By Adriano Marchese

SLM shares dropped after Morgan Stanley analysts downgraded the stock, citing expected higher costs associated with its new partnership model with private-credit firms.

Shares traded 16% lower at $25.81.

SLM is moving to a new partnership model where it works with outside financial firms like KKR to fund and manage student loans off its own balance sheet, but the costs of doing so are coming in higher than expected, according to Morgan Stanley Analyst Jeffrey Adelson.

"We still view long-term the PLUS origination & fee-based private credit opportunity as attractive, but step to the sidelines as potential for higher expenses," Adelson said in a report, noting the lack of clarity on future earnings make the short-term outlook more uncertain.

While some near-term pressure was expected from the new model transition in 2026, Adelson said earnings in 2026 and 2027 are likely to be weaker than earlier forecasted. What's more, the pressure could potentially carry beyond 2027.

Morgan Stanley downgraded the stock to equal-weight from overweight, and lowered its price target to $31 from $36.

In mid-November, SLM said it will sell private education loans to KKR, an investment firm, as part of a private credit partnership between the two companies where SLM will retain servicing for the loans it sells. KKR in turn will pay SLM fees for servicing, program management and industry expertise.

Adelson points to the company's own scenario which suggests that expenses could rise about 16% in 2026, which alone could cut earnings per share by roughly 30 cents compared to consensus estimates.

Morgan Stanley cut its expectations for the company, lowering its 2026 earnings forecast to $3.05 a share and its 2027 forecast to $3.44 a share. According to FactSet, consensus is for $3.19 a share and $3.46 a share, respectively.

Write to Adriano Marchese at adriano.marchese@wsj.com

(END) Dow Jones Newswires

December 09, 2025 11:39 ET (16:39 GMT)

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