Key Takeaways
- SLM stock dropped 7.6% after management raised concerns about charge-offs.
- Sallie Mae said that certain debt resolution practices are contributing to elevated charge-offs.
- SLM is shifting toward internal recovery efforts and enhancing borrower outreach programs.
Shares of SLM Corporation (SLM – Free Report) lost 7.6% during yesterday’s trading session after management raised concerns about elevated charge-offs and the potential impact on recoveries at the Morgan Stanley U.S. Financials Conference.
Details & Impact of SLM’s Charge-Off and Recovery Concerns
At the conference, Peter Graham, co-president and chief financial officer, stated that a small segment of borrowers with strong credit profiles has been contributing disproportionately to recent charge-offs. The company attributed the trend to certain third-party debt-resolution practices and emphasized that it does not reflect broader deterioration in portfolio credit quality.
According to Graham, the trend became evident as borrowers from the November 2025 repayment wave entered repayment earlier this year.
Following an internal review, Sallie Mae identified certain third-party debt-resolution firms in the debt management space that market products as private student loan refinancing solutions. The company indicated that these firms subsequently negotiate discounted settlements through SLM’s recovery channels after borrowers enter default.
Management believes these practices are influencing repayment behavior among certain borrowers and contributing to elevated charge-offs. Although the issue was concentrated in a limited segment of the portfolio, it had a meaningful impact on charge-offs. As of April 2026, the affected segment accounted for 6.4% of the company’s gross charge-offs.
Image Source: SLM Corporation
SLM also stated that borrowers may not fully understand the long-term consequences of such arrangements, including potential damage to credit scores and tax implications associated with forgiven debt.
SLM’s Efforts to Navigate Debt Resolution Practices
To address the issue, Sallie Mae terminated certain recovery-sale contracts and adjusted its settlement and recovery processes. The company is temporarily reducing its reliance on external recovery channels and shifting toward internally managed recovery strategies while it evaluates the evolving landscape.
In addition, SLM has increased outreach to borrowers showing signs of disengagement and is offering temporary loan modification programs to select borrowers in early-stage delinquency. Management believes these actions will help keep borrowers engaged and limit exposure to practices that may contribute to unnecessary defaults.
The company expects these actions to have a near-term impact on recovery activity. Management stated that if normal recovery-sale practices are not resumed before the end of 2026, full-year net charge-offs could increase by approximately $25 million.
However, Sallie Mae noted that internally managed recovery efforts have historically generated higher net present value than selling charged-off loans through recovery-sale channels. Although this approach delays the timing of recoveries, the company expects it to result in better recovery outcomes over the long run.
Our Take on SLM
The actions undertaken by Sallie Mae underscore its commitment to maintaining disciplined credit performance and supporting borrowers throughout the repayment cycle. While the potential near-term impact on recoveries remains a concern, the company’s proactive efforts to strengthen internally managed recovery processes and enhance borrower engagement are expected to support long-term credit performance.
The company’s shares have gained 4.5% in the past three months compared with the industry’s 6% growth.
Image Source: Zacks Investment Research
SLM’s Zacks Rank and Key Picks
SLM presently carries a Zacks Rank #3 (Hold).
Some better-ranked peers of SLM are Prog Holdings, Inc. (PRG – Free Report) and Encore Capital Group, Inc. (ECPG – Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Estimates for PRG’s current-year earnings have been revised 12.2% upward in the past 60 days. The company’s shares have jumped 26.7% in the past three months.
Estimates for ECPG’s current-year earnings have been revised 7.4% north in the past two months. The company’s shares have gained 19.7% in the past three months.
