billion; flat after that. We credit no benefit from the PLUS changes (the company guides originations up 12-14 percent in 2026; the first two quarters were up 5 percent and 4.5 percent), no second loan-sale partner, no cost savings and no further share repurchases. The costs are included because they are already being spent. Bear case ($23 per share). A full student-lending credit cycle of the kind this company went through in 2008-2010: legacy Sallie Mae private education loan charge-offs rose from 1.1 percent of loans in repayment in 2007 to 1.9 percent in 2008 and 4.4 percent in 2009 (4.8 percent in the fourth quarter of 2010). We start a similar cycle in 2027: charge-offs of 3.3 percent, then 4.5 percent for two years, 3.5 percent and 2.6 percent, which is $976 million more in losses than the base case over five years; loan-sale gains halve and then disappear for two years ($450 million lost) since the company says its results depend on its ability to sell loans; and brokered deposits cost half a point more. Owner earnings fall to $294 million, $49 million, $52 million and $221 million in 2027-2030 (about three years of base earnings lost), recover to $350 million and settle at about $395 million, 85 percent of the base level, because originations fell 28 percent in 2010 after the last cycle ($3.2 billion to $2.3 billion). After 2035, earnings decline 3 percent a year because more of each loan's income goes to the buyers of sold loans (net interest income is already falling faster than fees are rising). Reported profit would turn into losses in the worst two years as reserves are built, and capital would fall to just above the regulatory buffers (about $0.65-0.8 billion of excess today) with all buybacks stopped; a worse outcome would force new equity. The bear value is above tangible book value of about $11 per share because, on this basis, earnings stay positive every year and the school relationships and servicing platform survived the last cycle. Bull case ($72 per share). The PLUS changes (Grad PLUS closed to new borrowers and Parent PLUS capped at $20,000 a year from July 1, 2026) push volume to private lenders, the 2026 originations guide of 12-14 percent is met, and the costs now being spent produce volume at high incremental margin. Owner earnings reach $520 million in 2026 and $600, $680, $740 and $780 million in 2027-2030, then grow 3 percent a year through 2035 and stay flat after. What the business is worth and what is ahead of the common stock. Deposits and securitization debt are operating funding already paid for in the earnings above. The $500 million of senior notes due November 2026 were refinanced in May 2026, and about $4.6 billion of certificates of deposit mature within twelve months. The only claim ahead of the common stock not already charged is $251 million of Series B preferred (at face). The business is worth about $4.56 billion in the bear case, $8.25 billion in the base case and $13.85 billion in the bull case; after the preferred, common equity is worth $4.31 billion, $8.00 billion and $13.60 billion, or $22.71, $42.17 and $71.68 per diluted share (about 189.8 million). Margin-of-safety price. The margin-of-safety price is about $19. The earnings level is less certain than usual: owner earnings go from $735 million in 2025 to about $495 million in 2026 as loan-sale premiums halve and costs rise. The worst plausible outcome is a credit cycle plus a closed loan-sale market; the business stays profitable on a charge-off basis but is leveraged about 11 to 1, would sit only a few hundred million dollars above its capital buffers, and gets 41 percent of its deposits from brokered sources that regulators restrict if a bank falls below well-capitalized, so something worse than our bear case is a funding problem rather than just lower profit. If we are wrong on the two things most likely to be wrong (loan-sale gains disappear; charge-offs settle 0.7 point higher at 3.0 percent) the shares are worth about $27 even without a recession. Over the holding period, the base case earns about $2.38 per share a year after preferred dividends: at $19 that is a yield of about 12.5 percent, about $9.50 per share over four years, with a $0.52 dividend and the remainder mostly spent on buybacks, which at that price would retire about 10 percent of the shares a year. Tangible common book value is about $11 per share. What would make this wrong: a recession pushing student-loan charge-offs well above 2009 levels; loan buyers stepping back so sale gains vanish; the KKR partnership proving unable to scale or a second partner not materializing; or federal rules reverting. On the upside, strong capture of former Grad PLUS and Parent PLUS borrowers in the 2026-27 academic year would move results toward the bull case. The filings do not disclose the price or volume terms of the KKR partnership, so we rely on realized results.