Sallie Mae (SLM), the largest private student lender in the United States, is teaming up with private equity powerhouse KKR & Co. (KKR) in a landmark, multi-year partnership that will reshape the private student loan market amid a retreat by the federal government from higher education financing. Under the agreement, KKR will purchase more than $6 billion in student loans from Sallie Mae over the next three years, marking one of the most significant transactions in the asset-based finance space this year.

The deal underscores a shifting balance between public and private lending, as the Biden-era federal loan programs are phased out under President Trump’s One Big Beautiful Bill Act, creating new opportunities for private capital to fill the gap. For Sallie Mae, the partnership strengthens liquidity and expands its capacity to issue new loans, while for KKR, it signals a deepening move into asset-backed finance at a time of rising demand for education-related credit products.

A First-of-Its-Kind Partnership

Announced Monday, the agreement will see Sallie Mae sell KKR an “initial seed portfolio” of private education loans, followed by an additional $2 billion per year for at least three years. Sallie Mae will continue to service the loans, earning fee-based revenues from collection and administration.

“We’re excited to work with KKR on this first-of-its-kind deal and look forward to growing this into a new business,” said Sallie Mae CEO Jon Witter. “This partnership expands our lending capacity while maintaining our commitment to disciplined underwriting.”

With $29.6 billion in total assets, Sallie Mae dominates the U.S. private student loan market, serving millions of students each year. KKR, which topped Private Equity International’s 2025 PEI 300 list as the world’s largest private equity firm, has steadily expanded into asset-based finance (ABF), viewing consumer credit as a stable, scalable investment class amid elevated interest rates.

“This transaction exemplifies the opportunities we’re seeing across our ABF strategy to deploy long-term, flexible capital in support of high-quality, scaled financial institutions,” said Avi Korn, KKR’s managing director and co-head of asset-based finance.

Timing and Strategic Implications

The deal comes at a pivotal time for the student lending landscape. The One Big Beautiful Bill Act, signed on July 4, 2025, includes sweeping reforms that will eliminate Grad PLUS loans, phase out the SAVE repayment plan, and introduce new taxes on university endowments that fund financial aid. These measures, taking effect in 2026, are expected to sharply reduce the volume of federal student lending, paving the way for private lenders like Sallie Mae to expand market share.

Sallie Mae estimates that the reforms could add $4.5 billion to $5 billion annually in new loan originations, with the full impact materializing by 2027. During its most recent earnings call, Witter described the environment as “transformative,” highlighting the company’s ability to leverage partnerships like the one with KKR to scale efficiently while preserving capital.

“This is a strategic step toward unlocking the value of our customer base and building sustainable, capital-light, fee-based revenue streams,” Witter told investors.

KKR’s Broader Push into Credit

For KKR, the Sallie Mae deal fits into its broader strategy of diversifying beyond traditional private equity and into structured credit and financial assets, where returns are less dependent on market cycles. KKR has been one of the most aggressive alternative asset managers expanding into the consumer lending space, acquiring portfolios of mortgages, auto loans, and now, student debt.

By purchasing these assets, KKR gains exposure to a steady stream of cash flows while Sallie Mae retains servicing rights, an arrangement that benefits both parties. The partnership could also set a precedent for other lenders seeking to offload loans amid tighter capital requirements and rising funding costs.

A Redefinition of U.S. Student Lending

The timing of the alliance suggests both firms are positioning themselves for a new era in American higher education finance, where private capital will play a greater role in filling funding gaps left by federal retrenchment.

Industry observers see this as a potential model for similar collaborations between lenders and institutional investors. “This partnership reflects a structural realignment of student lending,” said Alexandra Hermann of Oxford Economics. “Private markets are increasingly stepping in where the federal footprint is shrinking, and that trend is likely to accelerate.”

As Sallie Mae prepares for increased demand, the company remains focused on disciplined growth and maintaining high credit standards, a critical factor in managing default risk during a period of economic uncertainty.

For KKR, the deal offers exposure to a high-yielding, consumer-linked asset class that complements its broader credit platform. For Sallie Mae, it represents a capital-efficient path to expansion at a time of rising opportunity and competition.