UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-36228
Navient Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
123 Justison Street, Wilmington, Delaware 19801
(Address of Principal Executive Offices)
46-4054283
(I.R.S. Employer
Identification No.)
(302) 283-8000
(Telephone Number)
Securities registered pursuant to Section 12(b) of the Act
Title of each class
Common stock, par value $.01 per share
6% Senior Notes due December 15, 2043
Trading
Symbol(s)
NAVI
JSM
Name of each exchange on which registered
The NASDAQ Global Select Market
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
Emerging growth company
☒
☐
☐
Accelerated filer
Smaller reporting company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by
the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ☐ No ☒
The aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2021 was $3.2 billion (based on
closing sale price of $19.33 per share as reported for the NASDAQ Global Select Market).
As of January 31, 2022, there were 152,132,902 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement (the “2022 Proxy Statement”) relating to the Registrant’s 2022 Annual Meeting of Shareholders, to
be filed no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, are incorporated by
reference into Part III of this Annual Report on Form 10-K.
Auditor Firm ID: 185
Auditor Name: KPMG LLP
Auditor Location: McLean, VA
TABLE OF CONTENTS
Organization of Our Form 10-K
The order and presentation of content in our Form 10-K differs from the traditional Securities and Exchange Commission (SEC) Form 10-K
format. Our format is designed to improve readability and to better present how we organize and manage our business. See Appendix B,
"Form 10-K Cross-Reference Index" for a cross-reference index to the traditional SEC Form 10-K format.
Forward-Looking and Cautionary Statements....................................................................................................
Available Information .........................................................................................................................................
Use of Non-GAAP Financial Measures ..............................................................................................................
Business ............................................................................................................................................................
Overview and Fundamentals of Our Business ..........................................................................................
How We Organize Our Business ...............................................................................................................
Human Capital ..........................................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations ..............................
Selected Historical Financial Information and Ratios ................................................................................
The Year in Review ...................................................................................................................................
Navient’s Response to COVID-19 .............................................................................................................
Results of Operations ................................................................................................................................
Segment Results .......................................................................................................................................
Financial Condition ....................................................................................................................................
Liquidity and Capital Resources ................................................................................................................
Critical Accounting Policies and Estimates ...............................................................................................
Non-GAAP Financial Measures ................................................................................................................
Risk Management .....................................................................................................................................
Supervision and Regulation ...............................................................................................................................
Legal Proceedings .............................................................................................................................................
Risk Factors .......................................................................................................................................................
Quantitative and Qualitative Disclosures about Market Risk .............................................................................
Properties ..........................................................................................................................................................
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities .........................................................................................................................................................
Controls and Procedures ...................................................................................................................................
Directors, Executive Officers and Corporate Governance .................................................................................
Executive Compensation ...................................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters............
Certain Relationships and Related Transactions, and Director Independence ..................................................
Principal Accountant Fees and Services ...........................................................................................................
Exhibits and Financial Statement Schedules ....................................................................................................
Signatures .........................................................................................................................................................
Financial Statements ........................................................................................................................................
Appendix A – Description of Federal Family Education Loan Program .............................................................
Appendix B – Form 10-K Cross-Reference Index ..............................................................................................
Glossary ............................................................................................................................................................
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FORWARD-LOOKING AND CAUTIONARY STATEMENTS
This Annual Report on Form 10-K contains “forward-looking” statements and other information that is based on
management’s current expectations as of the date of this report. Statements that are not historical facts, including
statements about our beliefs, opinions, or expectations and statements that assume or are dependent upon future
events, are forward-looking statements and often contain words such as “expect,” “anticipate,” “intend,” “plan,”
“believe,” “seek,” “see,” “will,” “would,” “may,” “could,” “should,” “goals,” or “target.” Such statements are based on
management's expectations as of the date of this filing and involve many risks and uncertainties that could cause our
actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and
uncertainties are discussed more fully under the section titled “Risk Factors” and include, but are not limited to the
following:
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the continuing impacts of the COVID-19 pandemic and related risks;
the economic conditions and the creditworthiness of third parties;
increased defaults on education loans held by us;
the cost and availability of funding in the capital markets;
the transition away from the LIBOR reference rate to an alternative reference rate;
higher or lower than expected prepayments of loans could change the expected net interest income we
receive or cause the bonds issued by a securitization trust to be paid at a different speed than anticipated;
our unhedged Floor Income is dependent on the future interest rate environment and therefore is variable;
a reduction in our credit ratings;
adverse market conditions or an inability to effectively manage our liquidity risk could negatively impact us;
the interest rate characteristics of our assets do not always match those of our funding arrangements;
our use of derivatives exposes us to credit and market risk;
our ability to continually and effectively align our cost structure with our business operations;
a failure of our operating systems, infrastructure or information technology systems;
failure by any third party providing us material services or products or a breach or violation of law by one of
these third parties;
changes to applicable laws, rules, regulations and government policies and expanded regulatory and
governmental oversight;
our work with government clients exposes us to additional risks inherent in the government contracting
environment;
shareholder activism;
shareholders’ percentage ownership in Navient may be diluted in the future;
reputational risk and social factors;
obligations owed to parties under various transaction agreements that were executed as part of the spin-off
of Navient from SLM Corporation (the Spin-Off); and
acquisitions or strategic investments that we pursue.
Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking
statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-K and
in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our
business.
The preparation of our consolidated financial statements also requires management to make certain estimates and
assumptions including estimates and assumptions about future events. These estimates or assumptions may prove
to be incorrect and actual results could differ materially. All forward-looking statements contained in this report are
qualified by these cautionary statements and are made only as of the date of this report. We do not undertake any
obligation to update or revise these forward-looking statements except as required by law.
Through this discussion and analysis, we intend to provide the reader with some narrative context for how our
management views our consolidated financial statements, additional context within which to assess our operating
results, and information on the quality and variability of our earnings, liquidity and cash flows.
1
AVAILABLE INFORMATION
Our website address is www.navient.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities
Exchange Act of 1934, as amended (the Exchange Act), are filed with the Securities and Exchange Commission
(SEC). We are subject to the informational requirements of the Exchange Act and file or furnish reports, proxy
statements and other information with the SEC. Copies of these reports, as well as any amendments to these reports,
are available free of charge through our website at www.navient.com/investors, as soon as reasonably practicable
after they are electronically filed with, or furnished to, the SEC.
In addition, copies of our Board Governance Guidelines, Code of Business Conduct (which includes the code of
ethics applicable to our Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) and
the governing charters for each committee of our Board of Directors are available free of charge on our website at
navient.com/investors/corporate-governance, as well as in print to any shareholder upon request. We intend to
disclose any amendments to or waivers from our Code of Business Conduct (to the extent applicable to our Principal
Executive Officer or Principal Financial Officer) by posting such information on our website.
Information contained or referenced on the foregoing websites is not incorporated by reference into and does not
form a part of this Annual Report on Form 10-K. Further, the Company’s references to the URLs for these websites
are intended to be inactive textual references only.
USE OF NON-GAAP FINANCIAL MEASURES
We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate
our business segments and present financial results on a basis that differs from GAAP. We refer to this different basis
of presentation as Core Earnings, which is a non-GAAP financial measure. We provide this Core Earnings basis of
presentation on a consolidated basis and for each business segment because this is what we review internally when
making management decisions regarding our performance and how we allocate resources. We also include this
information in our presentations with credit rating agencies, lenders and investors. Because our Core Earnings basis
of presentation corresponds to our segment financial presentations, we are required by GAAP to provide Core
Earnings disclosures in the notes to our consolidated financial statements for our business segments.
In addition to Core Earnings, we present the following non-GAAP financial measures: Adjusted Core Earnings,
Tangible Equity, Adjusted Tangible Equity Ratio, Pro forma Adjusted Tangible Equity Ratio, and Earnings before
Interest, Taxes, Depreciation and Amortization Expense (EBITDA) (for the Business Processing segment). See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial
Measures” for a further discussion and a complete reconciliation between GAAP net income and Core Earnings.
2
Overview and Fundamentals of Our Business
Navient is a leading provider of education loan management and business processing solutions for education,
healthcare, and government clients at the federal, state, and local levels. We help our clients and millions of
Americans achieve success through technology-enabled financing, services and support.
With a focus on data-driven insights, service, compliance and innovative support, Navient’s business
consists of:
•
Federal Education Loans
We own a portfolio of $52.6 billion of federally guaranteed Federal Family Education Loan Program (FFELP)
Loans. We service and provide asset recovery services on this portfolio and for third parties, deploying data-
driven approaches to support the success of our customers. Our flexible and scalable infrastructure manages
large volumes of complex transactions, simplifying the customer experience and continually improving efficiency.
• Consumer Lending
We own, service and originate Private Education Loans that enable people to pursue higher education and
improve their economic opportunities. Our $20.2 billion private loan portfolio demonstrates high customer
success rates. We help people simplify their finances through student loan refinancing, and we help families
finance their higher education through transparent, affordable Private Education Loans. In 2021, we originated
$6.0 billion in Private Education Loans.
• Business Processing
We provide business processing solutions for more than 600 public sector and healthcare organizations, and
their tens of millions of clients, patients, and constituents. Our suite of solutions and customer experience
expertise enable our clients to focus on their missions, optimize their cash flow and deliver essential services,
while helping those they serve successfully navigate complex programs, transactions and decisions. For each
client, we customize a blend of technologies to deliver personalized, omnichannel communication experiences;
machine learning automation; root-cause business analytics; secure cloud computing; and intelligent customer
relationship platforms.
Superior Operational Performance with a Strong Commitment to Customer Service and Compliance
We help our customers — both individuals and institutions — navigate the path to financial success through
proactive, simplified service and innovative solutions.
• Scalable, data-driven solutions. Annually, we support tens of millions of people in conducting hundreds of
millions of transactions and interactions. Designed using configurable architecture, our systems are built for scale
and rapid implementation. We harness the power of data to build tailored programs that optimize our clients’
results.
We leverage our omnichannel communication platform, predictive analytics, and decades of insight to stay in
touch with people and address challenges that may arise.
Using technology enabled solutions, we have rapidly staffed, trained, and activated several call centers with
thousands of remote staff for clients needing urgent support, such as during the COVID-19 pandemic.
3
Across all our businesses, we use real-time dashboards and data visualization tools to monitor performance
metrics and identify, track, and address trends and opportunities.
• Simplify complex processes. On our clients’ behalf, we help individuals successfully navigate a broad
spectrum of complex transactions. Our people and platforms simplify complex programs – including healthcare,
tax, and transportation programs – to help constituents understand and meet their obligations.
•
Improve customer experience and success. We continually make enhancements to improve the customer
experience, drawing from a variety of inputs including customer surveys, research panels, analysis of customer
inquiries, transactions and activities, and complaint data, and regulator commentary. Across our businesses, our
customer-facing representatives are trained and measured to provide empathetic, accurate support.
o Repayment plan education and outreach: We help student loan borrowers understand their
repayment options so they can make informed choices that align with their financial circumstances and
goals.
o Office of the Customer Advocate: Our Office of the Customer Advocate, established in 1997, offers
escalated assistance to customers. We are committed to working with customers and appreciate
customer comments, which, combined with our own customer communication channels, help us
improve the ways we assist our customers.
o Private loan modification program: In 2009, we pioneered the creation of a loan modification program
to help Private Education Loan borrowers needing additional assistance. As of December 31, 2021,
approximately $831 million of our Private Education Loans were enrolled in this interest rate reduction
program, helping customers through more affordable monthly payments while making progress in
repaying their principal loan balance.
o Serving military customers: Navient was the first student loan servicer to launch a dedicated military
benefits customer service team, website (Navient.com/military) and toll-free number. Navient’s military
benefits team supports service members and their families to access the benefits designed for them,
including interest rate benefits, deferment and other options.
o Financial literacy: We offer free resources, including videos, articles and online tools, to help
customers and the general public build knowledge on personal finance topics. In 2021, we acquired
Going Merry, a free online service enabling students to match to and apply for scholarships, institutional
aid and government grants.
• Commitment to compliance. Our rigorous compliance posture ensures adherence with laws and regulations
and helps protect our clients, customers, employees and shareholders. We use a “Three Lines of Defense”
compliance framework, considered best practice by the U.S. Federal Financial Institutions Examination Council
(FFIEC). This framework and other compliance protocols ensure we adhere to key industry laws and regulations
including: Fair and Accurate Credit Transactions Act (FACTA); Fair Credit Reporting Act (FCRA); Fair Debt
Collection Practices Act (FDCPA); Electronic Funds Transfer Act (EFTA); Equal Credit Opportunity Act (ECOA);
Federal Information Security Management Act (FISMA); Gramm-Leach-Bliley Act (GLBA); Health Insurance
Portability and Accountability Act (HIPAA); IRS Publication 1075; Servicemembers Civil Relief Act (SCRA);
Military Lending Act (MLA); Telephone Consumer Protection Act (TCPA); Truth in Lending Act (TILA); Unfair,
Deceptive, or Abusive Acts and Practices (UDAAP); state laws; and state and city licensing.
• Deliver superior performance. Whether supporting student loan borrowers in successfully managing their
loans, designing and implementing new constituent-facing services for public sector agencies, generating
additional revenue for hospitals and medical systems, or helping a state manage communication backlogs or
recover revenue that funds essential services, Navient delivers value for our clients and customers.
We leverage leading-edge technology, data-driven insights, scale, and exemplary customer service to maximize
our value for our clients and outperform the competition.
• Corporate social responsibility. We are committed to contributing to the social and economic wellbeing of our
local communities; fostering the success of our customers; supporting a culture of integrity, inclusion and equality
in our workforce; and embracing sustainable business practices. Navient has earned recognition from premier
organizations for our continued commitment to fostering diversity. Our employees are active in our communities,
through local and national organizations, including a significant national partnership with Boys & Girls Clubs of
America (BGCA).
4
Navient is committed to a sustainable future. Our work is largely services based; as a result, our day-to-day
operations require relatively small amounts of natural resource and energy inputs. We focus on reducing the total
amount of CO2 and CO2 equivalents through various initiatives, including technology that minimizes energy
usage in our office buildings and the widespread adoption of “paperless” digital customer communications.
Navient prioritizes adding or updating insulation and other power-saving features to our buildings to further
reduce our carbon emissions. We consider our energy efficiency in our growth and real estate decisions.
Strong Financial Performance Resulting in a Strong Capital Return
Our 2021 results continue to build upon our previous year’s results demonstrating the strength of our business model
and our ability to deliver predictable and meaningful cash flow and earnings in all types of economic environments.
Adjusted Core Earnings(1) per share grew 31% compared to the prior year.
Our significant earnings generate significant capital which results in a strong capital return to our investors. Navient
expects to continue to return excess capital to shareholders through dividends and share repurchases in accordance
with our capital allocation policy.
By optimizing capital adequacy and allocating capital to highly accretive opportunities, including organic growth and
acquisitions, we remain well positioned to pay dividends and repurchase stock, while maintaining appropriate
leverage that supports our credit ratings and ensures ongoing access to capital markets.
On December 10, 2021, our Board approved a share repurchase program authorizing the purchase of up to $1 billion
of the company’s outstanding common stock. At December 31, 2021, $1 billion remained in share repurchase
authorization.
To inform our capital allocation decisions, we use the Adjusted Tangible Equity Ratio(1) in addition to other metrics.
Our Adjusted Tangible Equity Ratio(1) was 5.9% as of December 31, 2021.
(Dollars and shares in millions)
Shares repurchased
Reduction in shares outstanding
Total repurchases in dollars
Dividends paid
Total Capital Returned(2)
Adjusted Tangible Equity Ratio(1)
2020
2021
30.6
14 %
$
400
123
$
523 $
5.0 %
34.4
17 %
600
107
707
5.9 %
$
$
$
(1)
Item is a non-GAAP financial measure. For a description and reconciliation, see “Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Non-GAAP Financial Measures.”
(2) Capital Returned is defined as share repurchases and dividends paid.
5
How We Organize Our Business
We operate our business in three primary segments: Federal Education Loans, Consumer Lending and Business
Processing.
Federal Education Loans Segment
In this segment, Navient owns FFELP Loans and performs servicing and asset recovery services on this portfolio. We
also service and perform asset recovery services on FFELP Loans owned by other institutions. Our servicing quality,
data-driven strategies and omnichannel education about federal repayment options translate into positive results for
the millions of borrowers we serve.
We generate revenue primarily through net interest income on the FFELP Loan portfolio as well as servicing and
asset recovery services revenue. This segment is expected to generate significant earnings and cash flow over the
remaining life of the portfolio.
Navient’s portfolio of FFELP Loans as of December 31, 2021 was $52.6 billion. We expect this portfolio to have an
amortization period in excess of 15 years, with a 7-year remaining weighted average life. The segment net interest
margin was 0.99% in 2021. Navient’s goal is to support customers to successfully pay off their loans while optimizing
cash flows generated by our FFELP Loan portfolio. As a result of the long-term funding strategy used for our FFELP
Loan portfolio and the guarantees provided on these loans, the portfolio generates consistent and predictable cash
flows. As of December 31, 2021, approximately 95% of the FFELP Loans held by Navient were funded to term with
non-recourse, long-term securitization debt.
FFELP Loans are insured or guaranteed by state or not-for-profit agencies and are protected by contractual rights to
recovery from the United States pursuant to guaranty agreements among ED and these agencies. These guaranty
agreements generally cover at least 97% of a FFELP Loan’s principal and accrued interest for loans that default.
Legislation enacted in 2010 discontinued the FFELP program as of July 1, 2010, while keeping terms and conditions
of previous education loans made under the program intact. As a result of the FFELP program being discontinued,
this segment is expected to wind down over time.
In October 2021, Navient transferred its servicing contract for U.S. Department of Education (ED) owned student loan
accounts to a third party, via a contract novation. Prior to the transfer, this contract had accounted for approximately
6% of Navient’s annual revenue.
6
Consumer Lending Segment
In this segment, Navient owns, originates, acquires and services high-quality refinance and in-school Private
Education Loans. We believe our more than 45 years of experience, product design, digital marketing strategies, and
origination and servicing platform provide a unique competitive advantage. We see meaningful growth opportunities
in originating Private Education Loans to financially responsible consumers, generating attractive long-term, risk-
adjusted returns. We generate revenue primarily through net interest income on our Private Education Loan portfolio.
Through our Earnest and NaviRefi brands, our refinancing loan products enable college graduates and professionals
to refinance their student loans at lower interest rates with consumer-friendly terms. At December 31, 2021, Navient
held $9.8 billion of Private Education Refinance Loans, with 2021 originations of $5.8 billion, a 28% increase from
$4.6 billion in 2020. Our Earnest in-school Private Education Loan product offers consumer-friendly features to
college students and their cosigners who need additional funding to pursue higher education. We also offer a parent
loan, for parents, guardians, or sponsors to help cover the cost of a child’s education.
(1)
Total Private Education Loan originations include in-school and refinance loans.
(Dollars in millions)
Loan originations
2019 2020
2021
$ 4,903 $ 4,635 $ 6,023
Navient’s total portfolio of Private Education Loans as of December 31, 2021 was $20.2 billion. We expect the
portfolio to have an amortization period in excess of 15 years, with a 4-year remaining weighted average life. The
segment net interest margin was 2.92% in 2021. Our goal is to support our customers to successfully pay off their
loans, while optimizing the cash flows generated by our Private Education Loan portfolio.
We carefully manage the credit risk of our portfolio through rigorous underwriting, high-quality servicing and risk
mitigation practices, and appropriate use of forbearance and loan modification programs. As of December 31, 2021,
approximately 70% of the Private Education Loans held by Navient were funded to term with non-recourse, long-term
securitization debt.
7
Business Processing Segment
In this segment, Navient performs business processing services for over 600 government and healthcare clients.
• Government services: We provide state governments, agencies, court systems, municipalities, and parking
and tolling authorities with leveraging our scale, integrated technology solutions, decades of differentiated
customer experience expertise and evidence-based approach. Our support enables our clients to better
serve their constituents, meet rapidly changing needs, improve technology, reduce operating expenses,
manage risk and optimize revenue opportunities.
• Healthcare services: We perform revenue cycle outsourcing, accounts receivable management, extended
business office support, consulting engagements and public health programs. We offer customizable
solutions for our clients that include hospitals, hospital systems, medical centers, large physician groups,
other healthcare providers and public health departments.
We see meaningful growth opportunities as we leverage integrated technology solutions, superior data-driven
strategies, omnichannel customer service expertise, operating efficiency, and regulatory compliance and risk
management infrastructure to extend our business processing services into new markets. For example, in 2021 we
supported states in providing unemployment benefits and contact tracing and vaccine coordination services in
connection with the COVID-19 pandemic. Navient generated EBITDA(1) of $136 million in 2021, up $79 million, or
139%, from 2020.
Other Segment
This segment consists of our corporate liquidity portfolio, gains and losses incurred on the repurchase of debt,
unallocated expenses of shared services (which includes regulatory expenses) and restructuring/other reorganization
expenses.
Human Capital
Employing a talented team is central to the success of Navient’s many business lines, and our attractive value
proposition for prospective and current employees includes a strong and positive cultural framework, comprehensive
benefits and competitive compensation, and a commitment to diversity and fair and equitable treatment. We succeed
in delivering business results by attracting, retaining, motivating and developing a skilled and energized workforce.
Core Values and Code of Conduct. Our employees work to enhance the financial success of our customers by
delivering innovative solutions and insights with compassion and personalized service. Our employees are guided by
our core values:
• We strive to be the best. By relentlessly pursuing the right solutions, we deliver on our promises to each
other and those we serve.
• We’re stronger together. We succeed because we’re inclusive and authentic, and we know good ideas can
come from anywhere and anyone.
• We earn the trust of our customers and colleagues. We hold each other accountable and act with integrity.
• We innovate always and everywhere. We empower each other to think differently, develop ourselves and
grow our Company.
At Navient, we understand that our reputation begins and ends with our individual and collective integrity, and our
adherence to high ethical standards. Our unwavering approach to conducting business with integrity is clearly
communicated through our Code of Business Conduct, which provides clear principles and sets high expectations for
all Navient employees, officers and directors.
Community Engagement. Our team also supports the communities where we live and work. The Navient
Community Fund supports organizations that work to address the root causes that limit financial success for all
Americans. Navient has partnered with BGCA to provide career and college planning resources to youth, including
those from under-resourced communities. Through this partnership, we have helped develop digital tools and
curriculum to help youth learn about college and financial aid and explore careers relevant to their unique interests.
Navient employees also volunteer at BGCA clubs in the communities where we live and work, including hosting
college fairs, speaking at career days, painting club buildings and organizing back-to-school supply drives. Navient
offers paid time off per month to empower our employees to volunteer for a Navient-supported nonprofit organization
in their community. Through employee-led fundraising efforts, Team Navient gives back to our local communities by
supporting a variety of local nonprofit organizations serving thousands of families each year.
8
Compensation, Wellness and Benefits. Navient offers competitive, sound and equitable pay that is designed to
attract, retain and motivate highly qualified employees. This ensures that the total compensation paid to our
employees is appropriate in a market context and provides a mix of fixed and variable elements that appropriately
balance risk while rewarding performance aligned with the Company’s long-term goals. The Company maintains a
comprehensive governance program to administer incentive compensation programs which reward staff and
management for the achievement of business results, customer satisfaction, and compliance with regulatory
requirements. Navient provides a comprehensive and competitive benefits package to assist the needs of employees
and their families. In support of overall wellbeing, we take a holistic approach, providing our employees with
resources to assist in managing their physical, emotional and financial health, such as medical plan choices; a 401(k)
savings plan with a 5% company match; an employee stock purchase program; generous paid time off and holiday
schedule; life and disability insurance; adoption assistance; tuition reimbursement; and numerous health support and
wellness programs.
Ensuring the health and safety of our employees is a top priority at Navient. In response to the COVID-19 pandemic,
we have taken critical actions to support our employees. See “Management’s Discussion and Analysis of Financial
Conditions and Results of Operations – Navient’s Response to COVID-19” for more information on the actions
Navient has taken to protect the health and safety of our employees during the COVID-19 pandemic.
Employee Engagement and Development. We combine competitive pay and benefits with positive engagement,
career development and succession planning to keep and build a strong team.
• Maintaining strong employee engagement is a priority for Navient, and we routinely conduct engagement
surveys via an independent firm enabling us to better understand employee morale, satisfaction, and
engagement at Navient. We complete a rigorous review of results for each business unit and division, use
action planning teams to analyze and interpret results, and address areas of opportunity to improve
engagement and retention.
• We offer opportunities for employees to participate in both internal and external programs to support their
growth and development. An example is the Leadership Development Program for high-performing front-line
and mid-level leaders who demonstrate effective leadership practices and are ready for further development.
Navient has been recognized as a Training Top 100 award-winning organization – the premier learning
industry awards program recognizing the most successful learning and development programs in the world.
• We conduct succession planning and preparation annually to assess Navient’s bench strength and
readiness to backfill for all leadership positions in the top three levels at the Company. Development plans
guide team members in becoming ever more ready for their next career advancement.
Inclusion, Diversity and Equity. With a commitment to inclusion, diversity and equity, Navient maintains a
workplace where employees are welcomed and respected for who they are as individuals. Through our inclusion,
diversity and equity strategy, Navient employees lead and participate in initiatives such as our Inclusion, Diversity &
Equity Council and inclusion and diversity awareness campaigns. Our voluntary, staff-led employee resource groups
enable individuals to join together in the workplace based on their common interests, shared life experiences,
backgrounds, and demographic factors such as gender, race and ethnicity. To attract a diverse population of potential
employees Navient markets all open positions through over 100 diversity job boards, extensive national, state, and
community-based alliances, and job banks in all 50 states and U.S. territories.
Navient is a member of Employers for Pay Equity; has been recognized by the Human Rights Campaign via its
Corporate Equality Index; is a member of the Veterans Jobs Mission; and has been recognized as a Military Friendly
Employer and Military Friendly Spouse Employer. We are committed to ensuring each of our employees feels
welcomed, valued, and included, and can bring their whole selves to work so they can contribute in a meaningful
way. We know that being deliberately inclusive creates a diverse, highly engaged workforce that drives positive
Company performance. We fuel innovation and growth by providing opportunities for employees with diverse
perspectives to come together and work toward new solutions to enhance the financial success of our customers,
and we provide compassionate, personalized service with a workforce that reflects and understands our diverse
customer base.
Team Size. As of December 31, 2021, we had approximately 4,330 regular employees and approximately 1,865
temporary employees. Nearly all of our temporary employees were hired to support the expanding needs of clients in
providing critical COVID-19 services to their constituents. None of our employees are covered by collective
bargaining agreements.
9
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated financial statements and
related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis also contains
forward-looking statements and should be read in conjunction with the disclosures and information contained in
“Forward-Looking and Cautionary Statements” and “Risk Factors” in this Annual Report on Form 10-K.
The objective of this discussion and analysis is to allow investors to view the company from management’s
perspective. Accordingly, we provide the reader with narrative context for how our management views our
consolidated financial statements, additional context within which to assess our operating results, and information on
the quality and variability of our earnings, liquidity and cash flows. The discussion that follows is primarily focused on
2021 versus 2020 results. Discussion and analysis of 2020 results compared to 2019 is included in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the
year ended December 31, 2020 as filed with the SEC on February 26, 2021.
Selected Historical Financial Information and Ratios
(In millions, except per share data)
GAAP Basis
Net income(1)
Diluted earnings per common share
Weighted average shares used to compute diluted earnings per share
Return on assets
Dividends per common share
Return on common stockholders’ equity
Dividend payout ratio
Average equity/average assets
Total assets
Total borrowings
Total Navient Corporation stockholders’ equity
Book value per common share
Core Earnings Basis(2)
Net income(1)(2)
Diluted earnings per common share(2)
Adjusted diluted earnings per common share(2)
Weighted average shares used to compute diluted earnings per share
Net interest margin, Federal Education Loans segment
Net interest margin, Consumer Lending segment
Return on assets
Education Loan Portfolios
Ending FFELP Loans, net
Ending Private Education Loans, net
Ending total education loans, net
Average FFELP Loans
Average Private Education Loans
Average total education loans
Years Ended December 31,
2020
2021
2019
$
$
$
$
$
$
$
$
$
$
$
$
$
$
717 $
4.18 $
172
.88 %
.64 $
27 %
15 %
3.20 %
80,605 $
76,978 $
2,597 $
16.89 $
551 $
3.21 $
4.45 $
172
.99 %
2.92 %
.68 %
412 $
2.12 $
195
.47 %
.64 $
17 %
30 %
2.60 %
87,412 $
83,945 $
2,433 $
13.06 $
631 $
3.24 $
3.40 $
195
.99 %
3.20 %
.71 %
52,641 $
20,171
72,812 $
56,018 $
21,225
77,243 $
58,284 $
21,079
79,363 $
61,522 $
22,720
84,242 $
597
2.56
233
.63 %
.64
18 %
25 %
3.39 %
94,903
90,198
3,336
15.49
607
2.60
2.64
233
.83 %
3.30 %
.64 %
64,575
22,245
86,820
68,271
22,512
90,783
(1)
(2)
Regulatory expenses (which are excluded from Adjusted Core Earnings(2) expenses) for 2021 include $170 million, on an after-tax basis,
related to the resolution of previously disclosed State Attorneys General litigation and investigations. See “Results of Operations – GAAP
Comparison of 2021 Results with 2020” for further details. This expense equals $0.99 per share for 2021.
Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures – Core Earnings.”
10
The Year in Review
We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate
our business segments and present financial results on a basis that differs from GAAP. We refer to this different basis
of presentation as Core Earnings. We provide this Core Earnings basis of presentation on a consolidated basis and
for each business segment because this is what we review internally when making management decisions regarding
our performance and how we allocate resources. We also include this information in our presentations with credit
rating agencies, lenders and investors. Because our Core Earnings basis of presentation corresponds to our segment
financial presentations, we are required by GAAP to provide certain Core Earnings disclosures in the notes to our
consolidated financial statements for our business segments. See “Non-GAAP Financial Measures — Core Earnings”
for a further discussion and a complete reconciliation between GAAP net income and Core Earnings.
2021 GAAP net income was $717 million(1) ($4.18 diluted earnings per share), compared with $412 million ($2.12
diluted earnings per share) in the prior year. See “Results of Operations – Comparison of 2021 Results with 2020” for
a discussion of the primary contributors to the change in GAAP earnings between periods.
2021 Core Earnings(2) net income was $551 million(1) ($3.21 diluted Core Earnings per share), compared with
$631 million ($3.24 diluted Core Earnings per share) for 2020. Full-year 2021 and 2020 adjusted Core Earnings(2)
diluted earnings per share were $4.45 and $3.40 respectively. See “Segment Results” for a discussion of the primary
contributors to the change in Core Earnings between periods.
2021 was a year where we exceeded all of our original financial targets, demonstrated the value of our education
loan portfolio, leveraged our technology and infrastructure to grow our business processing segment, increased
returns to shareholders, strengthened capital and took significant steps to simplify and de-risk the business. Financial
highlights of 2021 versus 2020 include:
Federal Education Loans segment:
• Net income decreased $83 million, or 15%, from $537 million to $454 million;
• FFELP Loan delinquency rate increased from 9.2% to 10.6% and is below pre-pandemic levels;
• Transferred the servicing contract for ED owned student loan accounts to a third party in October 2021;
Consumer Lending segment:
• Net income increased $132 million, or 37%, from $360 million to $492 million;
• Originated $6.0 billion of Private Education Loans, a 30% increase over the prior year;
• Private Education Loan delinquency rate increased from 2.6% to 3.2% and is below pre-pandemic levels;
Business Processing segment:
• EBITDA(2) increased $79 million, or 139%, from $57 million to $136 million;
• Revenue increased $184 million, or 61%, to $488 million;
Capital, funding and liquidity:
• Adjusted tangible equity ratio(2) increased to 5.9% from 5.0%;
• Repurchased $600 million of common shares. Authorized $1 billion in a new multi-year share repurchase program
in December, all of which remains outstanding;
• Paid $107 million in common stock dividends;
•
Issued $9.5 billion in term ABS and $1.3 billion in unsecured debt;
• Repurchased $2.6 billion of unsecured debt, resulting in a pre-tax loss of $73 million ($0.33 per share), compared
with $768 million repurchased at a $6 million loss ($0.02 per share) in the year-ago period; and
Expenses:
• Adjusted Core Earnings expenses(2) increased $43 million to $974 million. This increase was primarily a result of a
$106 million increase in expenses in the Business Processing segment related to the increase in revenue
discussed above.
(1) Regulatory expenses (which are excluded from Adjusted Core Earnings(2) expenses) for 2021 include $170 million, on an after-
tax basis, related to the resolution of previously disclosed State Attorneys General litigation and investigations. See “Results of
Operations – GAAP Comparison of 2021 Results with 2020” for further details. This expense equals $0.99 per share for 2021.
(2) Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”
11
Navient’s Response to COVID-19
Since its emergence in early 2020, the COVID-19 pandemic has been dynamic and unpredictable. Variants continue
to emerge while efforts to mitigate and contain the impact of the pandemic continue to evolve. In response to the
COVID-19 pandemic, we have prioritized the safety of our employees and business partners, while continually
striving to support the needs of our customers and communities during this unprecedented period. During 2021, the
COVID-19 pandemic continued to affect our business operations, as set forth below.
Our Team Members
Since the onset of the pandemic, we have taken decisive action to protect the health and safety of our employees.
We expanded our work-from-home capabilities and implemented best practices in our facilities with regard to safety
and hygiene to protect those who were unable to work remotely. We were able to quickly and successfully enable
90% of our team to work from home. As of December 31, 2021, approximately 85% of our team remains on work-
from-home status. To facilitate the work-from-home experience, we have implemented various digital platforms and
virtual collaboration tools to maintain productivity and to remain in contact with one another and our business
partners. As a result of these steps, the pandemic has not adversely affected our ability to maintain our operations or
service our customers and borrowers. While we had anticipated that some of our team members would begin
returning to the office in the second half of 2021, the Delta and Omicron variants of the virus caused us to delay their
return for the immediate future. Once we begin the return-to-office process, we anticipate that many of our team
members may continue to work remotely or utilize a hybrid work model. The return-to-office is likely to take place in
stages and we anticipate that the environment may require a continuation of various safety protocols.
Customers and Education Loan Performance
Our FFELP and Private Education Loan portfolios have been impacted and may continue to be impacted by the
pandemic. To date, we have offered COVID-19 relief options such as the use of forbearance to those borrowers.
Private Education Loans in forbearance decreased to $535 million or 2.6% of the portfolio at December 31, 2021,
after peaking at $3.4 billion or 14.7% during the second quarter of 2020. Despite the COVID-19 crisis, we have seen
most borrowers continue to make payments according to their payment plans. As a result, the delinquency and
forbearance rates on the Private Education portfolio as of December 31, 2021, are below pre-pandemic levels as of
December 31, 2019. Our Private Education Loan charge-offs declined 49% to $184 million for the full year of 2020
compared with $364 million in full year 2019. This decline was largely due to the strength of the economy heading
into March 2020 and the COVID-19 forbearance granted to borrowers. We see this continued decline with charge-offs
of $153 million in 2021. Our allowance for loan losses covers our expectation that defaults will begin to increase in
2022 given the default timing impact related to the use of forbearance and the end of various payment relief and
stimulus benefit programs recently, and in the near future. Our total reserves were $1.6 billion (excluding the
expected future recoveries on charged-off loans) at December 31, 2021, which represent reserves equal to 6.3% of
our Private Education Loans and 0.5% of our FFELP Loan portfolio.
The pandemic initially required us to reduce our marketing efforts and tighten credit related to our Private Education
Loan origination business until we had greater visibility into the uncertainty and volatility in the capital markets and the
overall economic outlook. This resulted in second-quarter 2020 originations of $238 million. With improved visibility in
both credit and funding costs, we restarted marketing efforts in the third quarter of 2020 and increased third-quarter
and fourth-quarter originations to $1.3 billion and $1.1 billion, respectively. Total originations increased 30% from
2020 to 2021 with $6.0 billion, $4.6 billion and $4.9 billion of originations in 2021, 2020 and 2019, respectively.
Clients and Business Processing Segment Performance
Our Business Processing Segment (BPS) has experienced record revenue and profitability during the pandemic.
EBITDA(1) for this segment increased from $57 million a year ago to $136 million in 2021. This rapid increase in
revenue has been largely the result of our ability to transition our technology-enabled solutions and team members to
support state clients working to help residents access various benefits implemented in connection with the CARES
Act. BPS has also provided contact tracing and vaccine administration services to numerous state and local
governments during the pandemic. The revenue derived from these new service offerings has greatly exceeded the
negative revenue impact BPS experienced as a result of COVID-19 on the traditional services provided. While the
revenue from these new business opportunities has declined as the impact of the pandemic abates, we also expect
new opportunities for this segment as a result of services provided to these clients during the pandemic.
12
Liquidity, Financings and Capital
The impact of the pandemic on the capital markets was significant during the early part of the pandemic, decreasing
the number of transactions brought to market and increasing the pricing of those that were successfully marketed.
However, in the second half of 2020 the capital markets began to improve with ready access to the markets, albeit at
a higher cost than pre-COVID-19 levels. In 2021, we issued $1.3 billion of unsecured debt and $9.5 billion of ABS
below pre-COVID-19 cost of funds levels. Throughout the pandemic we have maintained a strong liquidity position.
As of December 31, 2021, we had $1.4 billion of primary sources of liquidity, $905 million of which was cash. We also
had, as of December 31, 2021, additional capacity in our funding facilities of $2.2 billion for Private Education Loans
and $546 million for FFELP Loans. In addition, cash flow from our loan portfolio and services contracts remains
strong as our very seasoned loan portfolio experiences lower levels of stress.
We ended 2021 with an Adjusted Tangible Equity Ratio(1) of 5.9% compared to 5.0% as of December 31,2020. In
2020, our GAAP equity was reduced due to the implementation of CECL on January 1, 2020 as well as a result of the
net mark-to-market losses related to derivative accounting as a result of the significant decrease in interest rates.
These mark-to-market losses recognized under GAAP cumulatively totaled $616 million (after tax) as of December
31, 2020 and $299 million (after tax) as of December 31, 2021. These losses will reverse over time as these
derivatives mature.
Other Matters
From an accounting, reporting and disclosure perspective, COVID-19 and the related work-from-home policies did
not negatively impact our ability to close our books, manage our financial systems, or maintain our internal control
over financial reporting and our disclosure controls and procedures. See “Critical Accounting Policies and Estimates”
for a discussion of how COVID-19 impacted our allowance for loan loss and our conclusion of goodwill not being
impaired.
We have successfully implemented our business continuity plans in response to COVID-19. We do not foresee
requiring material expenditures to continue to operate in a work-from-home environment nor do we expect material
expenditures to return to work in the office. We do not anticipate a material adverse impact of COVID-19 on our
supply chain and we do not expect the anticipated impact of COVID-19 to materially change the relationship between
costs and revenues. We have not been adversely impacted by travel restrictions and border closures nor do we
anticipate that our operations will be materially impacted by any constraints on our human capital resources and
productivity.
(1) Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”
13
Results of Operations
GAAP Income Statements
(Dollars in millions, except per share amounts)
Interest income
FFELP Loans
Private Education Loans
Other loans
Cash and investments
$
Total interest income
Total interest expense
Net interest income
Less: provisions for loan losses
Net interest income after provisions for loan losses
Other income (loss):
Servicing revenue
Asset recovery and business processing revenue
Other income
Gains on sales of loans
Gains (losses) on debt repurchases
Gains (losses) on derivative and hedging
activities, net
Total other income
Expenses:
Operating expenses
Goodwill and acquired intangible assets
impairment and amortization expense
Restructuring/other reorganization expenses
Total expenses
Income before income tax expense
Income tax expense
Net income
Basic earnings per common share
Diluted earnings per common share
Dividends per common share
Years Ended December 31,
2020
2019
2021
Increase (Decrease)
2021 vs. 2020
%
$
2020 vs. 2019
%
$
1,464 $
1,181
—
3
2,648
1,316
1,332
(61 )
1,393
168
539
30
78
(73 )
1,837 $
1,445
—
16
3,298
2,046
1,252
155
1,097
214
458
20
—
(6 )
2,847 $
1,731
2
93
4,673
3,488
1,185
258
927
(373 )
(264 )
—
(13 )
(650 )
(730 )
80
(216 )
296
(20 )% $ (1,010 )
(286 )
(18 )
—
(2 )
(77 )
(81 )
(1,375 )
(20 )
(1,442 )
(36 )
67
6
(103 )
(139 )
170
27
(35 )%
(17 )
(100 )
(83 )
(29 )
(41 )
6
(40 )
18
240
488
45
16
45
(21 )
(46 )
18
81
50
10
100
78
(67 ) 1,117
(26 )
(30 )
(25 )
(16 )
(51 )
(11 )
(6 )
(56 )
(100 )
(113 )
64
806
(256 )
430
22
856
320
376
125
87
(278 ) (1,264 )
(50 )
(426 )
1,207
964
984
243
25
(20 )
(2 )
30
26
1,263
936
219
717 $
22
9
995
532
120
412 $
30
6
1,020
763
166
597 $
8
17
268
404
99
305
36
189
27
76
83
74 % $
(8 )
3
(25 )
(231 )
(46 )
(185 )
4.23 $
2.14 $
2.59 $ 2.09
98 % $
(.45 )
4.18 $
2.12 $
2.56 $ 2.06
97 % $
(.44 )
(27 )
50
(2 )
(30 )
(28 )
(31 )%
(17 )%
(17 )%
.64 $
.64 $
.64 $
—
— % $
—
— %
$
$
$
$
14
GAAP Comparison of 2021 Results with 2020
For the year ended December 31, 2021, net income was $717 million, or $4.18 diluted earnings per common share,
compared with net income of $412 million, or $2.12 diluted earnings per common share, for the year-ago period.
The primary contributors to the change in net income are as follows:
• Net interest income increased by $80 million, primarily as a result of a $105 million increase in mark-to-
market gains on fair value hedges recorded in interest expense. Also contributing to the increase is the
growth in the Private Education Refinance Loan portfolio. Partially offsetting this increase is the
continued natural paydown of the FFELP and non-refinance Private Education Loan portfolios, as well as
the $1.6 billion of Private Education Loans sales in first-quarter 2021.
• Provisions for loan losses decreased $216 million from $155 million to $(61) million:
○ The provision for FFELP loan losses decreased $13 million to $0.
○ The provision for Private Education Loan losses decreased $203 million from $142 million to
$(61) million.
The negative provision for 2021 of $(61) million was comprised of $64 million in connection with loan
originations less the reversal of both $107 million of allowance for loan losses in connection with the sale
of approximately $1.6 billion of Private Education Loans, as well as $18 million related to a decrease in
expected losses for the overall portfolio. There has been an improvement in the current and forecasted
economic conditions since December 31,2020, but such improvement has not mitigated the uncertainty
related to the potential negative impact on the portfolio from the end of various payment relief and
stimulus benefits recently and in the future. The provision in the year-ago period primarily related to an
increase in expected losses due to COVID-19’s negative impact on the current and forecasted economic
conditions that occurred subsequent to the adoption of CECL on January 1, 2020.
• Servicing revenue decreased $46 million primarily related to the transfer of the servicing contract for 5.6
million ED owned student loan accounts from Navient to a third party on October 6, 2021. As a result,
Navient no longer is a party to the ED servicing contract. To aid in the transition, Navient will provide
certain services into 2022 to the third party through a transition services agreement (see discussion
below related to “Other income”). As part of the transaction, approximately 700 Navient employees were
transferred to the third party. This transaction provided a seamless transition for millions of borrowers
ensuring the ongoing servicing capacity for the Department of ED through the knowledge transfer and
ongoing employment of 700 employees. Additional benefits to Navient of this transaction are the
simplification of our business, reducing our overall risk profile and avoiding significant severance
expense.
• Asset recovery and business processing revenue increased $81 million primarily as a result of a $184
million increase in revenue earned in our Business Processing segment, primarily due to contracts to
support states in providing pandemic relief services, as well as revenue from our traditional Business
Processing segment services we perform for our government and healthcare services clients. These
increases were partially offset by the impact of COVID-19 on certain collection activities and the planned
wind-down of the ED asset recovery contract in the Federal Education Loan segment.
• Other income increased $10 million primarily related to the transition services being performed in
connection with the transfer of the ED servicing contract to a third party discussed above.
• Gains on sales of loans increased $78 million in connection with the sale of approximately $1.6 billion of
Private Education Loans in 2021. There were no such sales in the year-ago period. The sale of Private
Education Loans was comprised as follows:
○ Approximately $590 million of non-Refinance Loans, resulting in a $48 million gain on sale
(of which $560 million were sold in the first quarter and $30 million were sold in the second
quarter); and
○ Approximately $1.03 billion of Refinance Loans, resulting in a $30 million gain on sale. In
addition, there was a $13 million gain related to derivatives that were used to hedge this
transaction that did not qualify for hedge accounting. As a result, this gain related to the
derivatives was included as a part of “gains (losses) on derivative and hedging activities, net”
on the income statement.
• Losses on debt repurchases increased $67 million. We repurchased $2.6 billion of debt at a $73 million
loss in the current period compared to $768 million repurchased at a $6 million loss in the year-ago
period. As a part of our asset liability management, we regularly repurchase debt to optimize the funding
of our portfolio of educations loans to better match asset and liability maturities and reduce our interest
costs.
• Net gains on derivative and hedging activities increased $320 million. The primary factors affecting the
change were interest rate and foreign currency fluctuations, which impact the valuations of derivative
instruments including Floor Income Contracts, basis swaps and foreign currency hedges during each
period. Valuations of derivative instruments fluctuate based upon many factors including changes in
15
interest rates, credit risk, foreign currency fluctuations and other market factors. As a result, net gains
and losses on derivative and hedging activities may vary significantly in future periods. In particular, the
net loss in 2020 was primarily related to the significant reduction in interest rates and resulting impact on
the mark-to-market of the derivatives used to economically hedge FFELP Loan Floor Income that do not
qualify for hedge accounting. In 2021, interest rates have increased which has resulted in mark-to-market
gains on these instruments.
• Excluding net regulatory-related expenses of $233 million and $33 million in 2021 and 2020, respectively,
operating expenses were $974 million and $931 million in 2021 and 2020, respectively. This $43 million
increase was primarily a result of a $106 million increase in expenses in the Business Processing
segment in connection with the increase in segment revenue, with an offsetting $64 million decrease in
expenses primarily in the Federal Education Loans segment as a result of the decrease of Federal
Education Loan asset recovery revenue discussed above.
Included in current period regulatory expenses is $205 million related to the settlements with State
Attorneys General, which were entered into on January 13, 2022, to resolve all matters in dispute related
to certain previously disclosed Attorneys General litigation and investigations. In fourth-quarter 2021,
when such loss became probable, the Company recognized this contingent liability. The $205 million
expense is comprised of approximately $155 million of cash payments and $50 million in connection with
forgiving certain loans and the related amount of the expected future recoveries of these charged-off
loans carried on the balance sheet. Prior to the fourth quarter, this contingent liability was neither
probable nor reasonably estimable and, as a result, no contingent liability had been previously
established. See “Note 12 – Commitments, Contingencies and Guarantees” for further discussion.
• Goodwill and acquired intangible asset impairment and amortization expense increased $8 million
primarily related to $8 million of goodwill that was written off in connection with the transfer of the ED
servicing contract discussed above.
• During 2021 and 2020, the Company incurred $26 million and $9 million, respectively of
restructuring/other reorganization expenses in connection with an effort to reduce costs and improve
operating efficiency. These charges were primarily due to facility lease terminations, severance-related
costs and the impairment of a facility held for sale. The increase from the year-ago period is primarily
related to the impairment of a facility held for sale.
We repurchased 34.4 million and 30.6 million shares of our common stock during the years ended December 31,
2021 and 2020, respectively. As a result of repurchases, our average outstanding diluted shares decreased by 23
million common shares (or 12%) from the year-ago period.
16
Segment Results
Federal Education Loans Segment
The following table presents Core Earnings results for our Federal Education Loans segment.
(Dollars in millions)
Interest income:
FFELP Loans
Other loans
Cash and investments
Total interest income
Total interest expense
Net interest income
Less: provision for loan losses
Net interest income after provision for loan losses
Other income (loss):
Servicing revenue
Asset recovery and business processing revenue
Other income
Total other income
Direct operating expenses
Income before income tax expense
Income tax expense
Core Earnings
Highlights of 2021 vs. 2020
Years Ended December 31,
2021
2020
2019
% Increase (Decrease)
2020 vs.
2019
2021 vs.
2020
$
$
1,405 $
—
—
1,405
830
575
—
575
162
51
25
238
223
590
136
454 $
1,813 $
—
7
1,820
1,194
626
13
613
208
154
9
371
287
697
160
537 $
2,907
1
50
2,958
2,376
582
30
552
229
230
28
487
359
680
155
525
(23 )%
—
(100 )
(23 )
(30 )
(8 )
(100 )
(6 )
(22 )
(67 )
178
(36 )
(22 )
(15 )
(15 )
(15 )%
(38 )%
(100 )
(86 )
(38 )
(50 )
8
(57 )
11
(9 )
(33 )
(68 )
(24 )
(20 )
3
3
2 %
• Core Earnings were $454 million compared to $537 million.
• Net interest income decreased $51 million, primarily due to a less favorable interest environment as a result of
an increase in interest rates, as well as the natural paydown of the portfolio.
•
Provision for loan losses decreased $13 million.
○ Charge-offs were $26 million compared with $49 million.
○ Delinquencies greater than 30 days were $4.7 billion compared with $4.4 billion.
○ Forbearances were $6.3 billion, down $1.4 billion from $7.7 billion.
• Other revenue decreased $133 million which was primarily a result of the impact of COVID-19 on certain
collection activities, the planned winddown of the ED asset recovery contract, as well as the transfer of the ED
servicing contract to a third party in October 2021.
•
Expenses were $64 million lower primarily as a result of the decrease in other revenue discussed above.
17
Key performance metrics are as follows:
(Dollars in millions)
Segment net interest margin
FFELP Loans:
FFELP Loan spread
Provision for loan losses
Charge-offs
Charge-off rate
Greater than 30-days delinquency rate
Greater than 90-days delinquency rate
Forbearance rate
Average FFELP Loans
Ending FFELP Loans, net
(Dollars in billions)
Number of accounts serviced for ED (in millions)(1)
Total federal loans serviced(1)
Contingent collections receivables inventory
Years Ended December 31,
2020
2021
2019
.99 %
.99 %
.83 %
1.06 %
— $
26 $
.06 %
10.6 %
4.8 %
12.4 %
56,018 $
52,641 $
1.06 %
13 $
49 $
.10 %
9.2 %
4.6 %
13.8 %
61,522 $
58,284 $
.89 %
30
42
.07 %
11.7 %
5.8 %
12.2 %
68,271
64,575
—
61 $
11.7 $
5.6
284 $
10.2 $
5.6
287
19.0
$
$
$
$
$
$
(1)
Closed on the novation and transfer of our ED servicing contract to a third party in October 2021. As of year-end 2021, we serviced $61
billion in FFELP (federally guaranteed) loans.
Net Interest Margin
The following table details the net interest margin.
FFELP Loan yield
Hedged Floor Income
Unhedged Floor Income
FFELP Loan net yield
FFELP Loan cost of funds
FFELP Loan spread
Other interest-earning asset spread impact
Net interest margin(1)
Years Ended December 31,
2020
2021
2019
1.91 %
.41
.19
2.51
(1.45 )
1.06
(.07 )
.99 %
2.30 %
.40
.25
2.95
(1.89 )
1.06
(.07 )
.99 %
3.79 %
.42
.05
4.26
(3.37 )
.89
(.06 )
.83 %
(1)
The average balances of the interest-earning assets for the respective periods are:
(Dollars in millions)
FFELP Loans
Other interest-earning assets
Total FFELP Loan interest-earning assets
Years Ended December 31,
2020
2019
2021
$
$
56,018 $
1,816
57,834 $
61,522 $
1,847
63,369 $
68,271
2,297
70,568
As of December 31, 2021, our FFELP Loan portfolio totaled $52.6 billion, comprised of $18.2 billion of FFELP
Stafford Loans and $34.4 billion of FFELP Consolidation Loans. The weighted-average life of these portfolios as of
December 31, 2021 was 6 years and 7 years, respectively, assuming a Constant Prepayment Rate (CPR) of 9% and
5%, respectively.
Floor Income
The following table analyzes on a Core Earnings basis the ability of the FFELP Loans in our portfolio to earn Floor
Income after December 31, 2021 and 2020, based on interest rates as of those dates.
(Dollars in billions)
Education loans eligible to earn Floor Income
Less: post-March 31, 2006 disbursed loans required
to rebate Floor Income
Less: economically hedged Floor Income
Education loans eligible to earn Floor Income after
rebates and economically hedged
Education loans earning Floor Income
December 31, 2021 December 31, 2020
57.8
52.4 $
$
(24.3 )
(11.7 )
16.4 $
11.3 $
(26.5 )
(18.1 )
13.2
13.0
$
$
18
The following table presents a projection of the average balance of FFELP Consolidation Loans for which Fixed Rate
Floor Income has been economically hedged with derivatives for the period January 1, 2022 to December 31, 2026.
(Dollars in billions)
Average balance of FFELP Consolidation Loans
whose Floor Income is economically hedged
Provision for Loan Losses
2022
2023
2024
2025
2026
$
12.4 $
7.8 $
2.0 $
1.0 $
1.0
The provision for FFELP Loan losses was $0 in 2021, down $13 million from 2020. There has been an improvement
in the current and forecasted economic conditions since the prior year, but such improvement has not mitigated the
uncertainty related to the potential negative impact on the portfolio from the end of various payment relief and
stimulus benefits recently and in the future. The provision in 2020 primarily related to an increase in expected losses
due to COVID-19’s negative impact on the current and forecasted economic conditions that occurred subsequent to
the adoption of CECL on January 1, 2020.
Servicing Revenue
Servicing revenue decreased $46 million primarily related to the transfer of the servicing contract for 5.6 million ED
owned student loan accounts from Navient to a third party on October 6, 2021. As a result, Navient no longer is a
party to the ED servicing contract. To aid in the transition, Navient will provide certain services into 2022 to the third
party through a transition services agreement (see discussion below related to “Other income”). As part of the
transaction, approximately 700 Navient employees were transferred to the third party. This transaction provided a
seamless transition for millions of borrowers ensuring the ongoing servicing capacity for the Department of ED
through the knowledge transfer and ongoing employment of 700 employees. Additional benefits to Navient of this
transaction are the simplification of our business, reducing our overall risk profile and avoiding significant severance
expense.
Third-party loan servicing fees in 2021 and 2020 included $104 million and $141 million, respectively, of servicing
revenue related to the ED servicing contract.
Asset Recovery and Business Processing Revenue
Asset recovery and business processing revenue decreased $103 million primarily as a result of the impact of
COVID-19 on certain collection and processing activities (temporary stoppage or other restrictions on certain
activities) and the planned wind-down of the ED asset recovery contract.
Other Income
Other income increased $16 million primarily related to the transition services being performed in connection with the
transfer of the ED Servicing contract to a third party as discussed above.
Operating Expenses
Operating expenses for the Federal Education Loans segment primarily include costs incurred to perform servicing
and asset recovery activities on our FFELP Loan portfolio and federal education loans held by other institutions.
Expenses were $64 million lower primarily as a result of the decrease in asset recovery revenue discussed above.
19
Consumer Lending Segment
The following table presents Core Earnings results for our Consumer Lending segment.
(Dollars in millions)
Interest income:
Private Education Loans
Other Loans
Cash and investments
Interest income
Interest expense
Net interest income
Less: provision for loan losses
Net interest income after provision for
loan losses
Other income (loss):
Servicing revenue
Other income
Gains on sales of loans
Total other income
Direct operating expenses
Income before income tax expense
Income tax expense
Core Earnings
Years Ended December 31,
% Increase (Decrease)
2021
2020
2019
2021 vs.
2020
2020 vs.
2019
$
1,181 $
—
2
1,183
541
642
(61 )
1,445 $
—
3
1,448
699
749
142
1,731
1
16
1,748
980
768
228
(18 )%
(17 )%
—
(33 )
(18 )
(23 )
(14 )
(143 )
(100 )
(81 )
(17 )
(29 )
(2 )
(38 )
703
607
540
16
12
6
—
91
97
162
638
146
492 $
6
—
—
6
146
467
107
360 $
11
1
16
28
156
412
96
316
—
—
100
1,517
11
37
36
37 %
(45 )
(100 )
(100 )
(79 )
(6 )
13
11
14 %
$
Highlights of 2021 vs. 2020
• Originated $6.0 billion of Private Education Loans, an increase of 30% compared to $4.6 billion.
• Core Earnings were $492 million compared to $360 million.
• Net interest income decreased $107 million primarily due to the natural paydown of the non-refinance loan
•
portfolio, as well as the $1.6 billion of loan sales in first-quarter 2021. Partially offsetting this decrease was the
growth of the Private Education Refinance Loan portfolio.
The negative provision for 2021 of $(61) million was comprised of $64 million in connection with loan originations
less the reversal of both $107 million of allowance for loan losses in connection with the sale of approximately
$1.6 billion of Private Education Loans, as well as $18 million related to a decrease in expected losses for the
overall portfolio. There has been an improvement in the current and forecasted economic conditions since
December 31,2020, but such improvement has not mitigated the uncertainty related to the potential negative
impact on the portfolio from the end of various payment relief and stimulus benefits recently and in the future.
The provision in the year-ago period primarily related to an increase in expected losses due to COVID-19’s
negative impact on the current and forecasted economic conditions that occurred subsequent to the adoption of
CECL on January 1, 2020.
○ Excluding the $16 million and $23 million, respectively, related to the change in the portion of the
loan amount charged off at default, charge-offs were $153 million compared with $184 million.
○ Private Education Loan delinquencies greater than 90 days: $297 million, up $80 million from
$217 million.
○ Private Education Loan delinquencies greater than 30 days: $650 million, up $96 million from
$554 million.
○ Private Education Loan forbearances: $535 million, down $309 million from $844 million.
• Gains on sales of loans increased $91 million in connection with the sale of approximately $1.6 billion of Private
•
Education Loans in 2021. There were no such sales in the prior year.
Expenses were $16 million higher primarily as a result of the increase in refinance and in-school loan
originations.
20
Key performance metrics are as follows:
(Dollars in millions)
Segment net interest margin
Private Education Loans (including Refinance Loans):
Private Education Loan spread
Provision for loan losses
Charge-offs(1)
Charge-off rate(1)
Greater than 30-days delinquency rate
Greater than 90-days delinquency rate
Forbearance rate
Average Private Education Loans
Ending Private Education Loans, net
Private Education Refinance Loans:
Charge-offs
Greater than 90-day delinquency rate
Average balance of Private Education Refinance Loans
Ending balance of Private Education Refinance Loans
Private Education Refinance Loan originations
Years Ended December 31,
2020
2021
2019
2.92 %
3.20 %
3.30 %
$
$
$
$
$
$
$
$
3.12 %
(61 ) $
153 $
.76 %
3.2 %
1.5 %
2.6 %
21,225 $
20,171 $
11 $
.1 %
8,876 $
9,791 $
5,811 $
3.40 %
142 $
184 $
.88 %
2.6 %
1.0 %
3.9 %
22,720 $
21,079 $
8 $
.1 %
7,700 $
8,202 $
4,564 $
3.52 %
226
364
1.67 %
4.6 %
2.0 %
2.7 %
22,512
22,245
3
— %
4,669
6,423
4,893
(1)
Excludes the $16 million, $23 million and $21 million of charge-offs in 2021, 2020 and 2019, respectively, on the expected future recoveries of
charged-off loans that occurred as a result of changing the charge-off rate from 81.4% to 81.7%, 81% to 81.4% and 80.5% to 81% in 2021,
2020 and 2019, respectively.
Net Interest Margin
The following table details the net interest margin.
Private Education Loan yield
Private Education Loan cost of funds
Private Education Loan spread
Other interest-earning asset spread impact
Net interest margin(1)
Years Ended December 31,
2020
2019
2021
5.57 %
(2.45 )
3.12
(.20 )
2.92 %
6.36 %
(2.96 )
3.40
(.20 )
3.20 %
7.69 %
(4.17 )
3.52
(.22 )
3.30 %
(1)
The average balances of the interest-earning assets for the respective periods are:
(Dollars in millions)
Private Education Loans
Other interest-earning assets
Total Private Education Loan interest-earning assets
Years Ended December 31,
2020
2021
2019
$
$
21,225 $
787
22,012 $
22,720 $
751
23,471 $
22,512
772
23,284
The decrease in the net interest margin from the prior year is primarily a result of the refinance loan portfolio
becoming a larger percentage of the overall portfolio.
As of December 31, 2021, our Private Education Loan portfolio totaled $20.2 billion, comprised of $9.8 billion of
refinance loans and $10.4 billion of non-refinance loans. The weighted-average life of this portfolio as of
December 31, 2021 was 3 years and 5 years, respectively, assuming a Constant Prepayment Rate (CPR) of 20%
and 9%, respectively.
Provision for Loan Losses
The provision for Private Education Loan losses decreased $203 million. The negative provision of $(61) million in
2021 was comprised of $64 million in connection with loan originations less the reversal of both $107 million of
allowance for loan losses in connection with the sale of approximately $1.6 billion of Private Education Loans, as well
as $18 million related to a decrease in expected losses for the overall portfolio. There has been an improvement in
the current and forecasted economic conditions since the prior year, but such improvement has not mitigated the
uncertainty related to the potential negative impact on the portfolio from the end of various payment relief and
stimulus benefits recently and in the future. The provision in 2020 primarily related to an increase in expected losses
due to COVID-19’s negative impact on the current and forecasted economic conditions that occurred subsequent to
the adoption of CECL on January 1, 2020.
21
Gains on Sales of Loans
The sales of Private Education Loans for 2021 were comprised of the following transactions that occurred in the first
quarter:
○
Approximately $590 million of non-Refinance Loans, resulting in a $48 million gain on sale (of which
$560 million were sold in the first quarter and $30 million were sold in the second quarter); and
Approximately $1.03 billion of Refinance Loans, resulting in a $43 million gain on sale.
○
Operating Expenses
Operating expenses for our Consumer Lending segment include costs incurred to originate, acquire, service and
collect on our consumer loan portfolio. Operating expenses were $16 million higher as a result of the increase in
refinance and in-school loan originations.
Business Processing Segment
The following table presents Core Earnings results for our Business Processing segment.
(Dollars in millions)
Business processing revenue
Direct operating expenses
Income before income tax expense
Income tax expense
Core Earnings
Highlights of 2021 vs. 2020
Years Ended December 31,
% Increase (Decrease)
2021
2020
2019
2021 vs.
2020
2020 vs.
2019
$
$
488 $
360
128
29
99 $
304 $
254
50
11
39 $
258
215
43
10
33
61 %
42
156
164
154 %
18 %
18
16
10
18 %
• Core Earnings were $99 million compared to $39 million.
• Revenue increased $184 million, or 61%, primarily due to contracts to provide unemployment benefits, contact
tracing and vaccine administration services, as well as revenue increases from traditional services we perform
for our government and healthcare services clients.
•
EBITDA(1) was $136 million, up $79 million, or 139%. The increase in EBITDA(1) is primarily the result of the
revenue increase discussed above. The EBITDA(1) margin increased to 28% from 19%.
Key performance metrics are as follows:
(Dollars in billions)
Revenue from government services
Revenue from healthcare services
Total fee revenue
EBITDA(1)
EBITDA margin(1)
Contingent collections receivables inventory
(in billions)
As of December 31,
2020
2019
2021
$
$
$
258 $
230
488 $
136 $
28 %
191 $
113
304 $
57 $
19 %
154
104
258
49
19 %
$
9.6 $
16.0 $
14.9
(1) Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”
22
Other Segment
The following table presents Core Earnings results for our Other segment.
(Dollars in millions)
Net interest loss after provision for loan losses
Other income:
Other income
Gains (losses) on debt repurchases
Total other income
Expenses:
Unallocated shared services expenses:
Unallocated information technology costs
Unallocated corporate costs
Total unallocated shared services expenses
Restructuring/other reorganization expenses
Total expenses
Loss before income tax benefit
Income tax benefit
Core Earnings (loss)
Years Ended December 31,
% Increase (Decrease)
2021
2020
2019
2021 vs.
2020
2020 vs.
2019
$
(69 ) $
(114 ) $
(134 )
(39 )%
(15 )%
5
(73 )
(68 )
11
(6 )
5
14
33
47
(55 )
1,117
(1,460 )
(21 )
(118 )
(89 )
65
397
462
26
488
(625 )
(131 )
(494 ) $
87
190
277
9
286
(395 )
(90 )
(305 ) $
80
174
254
6
260
(347 )
(80 )
(267 )
(25 )
109
67
189
71
58
46
62 %
9
9
9
50
10
14
13
14 %
$
Net Interest Loss after Provision for Loan Losses
Net interest loss after provision for loan losses is due to the negative carrying cost of our corporate liquidity portfolio.
The decrease in the net interest loss is primarily a result of a decrease in the size of the liquidity portfolio as well as a
decrease in the cost of funds of the debt funding the corporate liquidity portfolio.
Gains (Losses) on Debt Repurchases
Losses on debt repurchases increased $67 million. We repurchased $2.6 billion of debt at a $73 million loss in 2021
compared to $768 million at a $6 million loss in the prior year. As a part of our asset liability management, we
regularly repurchase debt to optimize the funding of our portfolio of educations loans to better match asset and
liability maturities and reduce our interest costs.
Unallocated Shared Services Expenses
Unallocated shared services expenses are comprised of costs primarily related to information technology costs
related to infrastructure and operations, stock-based compensation expense, accounting, finance, legal, compliance
and risk management, regulatory-related expenses, human resources, certain executive management and the board
of directors. Regulatory-related expenses include actual settlement amounts as well as third-party professional fees
we incur in connection with such regulatory matters and are presented net of any insurance reimbursements for
covered costs related to such matters. On an adjusted basis, expenses decreased $15 million from the prior year.
Adjusted expenses exclude $233 million and $33 million, respectively, of regulatory-related expenses in 2021 and
2020.
Included in current period regulatory expenses is $205 million related to the settlements with State Attorneys General,
which were entered into on January 13, 2022, to resolve all matters in dispute related to certain previously disclosed
Attorneys General litigation and investigations. In the fourth quarter, when such loss became probable, the Company
recognized this contingent liability. The $205 million expense is comprised of approximately $155 million of cash
payments and $50 million in connection with forgiving certain loans and the related amount of the expected future
recoveries of these charged-off loans carried on the balance sheet. Prior to the fourth quarter, this contingent liability
was neither probable nor reasonably estimable and, as a result, no contingent liability had been previously
established. See “Note 12 – Commitments, Contingencies and Guarantees” for further discussion.
See “Note 12 – Commitments, Contingencies and Guarantees” for a discussion of legal and regulatory matters where
it is reasonably possible that a loss contingency exists. The Company is unable to anticipate the timing of a resolution
or the impact that these matters may have on the Company’s consolidated financial position, liquidity, results of
operation or cash flows. As a result, it is not possible at this time to estimate a range of potential exposure, if any, for
amounts that may be payable in connection with these matters and reserves have not been established. It is possible
that an adverse ruling or rulings may have a material adverse impact on the Company.
Restructuring/Other Reorganization Expenses
During 2021 and 2020, the Company incurred $26 million and $9 million, respectively, of restructuring/other
reorganization expenses in connection with an effort to reduce costs and improve operating efficiency. These charges
23
were primarily due to facility lease terminations, severance-related costs and the impairment of a facility held for sale.
The increase from the year-ago period is primarily related to the impairment of a facility held for sale.
Financial Condition
This section provides information regarding the balances, activity and credit performance metrics of our education
loan portfolio.
Summary of our Education Loan Portfolio
Ending Education Loan Balances, net
(Dollars in millions)
Total education loan portfolio:
In-school(1)
Grace, repayment and other(2)
Total(3)
Allowance for loan losses(3)
Total education loan portfolio
% of total FFELP
% of total
(Dollars in millions)
Total education loan portfolio:
In-school(1)
Grace, repayment and other(2)
Total(3)
Allowance for loan losses(3)
Total education loan portfolio
% of total FFELP
% of total
(Dollars in millions)
Total education loan portfolio:
In-school(1)
Grace, repayment and other(2)
Total, gross
Unamortized premium/(discount)
Receivable for partially charged-off loans
Allowance for loan losses
Total education loan portfolio
% of total FFELP
% of total
December 31, 2021
FFELP
Stafford and
Other
FFELP
Consolidation
Loans
Total
FFELP
Loans
Private
Education
Loans
Total
Portfolio
$
$
20 $
18,379
18,399
(180 )
18,219 $
35 %
25 %
— $
20 $
19 $
39
34,504 52,883 21,161 74,044
34,504 52,903 21,180 74,083
(1,271 )
34,422 $ 52,641 $ 20,171 $ 72,812
(1,009 )
(262 )
(82 )
65 %
47 %
100 %
72 %
28 %
100 %
December 31, 2020
FFELP
Stafford and
Other
FFELP
Consolidation
Loans
Total
FFELP
Loans
Private
Education
Loans
Total
Portfolio
$
$
30 $
19,771
19,801
(194 )
19,607 $
34 %
25 %
— $
30 $
14 $
44
38,771 58,542 22,154 80,696
38,771 58,572 22,168 80,740
(1,377 )
38,677 $ 58,284 $ 21,079 $ 79,363
(1,089 )
(288 )
(94 )
66 %
49 %
100 %
74 %
26 %
100 %
December 31, 2019
FFELP
Stafford and
Other
FFELP
Consolidation
Loans
Total
FFELP
Loans
Private
Education
Loans
Total
Portfolio
$
$
41 $
21,387
21,428
337
—
(42 )
21,723 $
34 %
25 %
— $
41 $
19 $
60
42,666 64,053 23,303 87,356
42,666 64,094 23,322 87,416
(72 )
588
(1,112 )
42,852 $ 64,575 $ 22,245 $ 86,820
(617 )
588
(1,048 )
545
—
(64 )
208
—
(22 )
66 %
49 %
100 %
74 %
26 %
100 %
(1)
(2)
(3)
Loans for customers still attending school and are not yet required to make payments on the loan.
Includes loans in deferment or forbearance.
In connection with the adoption of CECL on January 1, 2020, (1) the $448 million premium and $356 million discount on the FFELP Loans and
Private Education Loans, respectively, as of December 31, 2021 and the $497 million premium and $475 million discount on the FFELP Loans
and Private Education Loans, respectively, as of December 31, 2020, are now included as part of the respective balance for this disclosure and
(2) the receivable for partially charged-off loans has been reclassified from the Private Education Loan balance to the allowance for loan
losses. Both of these changes are prospective in nature as prior balances are not restated under CECL.
24
Education Loan Activity
(Dollars in millions)
Beginning balance
Acquisitions (originations and purchases)(1)
Capitalized interest and premium/discount
amortization
Refinancings and consolidations to third parties
Loan sales
Repayments and other
Ending balance
(Dollars in millions)
Beginning balance
Acquisitions (originations and purchases)(1)
Capitalized interest and premium/discount
amortization
Refinancings and consolidations to third parties
Repayments and other
Ending balance
(Dollars in millions)
Beginning balance
Acquisitions (originations and purchases)
Capitalized interest and premium/discount
amortization
Refinancings and consolidations to third parties
Repayments and other
Ending balance
Year Ended December 31, 2021
FFELP
Stafford and
Other
FFELP
Consolidation
Loans
Total
FFELP
Loans
Private
Education
Loans
Total
Portfolio
38,677 $ 58,284 $ 21,079 $ 79,363
6,104
5,993
111
41
762
1,614
(1,819 )
(3,254 )
—
(1,613 )
(9,402 )
(3,239 )
34,422 $ 52,641 $ 20,171 $ 72,812
186
(529 )
(1,613 )
(4,945 )
1,428
(2,725 )
—
(4,457 )
Year Ended December 31, 2020
FFELP
Stafford and
Other
FFELP
Consolidation
Loans
Total
FFELP
Loans
Private
Education
Loans
Total
Portfolio
42,852 $ 64,575 $ 22,245 $ 86,820
4,641
4,604
37
18
1,683
737
(2,797 )
(1,285 )
(3,645 )
(5,423 ) (10,984 )
38,677 $ 58,284 $ 21,079 $ 79,363
1,452
(2,219 )
(5,561 )
231
(578 )
Year Ended December 31, 2019
FFELP
Stafford and
Other
FFELP
Consolidation
Loans
Total
FFELP
Loans
Private
Education
Loans
Total
Portfolio
47,612 $ 72,253 $ 22,245 $ 94,498
5,411
4,975
436
226
$
19,607 $
70
666
(906 )
—
(1,218 )
18,219 $
$
$
21,723 $
19
715
(934 )
(1,916 )
19,607 $
$
$
24,641 $
210
754
(1,432 )
(2,450 )
21,723 $
$
1,866
775
(3,668 )
(1,618 )
(4,143 )
(4,694 ) (11,287 )
42,852 $ 64,575 $ 22,245 $ 86,820
1,529
(3,050 )
(6,593 )
337
(618 )
(1)
Includes the origination of $1.7 billion and $1.0 billion of Private Education Refinance Loans in 2021 and 2020, respectively, that refinanced
FFELP and Private Education Loans that were on our balance sheet.
25
FFELP Loan Portfolio Performance
(Dollars in millions)
Loans in-school/grace/deferment(1)
Loans in forbearance(2)
Loans in repayment and percentage of each
status:
Loans current
Loans delinquent 31-60 days(3)
Loans delinquent 61-90 days(3)
Loans delinquent greater than 90 days(3)
Total FFELP Loans in repayment
Total FFELP Loans, gross
FFELP Loan unamortized premium (4)
Total FFELP Loans
FFELP Loan allowance for losses
FFELP Loans, net
Percentage of FFELP Loans in repayment
Delinquencies as a percentage of FFELP Loans
in repayment
FFELP Loans in forbearance as a percentage of
loans in repayment and forbearance
2021
December 31,
2020
2019
Balance %
$ 2,220
6,292
Balance %
$ 2,791
7,725
Balance %
$ 3,114
7,442
39,679
1,696
904
2,112
44,391
52,903
—
52,903
(262 )
$ 52,641
89.4 % 43,623
1,374
3.8
836
2.0
2,223
4.8
100 % 48,056
90.8 % 47,255
2,094
2.9
1,082
1.7
3,107
4.6
100 % 53,538
88.3 %
3.9
2.0
5.8
100 %
58,572
—
58,572
(288 )
$ 58,284
64,094
545
64,639
(64 )
$ 64,575
83.9 %
10.6 %
12.4 %
82.0 %
9.2 %
13.8 %
83.5 %
11.7 %
12.2 %
(1)
(2)
(3)
(4)
Loans for customers who may still be attending school or engaging in other permitted educational activities and are not yet required to make
payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation, as well as loans for
customers who have requested and qualify for other permitted program deferments such as military, unemployment, or economic hardships.
Loans for customers who have used their allowable deferment time or do not qualify for deferment, that need additional time to obtain
employment or who have temporarily ceased making payments due to hardship or other factors such as disaster relief, including COVID-19
relief programs.
The period of delinquency is based on the number of days scheduled payments are contractually past due.
In connection with the adoption of CECL on January 1, 2020, the $448 million and $497 million premium as of December 31, 2021 and 2020,
respectively, associated with the loans is now included as part of the respective loan balance for this disclosure. This change is prospective in
nature as prior balances are not restated under CECL.
26
Private Education Loan Portfolio Performance
(Dollars in millions)
Loans in-school/grace/deferment(1)
Loans in forbearance(2)
Loans in repayment and percentage of each
status:
Loans current
Loans delinquent 31-60 days(3)
Loans delinquent 61-90 days(3)
Loans delinquent greater than 90 days(3)
Total Private Education Loans in repayment
Total Private Education Loans, gross
Private Education Loan unamortized discount(4)
Total Private Education Loans
Private Education Loan receivable for partially
charged-off loans (4)
Private Education Loan allowance for losses
Private Education Loans, net
Percentage of Private Education Loans in
repayment
Delinquencies as a percentage of Private
Education Loans in repayment
Loans in forbearance as a percentage of loans in
repayment and forbearance
Percentage of Private Education Loans with a
cosigner (5)
2021
December 31,
2020
2019
Balance %
361
$
535
Balance %
$
483
844
Balance %
$
629
604
19,634
222
131
297
20,284
21,180
—
21,180
—
(1,009 )
$ 20,171
96.8 % 20,287
211
1.1
126
.6
217
1.5
100 % 20,841
97.4 % 21,083
349
1.0
218
.6
439
1.0
100 % 22,089
95.4 %
1.6
1.0
2.0
100 %
22,168
—
22,168
—
(1,089 )
$ 21,079
23,322
(617 )
22,705
588
(1,048 )
$ 22,245
95.8 %
94.0 %
94.7 %
3.2 %
2.6 %
35 %
2.6 %
3.9 %
41 %
4.6 %
2.7 %
47 %
(1)
(2)
(3)
(4)
(5)
Loans for customers who are attending school or are in other permitted educational activities and are not yet required to make payments on
their loans, e.g., internship periods, as well as loans for customers who have requested and qualify for other permitted program deferments
such as various military eligible deferments.
Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased
making full payments due to hardship or other factors such as disaster relief, including COVID-19 relief programs, consistent with established
loan program servicing policies and procedures.
The period of delinquency is based on the number of days scheduled payments are contractually past due.
In connection with the adoption of CECL on January 1, 2020, (1) the $356 million and $475 million discount as of December 31, 2021 and
2020, respectively, associated with the loans is now included as part of the respective loan balance for this disclosure and (2) the receivable for
partially charged-off loans has been reclassified from the Private Education Loan balance to the allowance for loan loss. Both of these changes
are prospective in nature as prior balances are not restated under CECL.
Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 65% for all periods presented.
27
Allowance for Loan Losses
(Dollars in millions)
Beginning balance
Provision:
Reversal of allowance related to loan sales(1)
Remaining provision
Total provision
Charge-offs:
Net adjustment resulting from the change in the charge-off rate(2)
Net charge-offs remaining(3)
Total charge-offs(3)
Decrease in expected future recoveries on charged-off loans(4)
Allowance at end of period
Plus: expected future recoveries on charged-off loans(4)
Allowance at end of period excluding expected future recoveries on
charged-off loans(5)
Net charge-offs as a percentage of average loans in repayment,
excluding the net adjustment resulting from the change in the
charge-off rate(2)
Net adjustment resulting from the change in charge-off rate
as a percentage of average loans in repayment(2)
Allowance coverage of charge-offs(5)
Allowance as a percentage of the ending total loan balance(5)
Allowance as a percentage of the ending loans in repayment(5)
Ending total loans
Average loans in repayment
Ending loans in repayment
Year Ended December 31, 2021
Private
Education
Loans
FFELP
Loans
Total
$
288
$
1,089
$
1,377
—
—
—
—
(26 )
(26 )
—
262
—
(107 )
46
(61 )
(16 )
(153 )
(169 )
150
1,009
329
(107 )
46
(61 )
(16 )
(179 )
(195 )
150
1,271
329
$
262
$
1,338
$
1,600
.06 %
.76 %
— %
10.0
.5 %
.6 %
52,903
45,781
44,390
$
$
$
$
$
$
.08 %
7.9
6.3 %
6.6 %
21,180
20,150
20,284
(1)
(2)
In connection with the sale of approximately $1.6 billion of Private Education Loans in 2021.
In 2021, the portion of the loan amount charged off at default on Private Education Loans increased from 81.4% to 81.7%. This change resulted
in a $16 million reduction to the balance of the expected future recoveries on charged-off loans.
(3) Charge-offs are reported net of expected recoveries. For Private Education Loans, at the time of charge-off, the expected recovery amount is
transferred from the education loan balance to the allowance for loan loss and is referred to as the expected future recoveries on charged-off
loans. For FFELP Loans, the recovery is received at the time of charge-off.
(4) At the end of each month, for Private Education Loans that are 212 or more days past due, we charge off the estimated loss of a defaulted loan
balance. Actual recoveries are applied against the remaining loan balance that was not charged off. We refer to this as the “expected future
recoveries on charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately charged off through the
allowance for Private Education Loan losses with an offsetting reduction in the expected future recoveries for charged-off loans. If actual periodic
recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the
cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. The following table summarizes the activity in
the expected future recoveries on charged-off loans:
(Dollars in millions)
Beginning of period expected recoveries
Expected future recoveries of current period defaults
Recoveries
Charge-offs
Reduction in expected recoveries related to regulatory settlement(6)
End of period expected recoveries
Change in balance during period
Year Ended
December 31,
2021
$
$
$
479
22
(87 )
(35 )
(50 )
329
(150 )
(5)
The allowance used for these metrics excludes the expected future recoveries on charged-off loans to better reflect the current expected credit
losses remaining in the portfolio.
(6) See “Results of Operations – GAAP Comparison of 2021 Results with 2020” for further details.
28
(Dollars in millions)
Allowance at beginning of period
Transition adjustment made under CECL on
January 1, 2020(1)
Allowance at beginning of period after transition
adjustment to CECL
Total provision
Charge-offs:
Net adjustment resulting from the change in the
charge-off rate(2)
Net charge-offs remaining(3)
Total charge-offs(3)
Decrease in expected future recoveries on charged-off loans(4)
Allowance at end of period
Plus: expected future recoveries on charged-off loans(4)
Allowance at end of period excluding expected future recoveries on
charged-off loans(5)
Net charge-offs as a percentage of average loans in
repayment, excluding the net adjustment resulting
from the change in the charge-off rate(2)
Net adjustment resulting from the change in
charge-off rate as a percentage of average loans
in repayment(2)
Allowance coverage of charge-offs(5)
Allowance as a percentage of the ending total loan
balance(5)
Allowance as a percentage of the ending loans
in repayment(5)
Ending total loans
Average loans in repayment
Ending loans in repayment
Year Ended December 31, 2020
Private
Education
Loans
Total
FFELP Loans
$
64 $
1,048 $
1,112
260
(3 )
257
324
13
1,045
142
1,369
155
—
(49 )
(49 )
—
288
—
(23 )
(184 )
(207 )
109
1,089
479
(23 )
(233 )
(256 )
109
1,377
479
$
288 $
1,568 $
1,856
.10 %
.88 %
— %
5.9
.11 %
7.6
.5 %
7.1 %
$
$
$
.6 %
58,572 $
48,130 $
48,057 $
7.5 %
22,168
20,790
20,841
(1) For a further discussion of our adoption of CECL, see “Note 2 – Significant Accounting Policies.”
(2) In 2020, the portion of the loan amount charged off at default on our Private Education Loans increased from 81% to 81.4%. This change resulted
in a $23 million reduction to the balance of the receivable for partially charged-off loans in 2020.
(3) Charge-offs are reported net of expected recoveries. For Private Education Loans, at the time of charge-off, the expected recovery amount is
transferred from the education loan balance to the allowance for loan loss and is referred to as the expected future recoveries on charged-off loans.
For FFELP Loans, the recovery is received at the time of charge-off.
(4) At the end of each month, for Private Education Loans that are 212 or more days past due, we charge off the estimated loss of a defaulted loan
balance. Actual recoveries are applied against the remaining loan balance that was not charged off. We refer to this as the expected future
recoveries on charged-off loans. If actual periodic recoveries are less than expected, the difference is immediately charged off through the
allowance for Private Education Loan losses with an offsetting reduction in the expected future recoveries for charged-off loans. If actual periodic
recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the
cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. The following table summarizes the activity in the
expected future recoveries on charged-off loans.
(Dollars in millions)
Beginning of period expected recoveries
Expected future recoveries of current period defaults
Recoveries
Charge-offs
End of period expected recoveries
Change in balance during period
Year Ended
December 31,
2020
$
$
$
588
32
(107 )
(34 )
479
(109 )
(5) The allowance used for these metrics excludes the expected future recoveries on charged-off loans to better reflect the current expected credit
losses remaining in the portfolio.
29
(Dollars in millions)
Allowance at beginning of period
Total provision
Charge-offs:
Net adjustment resulting from the change in the
charge-off rate(1)
Net charge-offs remaining(2)
Total charge-offs(2)
Reclassification of interest reserve(3)
Loan sales
Allowance at end of period
Net charge-offs as a percentage of average loans in
repayment, excluding the net adjustment resulting
from the change in the charge-off rate(1)
Net adjustment resulting from the change in
charge-off rate as a percentage of average loans
in repayment(1)
Allowance coverage of charge-offs
Allowance as a percentage of the ending total loan
balance
Allowance as a percentage of the ending loans
in repayment
Ending total loans(4)
Average loans in repayment
Ending loans in repayment
FFELP Loans
$
Year Ended December 31, 2019
Private
Education
Loans
Total
76 $
30
1,201 $
226
1,277
256
—
(42 )
(42 )
—
—
64 $
(21 )
(364 )
(385 )
7
(1 )
1,048 $
(21 )
(406 )
(427 )
7
(1 )
1,112
$
.07 %
1.67 %
— %
1.5
.10 %
2.7
.10 %
4.38 %
$
$
$
.12 %
64,094 $
55,978 $
53,538 $
4.74 %
23,910
21,859
22,089
(1) In 2019, the portion of the loan amount charged off at default on our Private Education Loans increased from 80.5% to 81%. This change resulted
in a $21 million reduction to the balance of the receivable for partially charged-off loans in 2019.
(2) Charge-offs are reported net of expected recoveries. For Private Education Loans, the expected recovery amount is transferred to the receivable
for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the
difference between what was expected to be collected and any shortfalls in what was actually collected in the period. The table below summarizes
the activity in the Private Education Loan receivable for partially charged-off loans. For FFELP Loans, the recovery is received at the time of
charge-off.
(Dollars in millions)
Receivable at beginning of period
Expected future recoveries of current period defaults
Recoveries
Charge-offs
Receivable at end of period
Year Ended
December 31,
2019
$
$
674
74
(126 )
(34 )
588
(3) Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period
to the allowance for loan losses when interest is capitalized to a loan’s principal balance.
(4) Ending total loans represents gross Private Education Loans, plus the receivable for partially charged-off loans.
30
Liquidity and Capital Resources
Funding and Liquidity Risk Management
The following “Liquidity and Capital Resources” discussion concentrates primarily on our Federal Education Loans
and Consumer Lending segments. Our Business Processing and Other segments require minimal liquidity and
funding. See “Navient’s Response to COVID-19” for a discussion of COVID-19’s impact on liquidity and capital
resources.
We define liquidity as cash and high-quality liquid assets that we can use to meet our cash requirements. Our two
primary liquidity needs are: (1) servicing our debt and (2) our ongoing ability to meet our cash needs for running the
operations of our businesses (including derivative collateral requirements) throughout market cycles, including during
periods of financial stress. Secondary liquidity needs, which can be adjusted as needed, include the origination of
Private Education Loans, acquisitions of Private Education Loan and FFELP Loan portfolios, acquisitions of
companies, the payment of common stock dividends and the repurchase of our common stock. To achieve these
objectives, we analyze and monitor our liquidity needs and maintain excess liquidity and access to diverse funding
sources including the issuance of unsecured debt and the issuance of secured debt primarily through asset-backed
securitizations and/or other financing facilities.
We define our liquidity risk as the potential inability to meet our obligations when they become due without incurring
unacceptable losses or to invest in future asset growth and business operations at reasonable market rates. Our
primary liquidity risk relates to our ability to service our debt, meet our other business obligations and to continue to
grow our business. The ability to access the capital markets is impacted by general market and economic conditions,
our credit ratings, as well as the overall availability of funding sources in the marketplace. In addition, credit ratings
may be important to customers or counterparties when we compete in certain markets and when we seek to engage
in certain transactions, including over-the-counter derivatives.
Credit ratings and outlooks are opinions subject to ongoing review by the rating agencies and may change, from time
to time, based on our financial performance, industry and market dynamics and other factors. Other factors that
influence our credit ratings include the rating agencies’ assessment of the general operating environment, our relative
positions in the markets in which we compete, reputation, liquidity position, the level and volatility of earnings,
corporate governance and risk management policies, capital position and capital management practices. A negative
change in our credit rating could have a negative effect on our liquidity because it might raise the cost and availability
of funding and potentially require additional cash collateral or restrict cash currently held as collateral on existing
borrowings or derivative collateral arrangements. It is our objective to improve our credit ratings so that we can
continue to efficiently access the capital markets even in difficult economic and market conditions. We have
unsecured debt totaling $7.0 billion at December 31, 2021. Three credit rating agencies currently rate our long-term
unsecured debt at below investment grade.
We expect to fund our ongoing liquidity needs, including the repayment of $7.0 billion of senior unsecured notes that
mature in 2023 to 2043, with 84% maturing by 2029, through a number of sources. These sources primarily are our
cash on hand, unencumbered FFELP Loan and Private Education Refinance Loan portfolios (see “Sources of
Primary Liquidity” below), the predictable operating cash flows provided by operating activities ($702 million in 2021),
the repayment of principal on unencumbered education loan assets, and the distribution of overcollateralization from
our securitization trusts. We may also, depending on market conditions and availability, draw down on our secured
FFELP Loan and Private Education Loan facilities, issue term ABS, enter into additional Private Education Loan ABS
repurchase facilities, or issue additional unsecured debt.
We originate Private Education Loans (a portion of which are done through a forward purchase agreement). We also
have purchased and may purchase, in future periods, Private Education Loan and FFELP Loan portfolios from third
parties. Those originations and purchases are part of our ongoing liquidity needs. We repurchased 34.4 million
shares of common stock for $600 million in 2021 and have $1.0 billion of unused share repurchase authority as of
December 31, 2021.
31
Sources of Primary Liquidity
(Dollars in millions)
Unrestricted cash and liquid investments
Unencumbered FFELP Loans
Unencumbered Private Education Refinance
Loans
Total
Sources of Additional Liquidity
Ending Balances
Average Balances
December 31,
2021
2020
Years Ended December 31,
2019
2020
2021
$
905 $ 1,183 $ 1,209 $ 1,358 $ 1,261
433
124
320
220
208
383
670
$ 1,412 $ 1,665 $ 2,071 $ 2,260 $ 2,364
582
642
274
Liquidity may also be available under our secured credit facilities. Maximum borrowing capacity under the FFELP
Loan and Private Education Loan asset-backed commercial paper (ABCP) facilities will vary and be subject to each
agreement’s borrowing conditions, including, among others, facility size, current usage and availability of qualifying
collateral from unencumbered loans. The following tables detail the additional borrowing capacity of these facilities
with maturity dates ranging from June 2022 to June 2023.
(Dollars in millions)
FFELP Loan ABCP facilities
Private Education Loan ABCP facilities
Total
Maximum
Additional Capacity
December 31,
2020
Average Maximum
Additional Capacity
Years Ended December 31,
2019
2021
482 $ 1,266
1,020
$ 2,781 $ 2,727 $ 1,251 $ 2,865 $ 2,068 $ 2,286
546 $
2,235
514 $
2,351
506 $
2,221
2021
$
867 $
384
2020
2019
1,586
At December 31, 2021, we had a total of $4.5 billion of unencumbered tangible assets inclusive of those listed in the
table above as sources of primary liquidity. Total unencumbered education loans comprised $2.1 billion principal of
our unencumbered tangible assets of which $2.0 billion and $124 million related to Private Education Loans and
FFELP Loans, respectively. In addition, as of December 31, 2021, we had $5.5 billion of encumbered net assets (i.e.,
overcollateralization) in our various financing facilities (consolidated variable interest entities). Our secured financing
facilities include Private Education Loan ABS Repurchase Facilities, which had $0.5 billion outstanding as of
December 31, 2021. These repurchase facilities are collateralized by the net assets in previously issued Private
Education Loan ABS trusts and have had a cost of funds lower than that of a new unsecured debt issuance.
The following table reconciles encumbered and unencumbered assets and their net impact on total Tangible Equity.
(Dollars in billions)
Net assets of consolidated variable interest entities
(encumbered assets) — FFELP Loans
Net assets of consolidated variable interest entities
(encumbered assets) — Private Education Loans
Tangible unencumbered assets(1)
Senior unsecured debt
Mark-to-market on unsecured hedged debt(2)
Other liabilities, net
Total Tangible Equity(1)
December 31,
2021
December 31,
2020
$
3.8 $
1.7
4.5
(7.0 )
(.3 )
(.8 )
1.9 $
$
3.9
2.1
5.4
(8.4 )
(.7 )
(.6 )
1.7
(1)
(2)
Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”
At December 31, 2021 and 2020, there were $324 million and $634 million, respectively, of net gains (losses) on derivatives
hedging this debt in unencumbered assets, which partially offset these gains (losses).
32
Borrowings
Ending Balances
(Dollars in millions)
Unsecured borrowings:
Senior unsecured debt
Total unsecured borrowings
Secured borrowings:
FFELP Loan securitizations
Private Education Loan
securitizations
FFELP Loan ABCP facilities
Private Education Loan ABCP
facilities
Other
Total secured borrowings
Core Earnings basis borrowings(1)
Adjustment for GAAP accounting
treatment
GAAP basis borrowings
Average Balances
(Dollars in millions)
Unsecured borrowings:
Senior unsecured debt
Total unsecured borrowings
Secured borrowings:
December 31, 2021
Long
Term Total
Short
Term
December 31, 2020
Long
Term Total
Short
Term
December 31, 2019
Long
Term Total
Short
Term
$ — $ 7,014 $ 7,014 $ 677 $ 7,714 $ 8,391 $ 1,052 $ 8,461 $ 9,513
— 7,014 7,014 677 7,714 8,391 1,052 8,461 9,513
— 51,841 51,841 — 54,697 54,697
72 59,735 59,807
543 14,074 14,617 960 13,891 14,851 2,120 11,430 13,550
617 3,400
282
479 2,532 2,783
432 2,053
150
— 2,582 2,114 1,513 3,627
1,363 1,152 2,515 2,582
—
338
302 337
302
2,490 67,217 69,707 5,932 69,067 74,999 7,427 73,295 80,722
2,490 74,231 76,721 6,609 76,781 83,390 8,479 81,756 90,235
337 338
—
—
—
(37 )
$ 2,490 $ 74,488 $ 76,978 $ 6,613 $ 77,332 $ 83,945 $ 8,483 $ 81,715 $ 90,198
555
551
257
257
(41 )
4
4
2021
Years Ended December 31,
2020
2019
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Average
Balance
Average
Rate
$ 7,978
7,978
4.43 % $ 9,461
9,461
4.43
5.05 % $ 10,798
5.05 10,798
6.63 %
6.63
FFELP Loan securitizations
Private Education Loan securitizations
FFELP Loan ABCP facilities
Private Education Loan ABCP facilities
Other
Total secured borrowings
Core Earnings basis borrowings(1)
Adjustment for GAAP accounting treatment
GAAP basis borrowings
53,661
14,273
1,012
2,429
303
71,678
79,656
—
$ 79,656
1.27 56,950
2.40 14,159
3,134
1.55
3,203
1.86
343
.34
1.52 77,789
1.81 87,250
—
(.16 )
1.65 % $ 87,250
1.74 62,636
2.90 13,740
4,128
1.67
2,259
2.53
307
.68
1.97 83,070
2.31 93,868
—
2.34 % $ 93,868
.03
3.21
4.06
3.42
3.67
3.59
3.37
3.75
(.03 )
3.72 %
(1)
Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.” The differences in derivative
accounting give rise to the difference above.
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses our consolidated
financial statements, which have been prepared in accordance with generally accepted accounting principles in the
United States of America (GAAP). “Note 2 — Significant Accounting Policies” includes a summary of the significant
accounting policies and methods used in the preparation of our consolidated financial statements. The preparation of
these financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the reported amounts of income and expenses during the reporting periods.
Actual results may differ from these estimates under varying assumptions or conditions. On a quarterly basis,
management evaluates its estimates, particularly those that include the most difficult, subjective or complex
judgments and are often about matters that are inherently uncertain. Critical accounting estimates involve a
significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the
financial condition or results of our operations. Our critical accounting policies and estimates are the allowance for
loan losses, goodwill impairment assessment, and premium and discount amortization. As part of the discussion
below, we have described how COVID-19 impacted the allowance for loan losses as well as how COVID-19 was
considered in our assessment of goodwill impairment.
33
Allowance for Loan Losses
We measure and recognize an allowance for loan losses that estimates the remaining current expected credit losses
(CECL) for financial assets measured at amortized cost held at the reporting date. We have determined that, for
modeling current expected credit losses, in general, we can reasonably estimate expected losses that incorporate
current and forecasted economic conditions over a “reasonable and supportable” period. For Private Education
Loans, we incorporate a reasonable and supportable forecast of various macro-economic variables over the
remaining life of the loans. The development of the reasonable and supportable forecast incorporates an assumption
that each macro-economic variable will revert to a long-term expectation starting in years 2-4 of the forecast and
largely completing within the first five years of the forecast. For FFELP Loans, after a three-year reasonable and
supportable period, there is an immediate reversion to a long-term expectation.
The models used to project losses utilize key credit quality indicators of the loan portfolios and predict how those
attributes are expected to perform in connection with the forecasted economic conditions. In connection with this
methodology, our modeling of current expected credit losses utilizes historical loan repayment experience since 2008
identifying loan variables (key credit quality indicators) that are significantly predictive of loans that will default and
predicts how loans will perform in connection with the forecasted economic conditions.
The key credit quality indicators used by the model for Private Education loans are credit scores (FICO scores), loan
status, loan seasoning, whether a loan is a TDR, the existence of a cosigner and school type:
• Credit scores are an indicator of the credit risk of a customer and generally the higher the credit score the
•
more likely it is the customer will be able to make all of their contractual payments.
Loan status affects the credit risk because generally a past due loan is more likely to default than an up-to-
date loan. Additionally, loans in a deferred payment status have different credit risk profiles compared with
those in current payment status.
• Of the portfolio in repayment, loan seasoning affects credit risk because a loan with a history of making
payments generally has a lower incidence of default than a loan with a history of making infrequent or no
payments.
• A TDR loan is where an economic concession (forbearance, lower interest rate, extension of term) has been
given to a borrower experiencing financial difficulties. A TDR loan is generally more likely to result in a
default than a non-TDR loan.
The existence of a cosigner generally lowers the likelihood of default, thus lowering the credit risk.
The type of school customers attended can have an impact on their graduation rate and job prospects after
graduation and therefore can affect their ability to make payments, which impacts the credit risk.
•
•
For FFELP loans, the key credit quality indicators are loan status and loan type (Stafford, Consolidation and Rehab
loans).
We project losses over the contractual term of our loans, including any extension options within the control of the
borrower. Further, we make estimates regarding prepayments when determining our expected credit losses which
are derived in the same manner discussed above.
The forecasted economic conditions used in our modeling of expected losses are provided by a third party. The
primary economic metrics we use in the economic forecast are unemployment, GDP, interest rates, consumer loan
delinquency rates and consumer income. Several forecast scenarios are provided which represent the baseline
economic expectations as well as favorable and adverse scenarios. We analyze and evaluate the alternative
scenarios for reasonableness and determine the appropriate weighting of these alternative scenarios based upon the
current economic conditions and our view of the likelihood and risks of the alternative scenarios.
We use historical customer payment experience to estimate the amount of future recoveries on defaulted private
education loans. We use judgment in determining whether historical performance is representative of what we expect
to collect in the future. The amount of expected future recoveries on defaulted FFELP loans is based on the
contractual government guarantee (which generally limits the maximum loss to 3% of the loan balance).
Once our loss model calculations are performed, we determine if qualitative adjustments are needed for factors not
reflected in the quantitative model. These adjustments may include, but are not limited to, changes in lending,
servicing and collection policies and practices as well as the effect of other external factors such as the economy and
changes in legal or regulatory requirements that impact the amount of future credit losses.
The negative provision for 2021 of $(61) million was comprised of $64 million in connection with loan originations less
the reversal of both $107 million of allowance for loan losses in connection with the sale of approximately $1.6 billion
of Private Education Loans, as well as $18 million related to a decrease in expected losses for the overall
portfolio. We evaluated and considered several forecasted economic scenarios when determining our allowance for
loan losses and provision. We also considered the characteristics of our loan portfolio and its expected behavior in
the forecasted economic scenarios. There has been an improvement in the current and forecasted economic
conditions since December 31, 2020, as is seen in a decrease in both the current and forecasted unemployment
34
rates and consumer loan delinquency rates and an increase in GDP and in consumer income. However, such
improvement has not mitigated the uncertainty related to the potential negative impact on the portfolio from the end of
various payment relief and stimulus benefits that recently occurred or are currently forecasted to end in 2022. These
conclusions and adjustments were based on an evaluation of current and forecasted economic conditions directly
taking into consideration the impact of COVID-19 on the U.S. economy. If future economic conditions as a result of
COVID-19 are significantly worse than what was assumed as a part of this assessment, it could result in additional
provision for loan loss being recorded in future periods.
The evaluation of the allowance for loan losses is inherently subjective, as it requires material estimates and
assumptions that may be susceptible to significant changes. If actual future performance in delinquency, charge-offs
and recoveries are significantly different than estimated, or management’s assumptions or practices were to change,
this could materially affect our estimate of the allowance for loan losses and the related provision for loan losses on
our income statement.
Goodwill Impairment Assessment
In determining annually (or more frequently if required) whether goodwill is impaired, we complete a goodwill
impairment analysis which may be a qualitative or a quantitative analysis depending on the facts and circumstances
associated with the reporting unit. Qualitative factors considered in conjunction with a qualitative analysis include: (1)
the amount of cushion that existed the last time a quantitative test was completed which requires performing a
valuation of the reporting unit, the resulting value of which is compared to the carrying value of the reporting unit, (2)
macroeconomic factors (economy), (3) industry specific factors (growth or deterioration of the market;
regulatory/political developments), (4) cost factors (margins), (5) financial performance of the reporting unit itself, (6)
other specific items (litigation, change in management or key personnel) and (7) whether a sustained decrease in our
share price is indicative of a decline in value of the specific reporting unit. There can be significant judgment involved
in assessing these qualitative factors. If, based on a qualitative analysis, we determine it is “more-likely-than-not” that
the fair value of a reporting unit is less than its carrying amount, we also complete a quantitative impairment analysis.
In lieu of performing a qualitative assessment, we may proceed directly to a quantitative impairment analysis. A
quantitative goodwill impairment analysis requires a comparison of the fair value of the reporting unit to its carrying
value. If the carrying value of the reporting unit exceeds the reporting unit’s fair value (the amount we believe a third
party would pay for such reporting unit), the goodwill associated with the reporting unit will be impaired in an amount
equal to the difference between the reporting unit’s fair value and its carrying value, not to exceed the carrying value
of goodwill attributed to the reporting unit. There are significant judgments involved in determining the fair value of a
reporting unit, including determining the appropriate valuation approach or approaches to utilize and the assumptions
to apply including estimates of projected future cash flows which incorporate estimated future revenues, expenses,
net income and capital expenditures from and related to existing and new business activities and appropriate market
multiples, discount rates and growth rates. An appropriate resulting control premium is also considered. The reporting
units with goodwill for which we estimate fair value are not publicly traded and for some reporting units directly
comparable market data may not be available to aid in its valuation.
Navient tests goodwill as of October 1 each year or at interim dates if an event occurs or circumstances exist such
that it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying value
(the qualitative test). Such an event or circumstance is a triggering event. If it is concluded that a triggering event has
occurred at an interim date, a quantitative impairment test must be performed. Despite the ongoing impacts of
COVID-19, the financial results for each of our reporting units were strong in 2021. In addition, these reporting units
have substantial cushion before being impaired (see below), Navient’s stock price increased significantly,
macroeconomic conditions improved and the economy as a whole and the markets in which our reporting units
operate in particular began to rebound. As a result, at September 30, 2021, June 30, 2021 and March 31, 2021, we
concluded that COVID-19 and its impact on Navient’s individual reporting units as we perceived them did not
constitute a triggering event during 2021.
We performed annual impairment testing as of October 1, 2021. For each of our reporting units with goodwill
including our FFELP Loans, Private Education Legacy Loans, Private Education Refinance Loans, Private Education
In-School Loans and Federal Education Loan Servicing reporting units (collectively, the Loan reporting units) and our
Government Services and Healthcare Services reporting units (collectively, the Business Processing reporting units),
we assessed relevant qualitative factors to determine whether it is “more-likely-than-not” that the fair value of an
individual reporting unit is less than its carrying value. We considered the amount of excess fair values over the
carrying values of each reporting unit as of October 1, 2019 and October 1, 2020 for the Loan reporting units and
Business Processing reporting units, respectively, when we last performed a quantitative goodwill impairment test.
The concluded fair values of the reporting units at October 1, 2019 and 2020, as applicable, were substantially in
excess of their carrying amounts. Additionally, fair values resulting from sensitivity analyses factoring in more
conservative discount rates and growth rates for each reporting unit also yielded fair values in excess of the carrying
values of each reporting unit.
35
Despite COVID-19, the outlook and associated long-term cash flow projections of our FFELP Loans, Private
Education Legacy Loans, Government Services and Healthcare Services reporting units have not changed
significantly since our 2019 and 2020 assessments. Likewise, the outlook and cash flows for the Federal Education
Loan Servicing components remaining after removing the cash flows attributed to the ED servicing contract have not
changed significantly since 2019. For the Private Education Refinance Loans reporting unit, we considered
origination volume and the demand for its refinance loan products as well as Navient’s strong liquidity position and
ability to issue Private Education Loan ABS comprised entirely of the reporting unit’s refinance loans with marked
improvement in 2021 in cost of funds. For Government Services and Healthcare Services, we considered financial
performance in 2021 during which both of these reporting units significantly outperformed expectations due largely to
significant contracts acquired in 2020 and 2021 to implement programs under the CARES Act and to perform contact
tracing and vaccine administration services. Based on the substantial fair value determined as of October 1, 2019
and 2020, as applicable, in excess of their carrying values and these other qualitative factors, we concluded that it is
not “more-likely-than-not” that the fair values of these reporting units were less than their carrying values at October
1, 2021. As a result, with respect to annual impairment testing, we concluded that goodwill attributed to these
reporting units was not impaired.
If future economic conditions as a result of COVID-19 are significantly worse than what was assumed in the reporting
units’ long term cash flow projections, specifically related to the impact of COVID-19, as well as the inflationary
environment stemming from the recovery in certain sectors, and other performance factors do not come to fruition,
these factors could result in potential impairment of goodwill in future periods.
Premium and Discount Amortization
The Company had a net unamortized premium balance of $92 million, or 0.12%, in connection with its $74 billion
education loan portfolio as of December 31, 2021. The most judgmental estimate for premium and discount
amortization on education loans is the Constant Prepayment Rate (CPR), which measures the rate at which loans in
the portfolio pay down principal compared to their stated terms. In determining the CPR we only consider payments
made in excess of contractually required payments. This would include loans that are refinanced or consolidated and
other early payoff activity. These activities are generally affected by changes in our business strategy, changes in our
competitors’ business strategies, legislative changes including the ability to consolidate, interest rates and changes to
the current economic and credit environment. When we determine the CPR, we begin with historical prepayment
rates. We make judgments about which historical period to start with and then make further judgments about whether
that historical experience is representative of future expectations and whether additional adjustment may be needed
to those historical prepayment rates.
In the past (prior to 2008), the consolidation of FFELP Loans and Private Education Loans significantly affected our
CPRs and updating those assumptions often resulted in material adjustments to our premium and discount
amortization expense. As a result of the passage of the Health Care and Education Reconciliation Act of 2010
(HCERA), there is no longer the ability to consolidate loans under the FFELP although there are other consolidation
options with ED and private refinancing options with Navient and other lenders. As a result, we expect CPRs related
to our FFELP Loans to remain relatively stable over time, unless there is a legislative change by ED or by Congress
to either (1) forgive loan balances (which would result in Navient receiving cash for the amounts forgiven resulting in
a prepayment of principal) or (2) encourage or force consolidation. Some education loan companies, including
Navient, offer Private Education Loans to refinance a borrower’s loan (both FFELP and Private Education Loans) and
we anticipate more entrants to offer similar products. These products and expectations are built into the CPR
assumption we use for FFELP and Private Education Loans. However, it is difficult to accurately project the timing
and level at which this activity will continue, and our assumption may need to be updated by a material amount in the
future based on changes in the economy, marketplace and legislation.
In 2021, there was a net $13 million decrease in net interest income due to a cumulative adjustment related to an
increase in prepayment speed assumptions used to amortize loan premiums and discounts:
•
•
The FFELP Loan CPR was increased specifically related to the limited opportunity waiver to the Public
Service Loan Forgiveness Program (PSLF) that was announced in October 2021 and is effective from
November 2021 to October 2022. FFELP loan borrowers, during this 12-month period, may consolidate their
loans to ED in order to have them subsequently forgiven if they qualify under the PSLF program for loan
forgiveness. We estimate an incremental $1.3 billion of FFELP loans (2% of the FFELP Loan portfolio as of
December 31, 2021) will consolidate under this program.
The Private Education Refinance Loan CPR was increased from 15% to 20%. This CPR assumption
increase was primarily a result of increased voluntary payoffs primarily due to increased loan refinance
activity and third-party consolidation activity related to the low interest rate environment.
36
Non-GAAP Financial Measures
In addition to financial results reported on a GAAP basis, Navient also provides certain performance measures which
are non-GAAP financial measures. We present the following non-GAAP financial measures: (1) Core Earnings (as
well as Adjusted Core Earnings), (2) Adjusted Tangible Equity Ratio and (3) EBITDA for the Business Processing
segment.
1. Core Earnings
We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate
our business segments and present financial results on a basis that differs from GAAP. We refer to this different basis
of presentation as Core Earnings. We provide this Core Earnings basis of presentation on a consolidated basis and
for each business segment because this is what we review internally when making management decisions regarding
our performance and how we allocate resources. We also refer to this information in our presentations with credit
rating agencies, lenders and investors. Because our Core Earnings basis of presentation corresponds to our segment
financial presentations, we are required by GAAP to provide certain Core Earnings disclosures in the notes to our
consolidated financial statements for our business segments.
Core Earnings are not a substitute for reported results under GAAP. We use Core Earnings to manage our business
segments because Core Earnings reflect adjustments to GAAP financial results for two items, discussed below, that
can create significant volatility mostly due to timing factors generally beyond the control of management. Accordingly,
we believe that Core Earnings provide management with a useful basis from which to better evaluate results from
ongoing operations against the business plan or against results from prior periods. Consequently, we disclose this
information because we believe it provides investors with additional information regarding the operational and
performance indicators that are most closely assessed by management. When compared to GAAP results, the two
items we remove to result in our Core Earnings presentations are:
(1) Mark-to-market gains/losses resulting from our use of derivative instruments to hedge our economic
risks that do not qualify for hedge accounting treatment or do qualify for hedge accounting treatment
but result in ineffectiveness; and
(2) The accounting for goodwill and acquired intangible assets.
While GAAP provides a uniform, comprehensive basis of accounting, for the reasons described above, our Core
Earnings basis of presentation does not. Core Earnings are subject to certain general and specific limitations that
investors should carefully consider. For example, there is no comprehensive, authoritative guidance for management
reporting. Our Core Earnings are not defined terms within GAAP and may not be comparable to similarly titled
measures reported by other companies. Accordingly, our Core Earnings presentation does not represent a
comprehensive basis of accounting. Investors, therefore, may not be able to compare our performance with that of
other financial services companies based upon Core Earnings. Core Earnings results are only meant to supplement
GAAP results by providing additional information regarding the operational and performance indicators that are most
closely used by management, our board of directors, credit rating agencies, lenders and investors to assess
performance.
37
The following tables show Core Earnings for each reportable segment and our business as a whole along with the
adjustments made to the income/expense items to reconcile the amounts to our reported GAAP results as required
by GAAP and reported in “Note 15 — Segment Reporting.”
Year Ended December 31, 2021
Adjustments
Federal
Education
Loans
Consumer
Lending
Business
Processing Other
Reclassi-
fications
Additions/
(Subtractions)
Total
Adjustments(1)
Total
GAAP
Total
Core
Earnings
(Dollars in millions)
Interest income:
Education loans
Cash and investments
Total interest income
Total interest expense
Net interest income (loss)
Less: provisions for loan losses
Net interest income (loss) after
provisions for loan losses
Other income (loss):
Servicing revenue
Asset recovery and business
processing revenue
Other income (loss)
Gains on sales of loans
Losses on debt repurchases
Total other income (loss)
Expenses:
Direct operating expenses
Unallocated shared services expenses
Operating expenses
Goodwill and acquired intangible asset
impairment and amortization
Restructuring/other reorganization
expenses
Total expenses
Income (loss) before income tax
expense (benefit)
Income tax expense (benefit)(2)
Net income (loss)
$
(1)
Core Earnings adjustments to GAAP:
$
1,405 $
—
1,405
830
575
—
1,181 $
2
1,183
541
642
(61 )
— $ — $ 2,586 $
—
1
3
—
1 2,589
—
70 1,441
—
(69 ) 1,148
— —
(61 )
575
703
—
(69 ) 1,209
162
6
— —
168
51
25
—
—
238
223
—
223
—
—
91
—
97
162
—
162
488 —
—
5
— —
—
(73 )
(68 )
488
539
30
91
(73 )
755
360 —
— 462
745
462
360 462 1,207
98 $
—
98
(8 )
106
—
106
—
—
—
(93 )
(13 )
—
(106 )
—
—
—
—
—
—
— —
—
—
—
223
590
136
454 $
—
162
638
146
492 $
—
26
26
360 488 1,233
128 (625 )
29 (131 )
99 $ (494 ) $
731
180
551 $
—
—
—
—
— $
(39 ) $
—
(39 )
(117 )
78
—
59 $ 2,645
—
3
59 2,648
(125 ) 1,316
184 1,332
(61 )
—
78
184 1,393
—
—
157
—
—
157
—
—
—
30
—
30
205
39
166 $
— 168
— 539
94
64
78
(13 )
—
(73 )
51 806
— 745
— 462
— 1,207
30
30
—
26
30 1,263
205 936
39 219
166 $ 717
(Dollars in millions)
Net interest income (loss) after provisions for loan losses
Total other income (loss)
Goodwill and acquired intangible asset impairment and amortization
Total Core Earnings adjustments to GAAP
Income tax expense (benefit)
Net income (loss)
Net Impact of
Derivative
Accounting
Year Ended December 31, 2021
Net Impact of
Acquired
Intangibles
Total
$
$
184 $
51
—
235 $
— $
—
30
(30 )
$
184
51
30
205
39
166
(2)
Income taxes are based on a percentage of net income before tax for the individual reportable segment.
38
Year Ended December 31, 2020
Adjustments
Federal
Education
Loans
Consumer
Lending
Business
Processing Other
Reclassi-
fications
Additions/
(Subtractions)
Total
Adjustments(1)
Total
GAAP
Total
Core
Earnings
$
1,813 $
7
1,820
1,194
626
13
1,445 $
3
1,448
699
749
142
— $ — $ 3,258 $
—
6
16
—
6 3,274
— 120 2,013
— (114 ) 1,261
— —
155
79 $
—
79
39
40
—
613
607
— (114 ) 1,106
40
(55 ) $
—
(55 )
(6 )
(49 )
—
(49 )
24 $ 3,282
—
16
24 3,298
33 2,046
(9 ) 1,252
— 155
(9 ) 1,097
— —
214
—
—
— 214
208
154
9
—
371
287
—
287
6
—
—
—
6
146
—
146
304 —
11
(6 )
5
—
—
304
254 —
— 277
254 277
458
20
(6 )
686
687
277
964
—
(40 )
—
(40 )
—
—
—
—
—
— —
—
—
—
287
697
160
537 $
—
146
467
107
360 $
—
9
254 286
9
973
50 (395 )
(90 )
11
39 $ (305 ) $
819
188
631 $
—
—
—
—
— $
—
(216 )
—
(216 )
—
—
—
22
—
22
— 458
(256 ) (236 )
(6 )
(256 ) 430
—
— 687
— 277
— 964
22
22
—
9
22 995
(287 )
(68 )
(219 ) $
(287 ) 532
(68 ) 120
(219 ) $ 412
(Dollars in millions)
Interest income:
Education loans
Cash and investments
Total interest income
Total interest expense
Net interest income (loss)
Less: provisions for loan losses
Net interest income (loss) after
provisions for loan losses
Other income (loss):
Servicing revenue
Asset recovery and business
processing revenue
Other income (loss)
Losses on debt repurchases
Total other income (loss)
Expenses:
Direct operating expenses
Unallocated shared services expenses
Operating expenses
Goodwill and acquired intangible asset
impairment and amortization
Restructuring/other reorganization
expenses
Total expenses
Income (loss) before income tax
expense (benefit)
Income tax expense (benefit)(2)
Net income (loss)
$
(1)
Core Earnings adjustments to GAAP:
(Dollars in millions)
Net interest income after provisions for loan losses
Total other income (loss)
Goodwill and acquired intangible asset impairment and amortization
Total Core Earnings adjustments to GAAP
Income tax expense (benefit)
Net income (loss)
Net Impact of
Derivative
Accounting
Year Ended December 31, 2020
Net Impact of
Acquired
Intangibles
Total
$
$
(9 ) $
(256 )
—
(265 ) $
— $
—
22
(22 )
$
(9 )
(256 )
22
(287 )
(68 )
(219 )
(2)
Income taxes are based on a percentage of net income before tax for the individual reportable segment.
39
Year Ended December 31, 2019
Adjustments
Federal
Education
Loans
Consumer
Lending
Business
Processing Other
Reclassi-
fications
Additions/
(Subtractions)
Total
Adjustments(1)
Total
GAAP
Total
Core
Earnings
$
2,907 $
1
50
2,958
2,376
582
30
1,731 $
1
16
1,748
980
768
228
— $ — $ 4,638 $
— —
2
—
27
93
—
27 4,733
— 161 3,517
— (134 ) 1,216
— —
258
8 $
—
—
8
6
2
—
(68 ) $
—
—
(68 )
(35 )
(33 )
—
(60 ) $ 4,578
—
2
—
93
(60 ) 4,673
(29 ) 3,488
(31 ) 1,185
— 258
552
540
— (134 )
958
2
(33 )
(31 ) 927
229
11
— —
240
—
230
28
—
—
487
359
—
359
—
1
16
—
28
156
—
156
258 —
—
14
— —
—
33
47
258
215 —
— 254
215 254
488
43
16
33
820
730
254
984
—
(41 )
—
39
(2 )
—
—
—
—
—
— —
—
—
—
359
680
155
525 $
—
156
412
96
316 $
—
6
215 260
6
990
43 (347 )
10
(80 )
33 $ (267 ) $
788
181
607 $
—
—
—
—
— $
—
—
65
—
(27 )
38
—
—
—
30
—
30
(25 )
(15 )
(10 ) $
— 240
— 488
67
24
—
16
12
45
36 856
— 730
— 254
— 984
30
30
—
6
30 1,020
(25 ) 763
(15 ) 166
(10 ) $ 597
(Dollars in millions)
Interest income:
Education loans
Other loans
Cash and investments
Total interest income
Total interest expense
Net interest income (loss)
Less: provisions for loan losses
Net interest income (loss) after
provisions for loan losses
Other income (loss):
Servicing revenue
Asset recovery and business
processing revenue
Other income (loss)
Gains on sales of loans
Gains on debt repurchases
Total other income (loss)
Expenses:
Direct operating expenses
Unallocated shared services expenses
Operating expenses
Goodwill and acquired intangible asset
impairment and amortization
Restructuring/other reorganization
expenses
Total expenses
Income (loss) before income tax
expense (benefit)
Income tax expense (benefit)(2)
Net income (loss)
$
(1)
Core Earnings adjustments to GAAP:
(Dollars in millions)
Net interest income after provisions for loan losses
Total other income (loss)
Goodwill and acquired intangible asset impairment and amortization
Total Core Earnings adjustments to GAAP
Income tax expense (benefit)
Net income (loss)
Net Impact of
Derivative
Accounting
Year Ended December 31, 2019
Net Impact of
Acquired
Intangibles
Total
$
$
(31 ) $
36
—
5 $
— $
—
30
(30 )
$
(31 )
36
30
(25 )
(15 )
(10 )
(2)
Income taxes are based on a percentage of net income before tax for the individual reportable segment.
40
The following discussion summarizes the differences between Core Earnings and GAAP net income and details each
specific adjustment required to reconcile our Core Earnings segment presentation to our GAAP earnings.
(Dollars in millions)
Core Earnings net income
Core Earnings adjustments to GAAP:
Net impact of derivative accounting
Net impact of goodwill and acquired intangible assets
Net income tax effect
Total Core Earnings adjustments to GAAP
GAAP net income
Years Ended December 31,
2020
2019
2021
$
551 $
631 $
607
235
(30 )
(39 )
166
717 $
(265 )
(22 )
68
(219 )
412 $
5
(30 )
15
(10 )
597
$
(1) Derivative Accounting: Core Earnings exclude periodic gains and losses that are caused by the mark-to-market
valuations on derivatives that do not qualify for hedge accounting treatment under GAAP, as well as the periodic
mark-to-market gains and losses that are a result of ineffectiveness recognized related to effective hedges under
GAAP. Under GAAP, for our derivatives that are held to maturity, the mark-to-market gain or loss over the life of the
contract will equal $0 except for Floor Income Contracts, where the mark-to-market gain will equal the amount for
which we originally sold the contract. In our Core Earnings presentation, we recognize the economic effect of these
hedges, which generally results in any net settlement cash paid or received being recognized ratably as an interest
expense or revenue over the hedged item’s life.
The accounting for derivatives requires that changes in the fair value of derivative instruments be recognized
currently in earnings, with no fair value adjustment of the hedged item, unless specific hedge accounting criteria are
met. The gains and losses recorded in “Gains (losses) on derivative and hedging activities, net” and interest expense
(for qualifying fair value hedges) are primarily caused by interest rate and foreign currency exchange rate volatility
and changing credit spreads during the period as well as the volume and term of derivatives not receiving hedge
accounting treatment. We believe that our derivatives are effective economic hedges, and as such, are a critical
element of our interest rate and foreign currency risk management strategy. However, some of our derivatives,
primarily Floor Income Contracts, basis swaps and at times, certain other LIBOR swaps do not qualify for hedge
accounting treatment and the stand-alone derivative is adjusted to fair value in the income statement with no
consideration for the corresponding change in fair value of the hedged item.
Our Floor Income Contracts are written options that must meet more stringent requirements than other hedging
relationships to achieve hedge effectiveness. Specifically, our Floor Income Contracts do not qualify for hedge
accounting treatment because the pay down of principal of the education loans underlying the Floor Income
embedded in those education loans does not exactly match the change in the notional amount of our written Floor
Income Contracts. Additionally, the term, the interest rate index, and the interest rate index reset frequency of the
Floor Income Contract can be different than that of the education loans. Under derivative accounting treatment, the
upfront contractual payment is deemed a liability and changes in fair value are recorded through income throughout
the life of the contract. The change in the fair value of Floor Income Contracts is primarily caused by changing
interest rates that cause the amount of Floor Income paid to the counterparties to vary. This is economically offset by
the change in the amount of Floor Income earned on the underlying education loans but that offsetting change in fair
value is not recognized. We believe the Floor Income Contracts are economic hedges because they effectively fix the
amount of Floor Income earned over the contract period, thus eliminating the timing and uncertainty that changes in
interest rates can have on Floor Income for that period. Therefore, for purposes of Core Earnings, we have removed
the mark-to-market gains and losses related to these contracts and added back the amortization of the net
contractual premiums received on the Floor Income Contracts. The amortization of the net contractual premiums
received on the Floor Income Contracts for Core Earnings is reflected in education loan interest income. Under GAAP
accounting, the premiums received on the Floor Income Contracts are recorded as revenue in the “gains (losses) on
derivative and hedging activities, net” line item by the end of the contracts’ lives.
41
Basis swaps are used to convert floating rate debt from one floating interest rate index to another to better match the
interest rate characteristics of the assets financed by that debt. We primarily use basis swaps to hedge our education
loan assets that are primarily indexed to LIBOR or Prime. The accounting for derivatives requires that when using
basis swaps, the change in the cash flows of the hedge effectively offset both the change in the cash flows of the
asset and the change in the cash flows of the liability. Our basis swaps hedge variable interest rate risk; however,
they generally do not meet this effectiveness test because the index of the swap does not exactly match the index of
the hedged assets as required for hedge accounting treatment. Additionally, some of our FFELP Loans can earn at
either a variable or a fixed interest rate depending on market interest rates and therefore swaps economically
hedging these FFELP Loans do not meet the criteria for hedge accounting treatment. As a result, under GAAP, these
swaps are recorded at fair value with changes in fair value reflected currently in the income statement.
The table below quantifies the adjustments for derivative accounting between GAAP and Core Earnings net income.
(Dollars in millions)
Core Earnings derivative adjustments:
Gains (losses) on derivative and hedging activities,
net, included in other income
Plus: Gains (losses) on fair value hedging
activity included in interest expense
Total gains (losses) in GAAP net income
Plus: Reclassification of settlement expense (income) on
derivative and hedging activities, net(1)
Mark-to-market gains (losses) on derivative and
hedging activities, net(2)
Amortization of net premiums on Floor Income
Contracts in net interest income for Core Earnings
Other derivative accounting adjustments(3)
Total net impact of derivative accounting
Years Ended December 31,
2020
2019
2021
$
64 $
(256 ) $
88
152
(17 )
(273 )
93
40
245
(233 )
(39 )
29
235 $
(55 )
23
(265 ) $
$
22
21
43
41
84
(68 )
(11 )
5
(1)
Derivative accounting requires net settlement income/expense on derivatives that do not qualify as hedges to be recorded in a
separate income statement line item below net interest income. Under our Core Earnings presentation, these settlements are
reclassified to the income statement line item of the economically hedged item. For our Core Earnings net interest income, this would
primarily include (a) reclassifying the net settlement amounts related to our Floor Income Contracts to education loan interest income
and (b) reclassifying the net settlement amounts related to certain of our interest rate swaps to debt interest expense. The table below
summarizes these net settlements on derivative and hedging activities and the associated reclassification on a Core Earnings basis.
(Dollars in millions)
Reclassification of settlements on derivative
and hedging activities:
Net settlement expense on Floor Income
Contracts reclassified to net interest
income
Net settlement income (expense) on interest rate
swaps reclassified to net interest income
Net realized gains (losses) on terminated
derivative contracts reclassified to other
income
Total reclassifications of settlements on
derivative and hedging activities
Years Ended December 31,
2020
2019
2021
$
(98 ) $
(79 ) $
(8 )
39
(8 )
6
13
—
(39 )
$
(93 ) $
(40 ) $
(41 )
(2)
“Mark-to-market gains (losses) on derivative and hedging activities, net” is comprised of the following:
(Dollars in millions)
Floor Income Contracts
Basis swaps
Foreign currency hedges
Other
Total mark-to-market gains (losses) on derivative
and hedging activities, net
Years Ended December 31,
2020
2019
2021
$
133 $
8
49
55
(130 ) $
3
9
(115 )
(15 )
—
65
34
$
245 $
(233 ) $
84
(3)
Other derivative accounting adjustments consist of adjustments related to: (1) foreign currency denominated debt that is adjusted to
spot foreign exchange rates for GAAP where such adjustments are reversed for Core Earnings and (2) certain terminated derivatives
that did not receive hedge accounting treatment under GAAP but were economic hedges under Core Earnings and, as a result, such
gains or losses are amortized into Core Earnings over the life of the hedged item.
42
Cumulative Impact of Derivative Accounting under GAAP compared to Core Earnings
As of December 31, 2021, derivative accounting has decreased GAAP equity by approximately $299 million as a
result of cumulative net mark-to-market losses (after tax) recognized under GAAP, but not in Core Earnings. The
following table rolls forward the cumulative impact to GAAP equity due to these after-tax mark-to-market net gains
and losses related to derivative accounting.
(Dollars in millions)
Beginning impact of derivative accounting on GAAP
equity
Net impact of net mark-to-market gains (losses) under
derivative accounting(1)
Ending impact of derivative accounting on GAAP
equity
Years Ended December 31,
2020
2019
2021
$
(616 ) $
(235 ) $
(34 )
317
(381 )
(201 )
$
(299 ) $
(616 ) $
(235 )
(1)
Net impact of net mark-to-market gains (losses) under derivative accounting is composed of the following:
Years Ended December 31,
2020
2019
2021
$
235 $
(265 ) $
(59 )
67
5
(2 )
141
(183 )
(204 )
$
317 $
(381 ) $
(201 )
(Dollars in millions)
Total pre-tax net impact of derivative accounting
recognized in net income(2)
Tax and other impacts of derivative accounting
adjustments
Change in mark-to-market gains (losses) on
derivatives, net of tax recognized in other
comprehensive income
Net impact of net mark-to-market gains (losses) under
derivative accounting
(2)
See “Core Earnings derivative adjustments” table above.
43
Hedging Embedded Floor Income
We use Floor Income Contracts, pay-fixed swaps and fixed rate debt to economically hedge embedded floor income
in our FFELP loans. Historically, we have used these instruments on a periodic basis and depending upon market
conditions and pricing, we may enter into additional hedges in the future. Under GAAP, the Floor Income Contracts
do not qualify for hedge accounting and the pay-fixed swaps are accounted for as cashflow hedges. The table below
shows the amount of Hedged Floor Income that will be recognized in Core Earnings in future periods based on these
hedge strategies.
(Dollars in millions)
Total hedged Floor Income, net of tax(1)(2)
2021
December 31,
2020
2019
$
325 $
401 $
552
(1)
(2)
$422 million, $520 million and $717 million on a pre-tax basis as of December 31, 2021, 2020 and 2019, respectively.
Of the $325 million as of December 31, 2021, approximately $130 million, $99 million, $39 million and $22 million will be
recognized as part of Core Earnings in 2022, 2023, 2024 and 2025, respectively.
(2) Goodwill and Acquired Intangible Assets: Our Core Earnings exclude goodwill and intangible asset
impairment and the amortization of acquired intangible assets. The following table summarizes the goodwill and
acquired intangible asset adjustments.
(Dollars in millions)
Core Earnings goodwill and acquired intangible
asset adjustments
Adjusted Core Earnings
Years Ended December 31,
2020
2019
2021
$
(30 ) $
(22 ) $
(30 )
Adjusted Core Earnings net income and adjusted Core Earnings operating expenses exclude restructuring and
regulatory-related expenses. Management excludes these expenses as it is one of the measures we review internally
when making management decisions regarding our performance and how we allocate resources, as this presentation
is a useful basis for management and investors to further analyze Core Earnings. We also refer to this information in
our presentations with credit rating agencies, lenders and investors.
The following table summarizes these expenses which are excluded:
(Dollars in millions)
Restructuring/other reorganization expenses
Regulatory-related expenses(1)
Total
Years Ended December 31,
2020
2019
2021
$
$
26 $
233
259 $
9 $
33
42 $
6
6
12
(1)
2021 includes $205 million related to the resolution of previously disclosed State Attorneys General litigation and investigations.
See “Results of Operations – GAAP Comparison of 2021 Results with 2020” for further details.
44
2. Adjusted Tangible Equity Ratio
Adjusted Tangible Equity Ratio measures the ratio of Navient’s Tangible Equity to its tangible assets. We adjust this
ratio to exclude the assets and equity associated with our FFELP portfolio because FFELP Loans are no longer
originated and the FFELP portfolio bears a 3% maximum loss exposure under the terms of the federal guaranty.
Management believes that excluding this portfolio from the ratio enhances its usefulness to investors. Management
uses this ratio, in addition to other metrics, for analysis and decision making related to capital allocation decisions.
The Adjusted Tangible Equity Ratio is calculated as:
(Dollars in billions)
Navient Corporation's stockholders' equity
Less: Goodwill and acquired intangible assets
Tangible Equity
Less: Equity held for FFELP Loans
Adjusted Tangible Equity
Divided by:
Total assets
Less:
Goodwill and acquired intangible assets
FFELP Loans
Adjusted tangible assets
Adjusted Tangible Equity Ratio(1)
December 31,
2021
December 31,
2020
$
$
2,597 $
725
1,872
263
1,609 $
2,433
735
1,698
291
1,407
$
80,605 $
87,412
725
52,641
27,239 $
5.9 %
735
58,284
28,393
5.0 %
$
(1)
The following provides the Adjusted Tangible Equity Ratio on a pro forma basis assuming the cumulative net mark-to-market losses
related to derivative accounting under GAAP were excluded. These cumulative losses reverse to $0 upon the maturity of the individual
derivative instruments. As these losses are temporary, we believe this pro forma presentation is a useful basis for management and
investors to further analyze the Adjusted Tangible Equity Ratio.
(Dollars in millions)
Adjusted Tangible Equity (from above table)
Plus: ending impact of derivative accounting on GAAP equity
Pro forma Adjusted Tangible Equity
Divided by: adjusted tangible assets (from above table)
Pro forma Adjusted Tangible Equity Ratio
December 31,
2021
December 31,
2020
$
$
$
1,609 $
299
1,908 $
1,407
616
2,023
27,239 $
7.0 %
28,393
7.1 %
3. Earnings before Interest, Taxes, Depreciation and Amortization Expense (EBITDA)
This measures the operating performance of the Business Processing segment and is used by management and
equity investors to monitor operating performance and determine the value of those businesses. EBITDA for the
Business Processing segment is calculated as:
(Dollars in millions)
Pre-tax income
Plus:
Depreciation and amortization expense(1)
EBITDA
Divided by:
Total revenue
EBITDA margin
(2)
There is no interest expense in this segment.
Years Ended December 31,
2020
2019
2021
$
128 $
50
$
43
6
49
8
136 $
7
57 $
488 $
28 %
304 $
19 %
258
19 %
$
$
45
Risk Management
Our Approach
Navient’s identification, understanding and effective management of the risks inherent in our business are critical to
our continued success. We assign risk oversight, management and assessment responsibilities at various levels
within our organization and continuously coordinate these activities. We maintain comprehensive risk management
practices to identify, measure, monitor, evaluate, control and report on our significant risks and we routinely evaluate
these practices to determine whether they are functioning properly and can be improved.
Risk Management Philosophy
Navient’s risk management philosophy is to ensure all significant risks inherent in our business are identified,
measured, monitored, evaluated, controlled and reported. In furtherance of these goals, Navient
• maintains a comprehensive and uniform risk management framework;
• follows a “three lines of defense” structure based upon: (1) accountability and ownership at the business area
level for risks inherent in their activities (first line of defense); (2) supporting areas, such as Human
Resources, Legal, Compliance, Finance and Accounting, Information Technology and Information Security,
monitor, guide and advise the business areas in their respective areas of expertise (second line of defense);
and (3) Internal Audit independently reviews business and support areas to ensure compliance with
applicable laws, regulations and internal policies and procedures (third line of defense);
• provides appropriate reporting to management and our board of directors and their respective committees;
and
• trains our employees on our risk management processes and philosophy.
Risk Oversight, Roles and Responsibilities
Responsibility for risk management is assigned at several different levels of our organization, including our board of
directors and its committees. Each business area within our organization is primarily responsible for managing its
specific risks. In addition, our second line of defense support areas are responsible for providing our business areas
with the training, systems and specialized expertise necessary to properly perform their risk management
responsibilities.
Board of Directors. The Navient board of directors and its standing committees oversee our strategic direction,
including setting our risk management philosophy, tolerance and parameters; and assessing the risks our businesses
face as well as our risk management practices. It approves our annual business plan, periodically reviews our
strategic approach and priorities and spends significant time considering our capital requirements and our dividend
and share repurchase levels and activities. We escalate to our board of directors any significant departures from
established tolerances and parameters and review new and emerging risks with them. Standing committees of our
board of directors include Executive, Audit, Compensation and Human Resources, Nominations and Governance,
and Risk. Charters for each committee providing their specific responsibilities and areas of risk oversight are
published on our website together with the names of the directors serving on these committees.
Chief Executive Officer. Our Chief Executive Officer is responsible for establishing our risk management culture and
ensuring business areas operate within risk parameters and in accordance with our annual business plan.
Chief Risk and Compliance Officer. Our Chief Risk and Compliance Officer is responsible for ensuring proper
oversight, management and reporting to our board of directors and management regarding our risk management
practices.
Enterprise Risk and Compliance Committee. Our Enterprise Risk and Compliance Committee is an executive
management-level committee where senior management reviews our significant risks, receives reports on adherence
to established risk parameters, provides direction on mitigation of our risks and closure of issues and supervises our
enterprise risk management program. This committee also oversees regulatory compliance risk management
activities including compliance regulatory training, compliance regulatory change management, compliance risk
assessment, transactional testing and monitoring, customer complaint monitoring, policies and procedures, privacy
and information sharing practices, compliance with the Sarbanes-Oxley Act of 2002, and our Code of Business
Conduct. This committee also evaluates risks associated with new or modified business and makes
recommendations regarding proposed business initiatives based on their inherent risks and controls.
Credit and Loan Loss Committee. Our Credit and Loan Loss Committee is an executive management-level
committee that oversees our credit and portfolio management monitoring and strategies, the sufficiency of our loan
loss reserves, and current or emerging issues affecting delinquency and default trends which may result in
adjustments in our allowances for loan losses.
46
Disclosure Committee. Our Disclosure Committee reviews our periodic SEC reporting documents, earnings releases
and related disclosure policies and procedures, and evaluates whether modified or additional disclosures are
required.
Asset and Liability Committee. Our Asset and Liability Committee oversees our investment portfolio and strategy and
our compliance with our investment policy.
Other Management-Level Committees. We have other management-level committees that oversee various other
Navient business activities including critical accounting assumptions, human resources management, and incentive
compensation governance.
Internal Audit Risk Assessment
Navient’s Internal Audit function monitors Navient’s various risk management and compliance efforts, identifies areas
that may require increased focus and resources, and reports its findings and recommendations to executive
management and the Audit Committee of our board of directors. Internal Audit performs an annual risk assessment
evaluating the risk of all significant components of our company and uses the results to develop an annual risk-based
internal audit plan as well as a multi-year rotational audit schedule.
Risk Appetite Framework
Navient’s Risk Appetite Framework establishes the level of risk we are willing to accept within each risk category in
pursuit of our business strategy. The Risk Committee of our board of directors reviews our Risk Appetite Framework
annually, helping to ensure consistency in our business decisions, monitoring and reporting. Our management-level
Enterprise Risk and Compliance Committee monitors approved risk limits and thresholds to ensure our businesses
are operating within approved risk limits. Through ongoing monitoring of risk exposures, management identifies
potential risks and develops appropriate responses and mitigation strategies.
Risk Categories
Our Risk Appetite Framework segments Navient’s risks across nine domains: (1) credit; (2) market; (3) funding and
liquidity; (4) operational; (5) compliance; (6) legal; (7) governance; (8) reputational/political; and (9) strategic.
Credit Risk. Credit risk is the risk to earnings or capital resulting from an obligor’s failure to meet the terms of any
contract with us or otherwise fail to perform as agreed. Navient has credit or counterparty risk exposure with
borrowers and cosigners of our Private Education Loans and Private Education Refinance Loans, counterparties with
whom we have entered derivative or other similar contracts and entities with whom we make investments. Credit and
counterparty risks are overseen by our Chief Risk and Compliance Officer and our management-level Credit and
Loan Loss Committee. The credit risk related to our Private Education Loans and Private Education Refinance Loans
is managed within a credit risk infrastructure which includes: (i) a well-defined underwriting, asset quality and
collection policy framework; (ii) an ongoing monitoring and review process of portfolio concentration and trends;
(iii) assignment and management of credit and loss forecasting authorities and responsibilities; and (iv) establishment
of an allowance for loan losses. Credit risk related to derivative contracts is managed by reviewing counterparties for
credit strength on an ongoing basis and through our credit policies, which place limits on our exposure with any single
counterparty and, in most cases, require collateral to secure the position. Our Chief Risk and Compliance Officer
reports regularly to our board of directors and both the Risk and Audit Committees of the board on credit risk
management.
Market Risk. Market risk is the risk to earnings or capital resulting from changes in market conditions, such as interest
rates, index mismatches, credit spreads, commodity prices or volatilities. Navient is exposed to various types of
market risk, including mismatches between the maturity/duration of assets and liabilities, interest rate risk and other
risks that arise through the management of our investment, debt and education loan portfolios. Market risk exposure
is overseen by our Chief Financial Officer and our management-level Asset and Liability Committee, which are
responsible for managing market risks associated with our assets and liabilities and recommending limits to be
included in our risk appetite and investment structure. These activities are closely tied to those related to the
management of our funding and liquidity risks. The Risk Committee of our board of directors periodically reviews and
approves the investment, asset and liability management policies, establishes and monitors various tolerances or
other risk measurements, as well as contingency funding plans developed and administered by our Asset and
Liability Committee. The Risk Committee and our Chief Financial Officer report to the full board of directors on
matters of market risk management.
Funding and Liquidity Risk. Funding and liquidity risk is the risk to earnings, capital or the conduct of our business
arising from the inability to meet our obligations when they become due without incurring unacceptable losses, such
as the ability to fund liability maturities or invest in future asset growth and business operations at reasonable market
rates. Our primary liquidity risks are any mismatch between the maturity of our assets and liabilities and the servicing
of our indebtedness. Navient’s Chief Financial Officer oversees our funding and liquidity management activities and is
responsible for planning and executing our funding activities and strategies, analyzing and monitoring our liquidity
risk, maintaining excess liquidity and accessing diverse funding sources depending on current market conditions.
47
Funding and liquidity risks are overseen and recommendations approved primarily through our management-level
Asset and Liability Committee. The Risk Committee of our board of directors periodically reviews and approves our
funding and liquidity positions and the contingency funding plan developed and administered by our Asset and
Liability Committee. The Risk Committee also receives regular reports on our performance against funding and
liquidity plans at each of its meetings.
Operational Risk. Operational risk is the risk to earnings or the conduct of our business resulting from inadequate or
failed internal processes, people or systems or from external events. Operational risk is pervasive, existing in all
business areas, functional units, legal entities and geographic locations, and it includes information technology risk,
cybersecurity risk, physical security risk on tangible assets, third-party vendor risk, legal risk, compliance risk and
reputational risk. Operational risk exposures are managed by business area management and our second and third
lines of defense, with oversight by our management-level committees. The Risk Committee of our board of directors
receives operations reports at each regularly scheduled meeting. The Risk Committee also receives business
development updates regarding our various business initiatives, receives periodic information security and
cybersecurity updates and reviews operational and systems-related matters to ensure their implementation produces
no significant internal control issues.
Compliance, Legal and Governance Risk. Compliance, legal and governance risks are subsets of operational risk but
are recognized as a separate and complementary risk category given their importance in our business. Compliance
risk is the risk to earnings, capital or reputation arising from violations of, or non-conformance with, laws, rules,
regulations, prescribed practices, internal policies and procedures, or ethical standards. Legal risk is the risk to
earnings, capital or reputation manifested by claims made through the legal system and may arise from a product or
service, a transaction, a business relationship, property (real, personal or intellectual), conduct of an employee or
change in law or regulation. Governance risk is the risk of not establishing and maintaining a control environment that
aligns with stakeholder and regulatory expectations, including tone at the top and board performance. These risks are
inherent in all of our businesses. The Audit Committee of our board of directors oversees our monitoring and control
of legal and compliance risks. The Audit Committee annually reviews our Compliance Plan and significant breaches
of our Code of Business Conduct and receives regular reports from executive management responsible for the
regulatory and compliance risk management functions. The board of directors and the Audit Committee receive
reports on significant litigation and regulatory matters at each regularly scheduled meeting.
Reputational/Political Risk. Reputational risk is the risk to earnings or capital arising from damage to our reputation in
the view of, or loss of the trust of, customers and the general public. Political risk is the closely related risk to earnings
or capital arising from damage to our relationships with governmental entities, regulators and political leaders and
candidates. These risks can arise due to both our own acts and omissions (both real and perceived), and the acts
and omissions of other industry participants or other third parties, and they are inherent in all of our businesses.
Reputational risk and political risk are managed through a combination of business area management and our
second and third lines of defense. The Nominations and Governance Committee of our board of directors oversees
our reputational and political risk and regularly receives reports on these matters.
Strategic Risk. Strategic risk is the risk to earnings or capital arising from our potential inability to successfully carry
out our strategy. This risk can arise due to both our own acts or omissions, and the acts or omissions of other
industry participants or other third parties, and it is inherent in all of our businesses. Strategic risk is managed through
a combination of business area management and our second and third lines of defense.
48
Supervision and Regulation
Regulatory Oversight
We operate in a highly regulated industry where many aspects of our businesses are subject to federal and state
regulation and administrative oversight. The following is a summary of the material statutes and regulations currently
applicable to us and our subsidiaries. We may become subject to additional laws, rules or regulations in the future.
This summary is not a comprehensive analysis of all applicable laws and is qualified by reference to the full text of the
statutes and regulations referenced below.
The Dodd-Frank Act was adopted to reform and strengthen regulation and supervision of the U.S. financial services
industry. It contains comprehensive provisions that govern the practices and oversight of financial institutions and
other participants in the financial markets. It imposes additional regulations, requirements and oversight on almost
every aspect of the U.S. financial services industry, including increased capital and liquidity requirements, limits on
leverage and enhanced supervisory authority. Some of these provisions apply to Navient and its various businesses
and securitization vehicles.
The Consumer Financial Protection Act established the Consumer Financial Protection Bureau (CFPB), which has
authority to write regulations under federal consumer financial protection laws and to directly or indirectly enforce
those laws and examine financial institutions for compliance. The CFPB is authorized to impose fines and provide
consumer restitution in the event of violations, engage in consumer financial education, track consumer complaints,
request data and promote the availability of financial services to underserved consumers and communities. It also
has authority to prevent unfair, deceptive or abusive practices. Since its creation, the CFPB has been active in its
supervision, examination and enforcement of financial services companies. In January 2017, the CFPB filed a lawsuit
against Navient alleging several unfair, deceptive or abusive practices, and other violations of consumer protection
statutes. Additional information on the CFPB lawsuit is included in “Note 12 – Commitments, Contingencies and
Guarantees” in this Form 10-K.
The Dodd-Frank Act also authorizes state officials to enforce regulations issued by the CFPB and to enforce the
Dodd-Frank Act’s general prohibition against unfair, deceptive and abusive practices. The Attorneys General of the
State of Illinois, the State of Washington, the Commonwealth of Pennsylvania, the State of California, the State of
Mississippi and the State of New Jersey have also filed lawsuits against Navient and some of its subsidiaries
containing similar alleged violations of consumer protection laws as those alleged in the CFPB lawsuit as well as
several additional areas. These cases were recently settled by mutual agreement between the Company and various
State Attorneys General. Additional information on these lawsuits is included in “Note 12 – Commitments,
Contingencies and Guarantees” in this Form 10-K.
Higher Education Act. The HEA is the primary law that authorizes and regulates federal student aid programs for
higher education. Navient is subject to the HEA and its education loan operations are periodically reviewed by ED
and Guarantors or entities acting on their behalf. As a servicer of federal education loans, Navient is subject to ED
regulations regarding financial responsibility and administrative capability that govern all third-party servicers of
insured education loans. In connection with its servicing operations on behalf of Guarantor clients, Navient must
comply with ED regulations that govern Guarantor activities as well as agreements for reimbursement between ED
and our Guarantor clients. While the HEA is required to be reviewed and "reauthorized" by Congress every five
years, Congress has not reauthorized the HEA since 2008, choosing to temporarily extend the Act each year since
2013. We cannot predict whether or when legislation will be passed or how it would impact us.
Federal Financial Institutions Examination Council. As a service provider to financial institutions, Navient is also
subject to periodic examination by the Federal Financial Institutions Examination Council (FFIEC). FFIEC is a formal
interagency body of the U.S. government empowered to prescribe uniform principles, standards, and report forms for
the federal examination of financial institutions by the Federal Reserve Banks (FRB), the Federal Deposit Insurance
Corporation (FDIC), the National Credit Union Administration, the Office of the Comptroller of the Currency and the
CFPB and to make recommendations to promote uniformity in the supervision of financial institutions.
49
Consumer Protection and Privacy. Navient’s Consumer Lending and Federal Education Loan segments are subject
to federal and state consumer protection, privacy and related laws and regulations and are subject to supervision and
examination by the CFPB and various state agencies. Some of the more significant federal laws and regulations
include:
• various laws governing unfair, deceptive or abusive acts or practices;
• the Truth-In-Lending Act and Regulation Z, which govern disclosures of credit terms to consumer borrowers;
• the Fair Credit Reporting Act and Regulation V, which govern the use and provision of information to
consumer reporting agencies;
• the Equal Credit Opportunity Act and Regulation B, which prohibit discrimination on the basis of race, creed
or other prohibited factors in extending credit;
• the Servicemembers Civil Relief Act (SCRA), which applies to all debts incurred prior to commencement of
active military service (including education loans) and limits the amount of interest, including certain fees or
charges that are related to the obligation or liability; and
• the Telephone Consumer Protection Act (TCPA), which governs communication methods that may be used
to contact customers.
Navient’s Business Processing segment is subject to federal and state consumer protection, privacy and related laws
and regulations, as well as certain activities, supervision and examination by the CFPB and various state agencies.
Some of the more significant federal statutes are the Fair Debt Collection Practices Act and additional provisions of
the acts listed above, as well as the HEA and the various laws and regulations that pertain to government
contractors. These activities are also subject to state laws and regulations similar to the federal laws and regulations
listed above.
Regulatory Outlook
In 2022, we expect the regulatory environment for the business in which we operate will continue to be challenging.
We anticipate that regulators will be more focused on conducting regulatory audits and initiating enforcement actions.
We anticipate a number of prominent themes will emerge:
• The number and configuration of regulators, particularly the CFPB, State Attorneys General and various
state legislators, is likely to change which may add to the complexity, cost and unpredictability of timing for
resolution of particular regulatory issues.
• The regulatory, compliance and risk control structures of financial institutions subject to enforcement actions
by state and federal regulators are frequently cited, regardless of whether past practices have been
changed, and enforcement orders have often included detailed demands for increased compliance, audit
and board supervision, as well as the use of third-party consultants or monitors to recommend further
changes or monitor remediation efforts.
• Issues first identified with respect to one consumer product class or distribution channel are sometimes
applied to other product classes or channels.
We expect that consumer protection regulations, standards, supervision, examination and enforcement practices will
continue to evolve in both detail and scope as well as being more unpredictable than in previous periods. This
evolution has added and may continue to significantly add to Navient’s compliance, servicing and operating costs.
We have invested in compliance through multiple steps including realignment of Navient’s compliance management
system to a servicing, collections and business services business model; dedicated compliance resources for certain
topics (such as the SCRA; the TCPA; unfair, deceptive, or abusive acts and practices (UDAAP); and third-party
vendor management) to focus on consumer expectations; formation of business support operations to enhance risk,
control and compliance functions in each business area; additional regulatory training for front-line employees to
ensure obligations are understood and followed during interactions with customers, as well as additional regulatory
training for our board of directors to enhance their ability to oversee the Company’s risk framework and compliance
as it and the regulatory environment changes; and expanded oversight and analysis of complaint trends to identify
and remediate, if necessary, areas of potential consumer harm. Despite these increased activities, our current
operations and compliance processes may not satisfy evolving regulatory standards. Past practices or products may
continue to be the focus of examinations, inquiries or lawsuits including even for the work we performed under our
federal loan servicing contract.
As described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Risk
Management,” Navient has implemented a coordinated, formal enterprise risk management system aimed at
reducing business and regulatory risks.
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Listed below are some of the most significant recent and pending regulatory changes that have the potential to affect
Navient.
Education Loan Servicing and Consumer Lending. The CFPB has been active in the education loan industry and
undertook a number of initiatives in recent years relative to the private education loan market and education loan
servicing. In addition, several states have enacted various state servicing and licensing requirements. We anticipate
that these state activities will continue. It is possible that more states will propose or pass similar or different
requirements on either holders of education loans or their servicers. Depending on the nature of these laws or rules,
they may impose additional or different requirements than Navient faces at the federal level.
Debt Collection Supervision. The CFPB also maintains supervisory authority over larger consumer debt collectors
and has recently implemented changes to Regulation F governing the collection of third-party consumer debt. The
issuance of the CFPB’s rules does not preempt the various and varied levels of state consumer and collection
regulations to which the activities of Navient’s subsidiaries are currently subject. Navient also utilizes third-party debt
collectors to collect defaulted and charged-off education loans and will continue to be responsible for oversight of
their procedures and controls.
Oversight of Derivatives. The Dodd-Frank Act created a comprehensive new regulatory framework for derivatives
transactions under the Commodity Futures Trading Commission (CFTC), other prudential regulators and the SEC.
This framework, among other things, subjects certain swap participants to new capital and margin requirements,
recordkeeping and business conduct standards and imposes registration and regulation of swap dealers and major
swap participants. The scope of the rules and exemptions continues to be defined through agency rulemakings. Even
where Navient or a securitization trust sponsored by Navient qualifies for an exemption, many of its derivatives
counterparties are subject to capital, margin and business conduct requirements and therefore Navient’s business
may be impacted. Where Navient or the securitization trusts it sponsors do not qualify for an exemption, Navient or
an existing or future securitization trust sponsored by Navient may be unable to enter into new swaps to hedge
interest rate or currency risk or the costs associated with such swaps may increase. With respect to existing
securitization trusts, an inability to amend, novate or otherwise materially modify existing swap contracts could result
in a downgrade of its outstanding asset-backed securities. As a result, Navient’s business, ability to access the
capital markets for financing and costs may be impacted by these regulations.
Legal Proceedings
For a discussion of legal matters as of December 31, 2021, please refer to “Note 12 – Commitments,
Contingencies and Guarantees” to our consolidated financial statements included in this report, which is incorporated
into this item by reference.
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RISK FACTORS
We employ an enterprise risk management philosophy and framework which seeks to identify the material risks
impacting our business and provides a process for evaluating and quantifying such risks. Our Enterprise Risk and
Compliance Committee monitors approved risk limits and thresholds to ensure our businesses are operating within
approved risk parameters. Our Risk Appetite Framework segments our risk across nine risk domains: (1) credit;
(2) market; (3) funding and liquidity; (4) operational; (5) compliance; (6) legal; (7) governance;
(8) reputational/political; and (9) strategic. The risk factors enumerated in this section are presented in a manner that
is consistent with this overall risk framework.
Based on current conditions, we believe that the following list identifies the material risk factors that could affect our
financial condition, results of operations or cash flows. These risks and risk domains are not the only risks facing our
Company. Additional risks not currently known to us or that we currently deem to be immaterial also may adversely
affect our business, financial conditions or results of operations in future periods. Material risks that could apply
generally to any company are listed below under the caption “General Risk Factors.” In addition, our reaction to future
developments as well as our competitors’ and regulators’ reactions to these developments may affect our future
results.
COVID-19 RISK.
The continuing impact of COVID-19 and related risks may materially affect our results of operations, financial
condition and/or liquidity and such impacts could continue for an unknown length of time.
The COVID-19 pandemic continues to impact the global economy and our results of operations. In response to the
pandemic, many state, local, and foreign governments have put in place, and others in the future may put in place,
quarantines, executive orders, shelter-in-place orders, and similar government orders and restrictions in an effort to
control the spread of the disease. In the general economy, these orders or restrictions, or the perception that these
orders or restrictions could occur, have resulted in business closures, work stoppages, slowdowns and delays, work-
from-home policies, travel restrictions, and cancellation or postponement of events as well as a general decline in
economic activity and consumer confidence and increases in job losses and unemployment. As a result, our results
of operations, financial condition and liquidity could be materially affected, as described in “Management’s Discussion
and Analysis of Financial Condition and Results of Operations — Navient’s Response to COVID-19.” With respect to
our operations, we have drastically modified the manner in which we conduct our business by expanding our work-
from-home capabilities and moving 90% of our team to a work-from-home status. Despite these efforts, the COVID-
19 pandemic and its impact remain dynamic. Variants continue to emerge, efforts to mitigate or contain the impacts of
the pandemic continue to evolve, and the duration and severity of the impact of the pandemic on our business and
results of operations in future periods remain uncertain. If the COVID-19 pandemic or its adverse effects become
more severe or prevalent or are prolonged or we experience more pronounced disruptions in our business or
operations, or in economic activity and demand for our services generally, our business and results of operations in
future periods could be materially adversely affected. We continue to monitor the situation and actively assess further
implications for our business.
CREDIT RISK.
Economic conditions and the creditworthiness of third parties could have a material adverse effect on our
business, results of operations, financial condition and stock price.
Our success is largely dependent upon the creditworthiness of our customers, especially with respect to our
education loans. Our research consistently indicates that borrower unemployment rates and the failure of in-school
borrowers to graduate or otherwise complete their education are two of the most significant economic factors that
affect loan performance. Any material changes in graduation or completion rates could increase or decrease
delinquencies and defaults. Additionally, modifications to the original repayment terms in the form of loan
forbearance, deferment, grace periods and the use of payment modification programs, including income-based
repayment programs, can individually and cumulatively impact the performance of our loan portfolios. Modifications to
private loans may lower the potential return on investment and may have the related effect of delaying defaults which
would otherwise have become apparent in the performance of our portfolios.
Overall economic conditions remain volatile and unpredictable due to the prolonged impacts of the COVID-19
pandemic. In the early stages of the pandemic, we experienced elevated levels of forbearance and other loan
modifications in our education loan portfolios. General economic and employment conditions, including
employment rates for recent college graduates, can have a significant impact on loan delinquency and default
rates. An extended or worsening deterioration in the economy could further adversely affect the credit quality of
our borrowers, resulting in an increased occurrence of defaults and/or requiring more frequent use of loan
modification tools. Further, as a result of COVID-19 we have experienced lower delinquency rates in both our
FFELP and Private Education loan portfolios primarily due to increases in forbearance rates. While we cannot
predict the duration of the COVID-19 crisis and the speed with which the economy recovers, we are paying close
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attention to the needs of our customers in an effort to assess the path and timing of any potential recovery. If
actual loan performance is worse than our estimates, it could materially affect our allowance for loan losses and
the related provision for loan losses adversely affecting our results of operation. Future defaults could be higher
than anticipated due to a variety of these factors that are outside of our control. H igher credit-related losses and
weaker credit quality could negatively affect our business, financial condition and results of operations and limit our
funding options, including our access to the capital markets.
Defaults on education loans held by us, particularly Private Education Loans, could adversely affect our
earnings.
FFELP Loans are insured or guaranteed by state or not-for-profit agencies and are also protected by contractual
rights to recovery from the United States pursuant to guaranty agreements among ED and these agencies. These
guarantees generally cover at least 97% of a FFELP Loan’s principal and accrued interest upon default and, in limited
circumstances, 100% of the loan’s principal and accrued interest. We are exposed to credit risk on the non-
guaranteed portion of the FFELP Loans in our portfolio. In addition, under certain circumstances, if we fail to service
FFELP Loans in compliance with HEA we may jeopardize the insurance, guarantees and federal support we receive
on these loans. A small percentage of our FFELP Loan portfolio has become permanently uninsured as a result of
these regulations and we anticipate this will continue to a limited extent in the future. Under such circumstances, we
bear the full credit exposure on such previously insured loans.
We bear the full credit exposure on the loans in our Private Education Loan portfolio. We believe that delinquencies
are an important indicator of the potential future credit performance for Private Education Loans. Our delinquencies
as a percentage of Private Education Loans in repayment were 3.2% at December 31, 2021. For a complete
discussion of our loan delinquencies, see “Management’s Discussion and Analysis of Financial Condition and Results
of Operations— Financial Condition – Private Education Loan Portfolio Performance.”
Future defaults could be higher than anticipated due to a variety of factors, such as downturns in the economy, public
health crises such as the COVID-19 pandemic, regulatory changes and other unforeseen future trends. According to
Company-sponsored independent research, young adults who stopped attending college before earning a degree or
certificate are among those most likely to have trouble making payments. Losses on Private Education Loans are
also impacted by various risk characteristics that may be specific to individual loans. Loan status (in-school, grace,
forbearance, repayment and delinquency), loan seasoning (number of months in which a payment has been made by
a customer), underwriting criteria (e.g., credit scores), existence of a cosigner, school type and whether a loan is a
TDR are all factors that can impact the likelihood of default. Additionally, general economic and employment
conditions, including employment rates for recent college graduates, can have a significant impact on loan
delinquency and default rates. If actual loan performance is worse than currently estimated, it could materially affect
our estimate of the allowance for loan losses and the related provision for loan losses and as a result adversely affect
our results of operations.
The Company recently adopted an accounting standard update that resulted in a significant change in how
we recognize credit losses.
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2016-13, “Financial Instruments — Credit Losses,” which replaced the current “incurred loss” model for
recognizing credit losses with an “expected loss” model referred to as the CECL model. This new CECL standard
became effective for us on January 1, 2020. Under the CECL model, we are required to measure and recognize an
allowance for loan losses that estimates remaining expected credit losses for financial assets held at the reporting
date. This resulted in us presenting certain financial assets carried at amortized cost, such as our loans held for
investment, at the net amount expected to be collected. The measurement of expected credit losses is based on
information about past events, including historical experience, current conditions, and reasonable and supportable
economic and other forecasts that affect the collectability of the reported amount. This measurement takes place at
the time the financial asset is first added to the balance sheet and quarterly thereafter. This differs significantly from
the “incurred loss” model that was required under prior GAAP, which delayed recognition of losses until it was
probable a loss had been incurred. Accordingly, the adoption of the CECL model materially changed the way we
determine our allowance for loan losses and required us to significantly increase our allowance and reduce
shareholders’ equity on the January 1, 2020 implementation date. As a result of the adoption of CECL in the first
quarter of 2020, we increased our loan loss reserves which resulted in a reduction of our shareholder equity by $620
million. In the future, the CECL model may create more volatility in the level of our allowance for loan losses. If we are
required to materially increase our level of allowance for loan losses, such increase could adversely affect our
business, financial condition and results of operations. In addition, the evaluation of our expected credit losses is
inherently subjective and requires estimates that may be subject to significant changes. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and
Estimates – Allowance for Loan Losses” and “Note 2 – Significant Accounting Policies” for further discussion of the
CECL standard and its impact as of the January 1, 2020 adoption date.
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Our Consumer Lending segment exposes us to credit underwriting risks based upon the credit model we use
to forecast loss rates. If we are unable to effectively forecast loss rates, it could materially adversely affect
our operating results.
In the fourth quarter of 2017, we acquired Earnest, a leading financial technology and education finance company.
Earnest is now one of the leading providers of education refinance loans. In 2019, Earnest entered the “in-school”
lending market. We underwrite new Private Education Loans within our Consumer Lending segment based upon our
analysis of extensive credit criteria. Criteria reviewed in underwriting consumer loans may include any or all of the
following: (i) employment or offer of employment and income; (ii) employment status and career specialization;
(iii) qualifying credit history, taking into account credit score; (iv) debt to income ratio; (v) demonstrated ability to pay
through free cash flow calculations; (vi) attendance at or graduation from an eligible post-secondary school, or
separated from an eligible post-secondary school within a specified period of time and met additional credit
requirements, or be the parent of a graduate or student; and (vii) savings. We define free cash flow generally as
after-tax monthly income of a borrower minus the sum of rent or mortgage payments, student loan payments and any
other fixed expenses of such borrower.
We do not rely on any single factor in making our underwriting decisions. Each of the above factors is reviewed and
weighted depending on the individual borrower’s or co-borrower’s circumstances at the time the underwriting decision
is made. If our underwriting process does not effectively forecast our losses, our operating results, cash flow or
financial condition may be materially adversely affected.
MARKET, FUNDING & LIQUIDITY RISK.
Our business is affected by the cost and availability of funding in the capital markets.
The capital markets may from time-to-time experience periods of significant volatility, such as the volatility we have
experienced, and may experience again, as a result of COVID-19 and its impacts on the economy. This volatility can
dramatically and adversely affect financing costs when compared to historical norms or make funding unavailable at
any costs. We cannot provide any assurance that the cost and availability of funding in the capital markets will not
continue to be impacted by the pandemic. In addition to COVID-19, other factors that could make financing more
expensive or unavailable to us include, but are not limited to, financial losses, events that have an adverse impact on
our reputation, changes in the activities of our business partners, events that have an adverse impact on the financial
services industry generally, counterparty availability, negative credit rating actions with respect to us, asset-backed
securities sponsored by us or the U.S. federal government, changes affecting our assets, the ability of existing or
future Navient-sponsored securitization trusts to hedge interest rate and currency risk, corporate and regulatory
actions, absolute and comparative interest rate changes, general economic conditions and the legal, regulatory and
tax environments governing funding transactions, including existing or future securitization and derivatives
transactions. If financing is difficult, expensive or unavailable, our results of operations, cash flow or financial
condition could be materially and adversely affected.
The transition away from the LIBOR reference rate to an alternative reference rate may create uncertainty in
the capital markets and may negatively impact the value of existing LIBOR based financial instruments. Post
transition alternative reference rates may perform significantly different than LIBOR.
The London Interbank Offered Rate, or LIBOR, has historically served as a global benchmark for determining interest
rates on commercial and consumer loans, bonds, derivatives and numerous other financial instruments. U.S. Dollar
(USD) LIBOR is the reference rate for most of our variable rate student loans, bonds, asset-backed securities (ABS),
other financing facilities, and derivatives (financial instruments). All new variable rate private education loans issued
since December 2021 are indexed to the Secured Overnight Financing Rate (SOFR). Also, as of December 31, 2021,
we have ceased entering into any other new contracts that are indexed to LIBOR. See “Quantitative and Qualitative
Disclosures about Market Risk — Interest Rate Sensitivity Analysis — LIBOR Transition” for further discussion on our
LIBOR transition. On July 27, 2017, the Chief Executive Officer of the United Kingdom Financial Conduct Authority
(the FCA) announced that by the end of 2021, LIBOR would no longer be sustained through the FCA’s efforts to
compel banks’ participation in setting the benchmark. On March 5, 2021, the ICE Benchmark Administration Limited
(the IBA), which took over administration of LIBOR on February 1, 2014, published the results of a consultation
confirming its intention to cease the publication of (i) EUR, CHF, JPY and GBP LIBOR for all tenors and one-week
and two-month USD LIBOR immediately following the publication of such rates on December 31, 2021, and (ii) the
remaining USD LIBOR rates, including one-month and three-month LIBOR, immediately following the publication of
such rates on June 30, 2023. Also on March 5, 2021, the FCA announced that it does not intend to sustain LIBOR by
requiring panel banks to continue providing quotations of LIBOR beyond the dates for which they have notified their
departure from IBA’s LIBOR quotation scheme, or to require IBA to publish LIBOR beyond such dates. As a result,
immediately after December 31, 2021 and June 30, 2023, respectively, LIBOR will either cease to be published by
any benchmark administrator or no longer be representative of the underlying market and economic reality that the
rates are intended to measure. As of January 1, 2022, publication of one-week and two-month USD LIBOR has
ceased, and regulated U.S. financial institutions are no longer permitted to enter into new contracts referencing any
LIBOR rates.
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As of December 31, 2021, we had approximately $172 billion notional of financial instruments indexed to USD one-
month or three-month LIBOR, approximately $110 billion of which will mature after June 30, 2023. A significant
amount of these financial instruments do not include provisions clearly specifying a method for transitioning from
LIBOR to an alternative benchmark rate. Further, our financial instruments may require changes to documentation as
well as enhancements and modifications to systems, controls, procedures and models, which could present
operational and legal challenges for us and our customers, investors and counterparties. There can be no assurance
that we will be able to modify all existing financial instruments before the discontinuation of LIBOR. For some of these
financial instruments like our ABS, it may be impractical or impossible to modify such instruments due to stringent
noteholder consent requirements. Additionally, for the Special Allowance Payment (SAP) paid on our FFELP Loans
by ED, legislative action is necessary to modify the SAP formula, which is currently indexed to one-month LIBOR, to
be indexed to an alternative benchmark rate. If such financial instruments are not remediated to provide a method for
transitioning from LIBOR to an alternative benchmark rate, the New York state LIBOR legislation and proposed
federal legislation related to the LIBOR transition may provide legal protection against litigation and statutory
solutions to implement an alternative benchmark rate. Although the Alternative Reference Rates Committee (the
ARRC) has recommended SOFR as the alternative benchmark rate for LIBOR, there is uncertainty as to whether
SOFR will gain widespread market acceptance. As a result, it is difficult to predict the impact that the cessation of
LIBOR would have on the value and performance of our existing financial instruments and whether a transition to an
alternative benchmark rate will be similar to or produce a return that is the economic equivalent of LIBOR. These
uncertainties regarding the possible cessation of LIBOR or their resolution could have a material adverse impact on
our funding costs, net interest margin, loan and other asset values, asset-liability management strategies, operations,
and other aspects of our business and financial results.
For more information regarding the actions we have taken with respect to the LIBOR transition, see “Quantitative and
Qualitative Disclosures about Market Risk — Interest Rate Sensitivity Analysis — LIBOR Transition.”
Higher or lower than expected prepayments of loans could change the expected net interest income we
receive as the holder of the Residual Interests of securitization trusts holding education loans or cause the
bonds issued by a securitization trust to be paid at a different speed than originally anticipated. These
factors could materially alter our net interest margin or the value of our Residual Interests.
The rate at which borrowers prepay their loans can have a material impact on our net interest margin and the value of
our Residual Interests. Prepayment rates and levels are subject to a variety of economic, competitive and other
factors, including changes in our competitors’ business strategies, changes in interest rates, availability of alternative
financings (including refinance and consolidations), legislative and regulatory changes affecting the education loan
market and the general economy. FFELP Loans and Private Education Loans may be voluntarily prepaid without
penalty by the borrower, refinanced or consolidated with the borrower’s other loans through refinancing. Refinance
products offered by us and our competitors may increase the repayment rate on our FFELP Loans and Private
Education Loans.
FFELP Loans may also be repaid after default by the Guarantors of FFELP Loans. Conversely, borrowers might not
choose to prepay their education loans, or the terms of the education loans may be extended as a result of grace
periods, deferment periods, income-driven repayment plans or other repayment terms or monthly payment amount
modifications agreed to by the servicer, for example. FFELP Loan borrowers may be eligible for various existing
income-based repayment programs under which borrowers can qualify for reduced or zero monthly payment or even
debt forgiveness after a certain number of years of repayment.
While we anticipate some variability in prepayment levels, extraordinary or extended increases or decreases in
prepayment rates could materially affect our liquidity, interest income, net interest margin and the value of our
Residual Interests. Additionally, a prolonged introduction of significant amounts of subsidized funding into the Private
Education Loan market at below market interest rates — whether from federal or private sources — could increase
the prepayment rates of our existing Private Education Loans and have a material adverse effect on our business,
results of operations and cash flows. When, as a result of unanticipated prepayment levels, education loans within a
securitization trust amortize faster than originally contracted, the trust’s pool balance may decline at a rate faster than
the prepayment rate assumed when the trust’s bonds were originally issued. If the trust’s pool balance declines faster
than originally anticipated, in most of our securitization structures, the bonds issued by that trust will also be repaid
faster than originally anticipated. In such cases, our net interest income may decrease and the value of any retained
Residual Interest in the trust may similarly decline.
Conversely, when education loans within a securitization trust amortize more slowly than originally contracted, the
trust’s pool balance may decline more slowly than the prepayment rate assumed when the trust’s bonds were
originally issued, and the bonds may be repaid more slowly than originally anticipated. In these cases, our net interest
income increases and the value of any retained Residual Interest in the trust may increase. In addition, if the
prepayment rate is especially slow and certain rights of the sellers or the servicer are not exercised or are insufficient
or other action is not taken to counter the slower prepayment rate, the trust’s bonds may not be repaid by their legal
final maturity date(s), which could result in an event of default under the underlying securitization agreements.
Prepayments on education loans may increase as a result of many factors which include current and future initiatives
by ED, or by Congress; future laws, executive orders or other policy statements to encourage or force consolidation,
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abolish existing or create additional income-based repayment or debt forgiveness programs or establish other
policies and programs. For example, in October 2021, ED announced a set of policy changes and released proposed
negotiated rulemaking proposals relating to the Public Service Loan Forgiveness program under its Direct Loan
program, which may result in an increase in consolidations of FFELP loans into Direct Loans held by ED (which
results in the loan no longer being on our balance sheet). While, based on our current projections we do not
anticipate that the new ED policy will have a material impact on the value of the portfolios, we cannot provide any
assurance that future legislative, regulatory or executive actions will not have a material impact on prepayments.
Our unhedged Floor Income is dependent on the future interest rate environment and therefore is variable,
which may adversely affect our earnings.
FFELP Loans disbursed before April 1, 2006 generally earn interest at the higher of either the borrower rate, which is
fixed over a period of time, or a floating rate based on a Special Allowance Payment or SAP formula set by ED. We
have generally financed our FFELP Loans with floating rate debt whose interest is matched closely to the floating
nature of the applicable SAP formula. Historically, these loans have been indexed to either the Treasury bill,
commercial paper or one-month LIBOR rates. If a decline in interest rates causes the borrower rate to exceed the
SAP formula rate, we will continue to earn interest on the loan at the fixed borrower rate while the floating rate
interest on our debt will continue to decline. The additional spread earned between the fixed borrower rate and the
SAP formula rate is referred to as “Floor Income.” The replacement of LIBOR as a benchmark rate may have a
further detrimental impact on our LIBOR-indexed debt if rates suddenly rise as new market borrowing activity
transfers to other benchmark rates. Depending on the type of FFELP Loan and when it was originated, the borrower
rate is either fixed to term or is reset to a market rate on July 1 of each year. For loans where the borrower rate is
fixed to term, we may earn Floor Income for an extended period of time; for those loans where the borrower interest
rate is reset annually on July 1, we may earn Floor Income to the next reset date. In accordance with legislation
enacted in 2006, holders of FFELP Loans are required to rebate Floor Income to ED for all FFELP Loans disbursed
on or after April 1, 2006.
Floor Income can be volatile as market rates and the rates on the underlying education loans move up and down.
Subject to prevailing market conditions, we generally hedge this risk by using derivatives in an effort to lock in a
portion of our Floor Income over the term of the contract. A rise in interest rates will reduce the amount of Floor
Income received on the FFELP Loans not presently hedged with derivatives, which will compress our net interest
margins. Additionally, net interest margins can be negatively impacted by unusual variances between one-month and
three-month LIBOR.
Our credit ratings are important to our liquidity. A reduction in our credit ratings could adversely affect our
liquidity, increase our borrowing costs or limit our access to the capital markets.
As of December 31, 2021, Moody’s, S&P and Fitch rated our long-term unsecured debt below investment grade. In
addition, the capital markets for sub-investment grade companies are not as liquid as those involving investment
grade entities. These factors have resulted in a higher cost of funds for us and have caused our senior unsecured
debt to trade with greater volatility.
Our unsecured debt totaled $7.0 billion at December 31, 2021. We utilize the unsecured debt markets to help fund
our business and refinance outstanding debt. The amount, type and cost of this funding directly affects the cost of
operating our business and growing our assets and is dependent upon outside factors, including our credit rating from
rating agencies. There can be no assurance that our credit ratings will not be reduced further. A reduction in the
credit ratings of our senior unsecured debt could adversely affect our liquidity, increase our borrowing costs, limit our
access to the capital markets and place incremental pressure on net interest income.
Adverse market conditions or an inability to effectively manage our liquidity risk could negatively impact our
ability to meet our liquidity and funding needs, which could materially and adversely impact our results of
operations, cash flow or financial condition.
We must effectively manage our liquidity risk. We require liquidity to meet cash requirements such as day-to-day
operating expenses, origination of loans, required payments of principal and interest on borrowings, and distributions
to shareholders. We expect to fund our ongoing liquidity needs, including the repayment of $7.0 billion of senior
unsecured notes that mature in 2023 to 2043, primarily through our current cash, investments and unencumbered
FFELP Loan and Private Education Refinance Loan portfolios, the predictable operating cash flows provided by
operating activities, the repayment of principal on unencumbered education loan assets, and the distribution of
overcollateralization from our securitization trusts. We may also, depending on market conditions and availability,
draw down on our secured FFELP Loan and Private Education Loan facilities, issue term ABS, enter into additional
Private Education Loan ABS repurchase facilities, or issue additional unsecured debt. We may maintain too much
liquidity, which can be costly, or may be too illiquid, which could result in financial distress during times of financial
stress or capital market disruptions.
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The interest rate characteristics of our earning assets do not always match the interest rate characteristics of
our funding arrangements, which may have a negative impact on our net interest income and net income.
Net interest income is the primary source of cash flow generated by our portfolios of FFELP Loans and Private
Education Loans. At the present, interest earned on FFELP Loans and variable rate Private Education Loans is
primarily indexed to one-month LIBOR or Prime Rate. Starting in May 2021, in preparation for the cessation of one-
month LIBOR in July 2023, interest earned on certain newly originated variable rate Private Education Loans began
to be indexed to one-month SOFR, with interest earned on all newly originated variable rate Private Education Loans
being indexed to one-month SOFR by December 2021. In contrast, certain of our debt is indexed to rates other than
one-month LIBOR, Prime Rate or one-month SOFR, or if indexed to one-month LIBOR, it has a different repricing
frequency.
The different interest rate characteristics of our loan portfolios and the liabilities funding these loan portfolios result in
basis risk and repricing risk. It is not economically feasible to hedge all of our exposure to such risks. While the asset
and hedge indices are short-term with rate movements that are typically highly correlated, there can be no assurance
that the historically high correlation will not be disrupted by capital market dislocations or other factors not within our
control. There have been situations in the past in which we experienced widening spreads between one-month and
three-month LIBOR and the cost of hedging this variance was prohibitive. Additionally, as we transition away from
LIBOR, there may be further basis risk and repricing risk as a result of new SOFR-based indices being instituted in
our loan portfolios and liabilities due to the varying performance and functionality of certain SOFR-based indices
compared to LIBOR-based indices and other SOFR-based indices. We cannot provide any assurance that such a
situation will not occur and if it did occur, it would potentially reduce our net interest margins and net income. In these
circumstances, our earnings could be materially adversely affected.
Our use of derivatives to manage interest rate and foreign currency sensitivity exposes us to credit and
market risk that could have a material adverse effect on our earnings and liquidity.
We strive to maintain an overall strategy that uses derivatives to minimize the economic effect of interest rate and/or
foreign currency changes. However, developing an effective strategy for dealing with these movements is complex,
and no strategy can completely avoid the risks associated with these fluctuations. For example, our education loan
portfolio is subject to prepayment risk that could result in being under- or over-hedged, which could result in material
losses. As a result, there can be no assurance that hedging activities using derivatives will effectively manage our
interest rate or foreign currency sensitivity, have the desired beneficial impact on our results of operations or financial
condition or not adversely impact our liquidity.
Our use of derivatives also exposes us to market risk and credit risk. Market risk is the chance of financial loss
resulting from changes in interest rates, foreign exchange rates and market liquidity. Our Floor Income Contracts and
basis swaps we use to manage earnings variability caused by different reset characteristics on interest-earning
assets and interest-bearing liabilities do not qualify for hedge accounting treatment. Therefore, the change in fair
value, called the “mark-to-market,” of these derivative instruments is included in our statement of income without a
corresponding mark-to-market of the economically hedged item. A decline in the fair value of these derivatives could
have a material adverse effect on our reported earnings. In addition, a change in the mark-to-market value of these
instruments may cause us to have to post more collateral to our counterparty or to a clearing house. If these values
change significantly, the increased collateral posting requirement could have a material adverse impact on our
liquidity.
Credit risk is the risk that a counterparty will not perform its obligations under a contract. Credit risk is limited to the
loss of the fair value gain in a derivative that the counterparty or clearinghouse owes or will owe in the future to us. If
a counterparty or clearinghouse fails to perform its obligations, we could, depending on the type of counterparty
arrangement, experience a loss of liquidity or an economic loss. In addition, we might not be able to cost effectively
replace the derivative position depending on the type of derivative and the current economic environment.
Our securitization trusts, which we consolidate on our balance sheet, had $2.1 billion of Euro denominated bonds
outstanding as of December 31, 2021. To convert these non-U.S. dollar denominated bonds into U.S. dollar liabilities,
the trusts have entered into foreign-currency swaps with highly rated counterparties. A failure by a swap counterparty
to perform its obligations could, if the swap has a positive fair value to us and was not adequately collateralized,
materially and adversely affect our earnings.
OPERATIONAL RISKS.
If we do not effectively and continually align our cost structure with our business operations, our results of
operations and financial condition could be materially adversely affected.
We continually need to align our cost structure with our business operations. The ability to properly size our cost
structure is dependent upon a number of variables, including our ability to successfully execute on our business plans
and growth initiatives and future legislative or regulatory changes. If we undertake cost reductions based on our
business plan, those reductions could be too dramatic and could cause disruptions in our business, reductions in the
quality of the services we provide or cause us to fail to comply with applicable regulatory standards. Alternatively, we
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may fail to implement, or be unable to achieve, necessary cost savings commensurate with our business and
prospects. In either case, our business, results of operations and financial condition could be adversely affected.
A failure of our operating systems or infrastructure could disrupt our business, cause significant losses,
result in regulatory action or damage our reputation.
A failure of our operating systems or infrastructure could disrupt our business. Our business is dependent on the
ability to process and monitor large numbers of daily transactions in compliance with contractual, legal and regulatory
standards and our own product specifications, both currently and in the future. In the past, we have entered into
strategic agreements with a third party to become the primary provider of technology solutions for servicing our
FFELP loans and our Private Education Loans. We, however, still maintain the technology solutions for our other
lines of business as well as our customer interactive infrastructure. As our processing demands and loan portfolios
change, both in volume and in terms and conditions, our ability to develop and maintain our operating systems and
infrastructure may become increasingly challenging. There is no assurance that we have adequately or efficiently
developed, maintained, acquired or scaled such systems and infrastructure or will do so in the future.
The servicing, financial, accounting, data processing and other operating systems and facilities that support our
business may fail to operate properly or become disabled as a result of events that are beyond our control, adversely
affecting our ability to timely process transactions. Any such failure could adversely affect our ability to service our
clients and result in financial loss or liability to our clients, disrupt our business, and result in regulatory action or
cause reputational damage.
Additionally, since the onset of the COVID-19 pandemic, we have drastically modified the manner in which we
conduct our business. We have expanded our work-from-home capabilities and implemented best practices for safety
and hygiene to protect those who are unable to work remotely. While most of our operations can be performed
remotely and are operating effectively at the present, there is no guarantee that this will continue or that we will
continue to be as effective while working remotely.
Despite the plans and facilities we have in place, our ability to conduct business may be adversely affected by a
prolonged disruption in the infrastructure that supports our business. This may include a disruption involving
electrical, communications, Internet, transportation or other services used by us or third parties with which we
conduct business. Despite the steps we have taken to transition to a new working environment, we may experience
increased costs and/or disruption as we adapt to hybrid work models and the evolving realities of the workplace.
We depend on secure information technology, and a breach of our information technology systems could
result in significant losses, disclosure of confidential customer information and reputational damage, which
would adversely affect our business.
Our operations rely on the secure processing, storage and transmission of personal, confidential and other
information in our computer systems and networks. Although we take protective measures we deem reasonable and
appropriate, our computer systems, software and networks may be vulnerable to unauthorized access, computer
viruses, malicious attacks and other events that could have a security impact beyond our control. These technologies,
systems and networks, and those of third parties, may become the target of cyber-attacks or information security
breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our
customers’ confidential, proprietary and other information, or otherwise disrupt our business operations or those of
our customers or other third parties. Information security risks for institutions that handle large numbers of financial
transactions on a daily basis such as Navient have generally increased in recent years, in part because of the
proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial
transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, activists and other
external parties. In addition, our increased use of mobile and cloud technologies could heighten these and other
operational risks, and any failure by mobile or cloud technology service providers to adequately safeguard their
systems and prevent cyber-attacks could disrupt our operations and result in misappropriation, corruption or loss of
confidential or propriety information. Moreover, the loss of confidential customer identification information could harm
our reputation, result in the termination of contracts by our existing customers and subject us to liability under state,
federal and international laws that protect confidential personal data, resulting in increased costs, loss of revenues
and substantial penalties. The California Consumer Privacy Act (CCPA) took effect in January 2020 and provides for
enhanced consumer protections for California residents and statutory fines for data security breaches or other CCPA
violations.
If one or more of such events occur, personal, confidential and other information processed and stored in, and
transmitted through, our computer systems and networks could be jeopardized or could cause interruptions or
malfunctions in our operations that could result in significant losses or reputational damage. We routinely transmit
and receive personal, confidential and proprietary information, some of it through third parties. We maintain secure
transmission capability and work to ensure that third parties follow similar procedures. Nevertheless, an interception,
misuse or mishandling of personal, confidential or proprietary information being sent to or received from a customer
or third party could result in legal liability, regulatory action and reputational harm. In the event personal, confidential
or other information is jeopardized, intercepted, misused or mishandled, we may need to expend significant additional
resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and
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we may be subject to fines, penalties, litigation and settlement costs and financial losses that may either not be
insured against or not be fully covered through insurance. If one or more of such events occur, our business, financial
condition or results of operations could be significantly and adversely affected.
We depend on third parties for a wide array of services, systems and information technology applications,
and a breach or violation of law by one of these third parties could disrupt our business or provide our
competitors with an opportunity to enhance their position at our expense.
We depend on third parties for a wide array of services, systems and information technology applications. Third-party
vendors are significantly involved in many aspects of our software and systems development, servicing systems, the
timely transmission of information across our data communication network, and for other telecommunications,
processing, remittance and technology-related services in connection with our servicing or payment services
businesses. In addition to technology applications, we also utilize various third-party debt collectors in the collection
of defaulted Private Education Loans and in other areas. If a service provider fails to provide the services required or
expected, or fails to meet applicable contractual or regulatory requirements such as service levels or compliance with
applicable laws, the failure could negatively impact our business by adversely affecting our ability to process
customers’ transactions in a timely and accurate manner, otherwise hampering our ability to serve our customers, or
subjecting us to litigation and regulatory risk for matters as diverse as poor vendor oversight or improper release or
protection of personal information. Such a failure could also adversely affect the perception of the reliability of our
networks and services and the quality of our brands, which could materially adversely affect our business and results
of operations.
Our work with government clients exposes us to additional risks inherent in the government contracting
environment.
Our clients include federal, state and local governmental entities. This work carries various risks inherent in the
government contracting process. These risks include, but are not limited to, the following:
• Government contractors are sometimes affected by the political or budgetary processes of the United
States government. Sometimes the political process leads to government shutdown of all parts of the
federal or state government. This can lead to temporary work stoppages or payment delays. Contracts
may be cancelled or altered due to political or policy priorities.
• Government entities in the United States often reserve the right to audit contract costs and conduct
inquiries and investigations of business practices. These entities also conduct reviews and investigations
and make inquiries regarding systems, including systems of third parties, used in connection with the
performance of the contracts. Negative findings from audits, investigations or inquiries could affect the
contractor’s future revenues and profitability by preventing them, by operation of law or in practice, (i) from
receiving new government contracts for some period of time or (ii) from being paid at the rate they believe
is warranted.
•
If improper or illegal activities are found in the course of government audits or investigations, the contractor
may become subject to various civil and criminal penalties, including those under the civil U.S. False
Claims Act. Additionally, we may be subject to administrative sanctions, which may include termination or
non-renewal of contracts, forfeiture of profits, suspension of payments, fines and suspensions or
debarment from doing business with other agencies of that government. Due to the inherent limitations of
internal controls, it may not be possible to detect or prevent all improper or illegal activities.
The occurrences or conditions described above could affect not only our business with the particular government
entities involved, but also our business or potential future business with other entities of the same or other
governmental bodies or with commercial clients and could have a material adverse effect on our business or our
results of operations.
Our business could be negatively impacted as a result of shareholder activism, including a proxy contest or
an unsolicited takeover proposal.
We have been and may continue to be the subject of actions taken by activist shareholders. While we strive to
maintain constructive, ongoing communications with all of our shareholders, and welcome their views and opinions
with the goal of enhancing value for all shareholders, we may be subject to actions or proposals from activist
shareholders that may not align with our business strategies or the interests of our other shareholders. For example,
in December 2021, our Board of Directors adopted a short-term rights plan (Rights Plan) and declared a dividend
distribution of one preferred share purchase right on each outstanding share of common stock. The Rights Plan is
designed to protect shareholder interests by reducing the likelihood that any person or group would gain control of the
Company through the open-market accumulation of the Company’s shares without appropriately compensating our
shareholders for control. Responding to such actions may be costly and time-consuming, disrupt our business and
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operations, or divert the attention of our board of directors, management, and employees from the pursuit of our
business strategies. Such activities could interfere with our ability to execute our strategic plan.
Even if we are successful in a proxy contest or in defending against any unsolicited takeover attempt, our business
could be adversely affected by any such proxy contest or unsolicited takeover attempt because:
•
•
•
perceived uncertainties as to future direction may result in the loss of potential acquisitions, collaborations
or other strategic opportunities, and may make it more difficult to attract and retain qualified personnel and
business partners;
if individuals are elected or appointed to our board of directors with a specific agenda, it may adversely
affect our ability to effectively and timely implement our strategic plan and create additional value for our
shareholders; and
if individuals are elected or appointed to our board of directors who do not agree with our strategic plan,
the ability of our board of directors to function effectively could be adversely affected, which could in turn
adversely affect our business, operating results and financial condition.
Uncertainties related to, or the results of, such actions could cause our stock price to experience periods of volatility.
The occurrence of any of the foregoing events could materially adversely affect our business.
We cannot predict, and no assurances can be given, as to the outcome or timing of any matters relating to the
foregoing actions by shareholders or the ultimate impact on our business, liquidity, financial condition or results of
operations, and any of these matters or any further actions by this or other shareholders may impact and result in
volatility or stagnation of the price of our stock.
REGULATORY, COMPLIANCE & LEGAL RISK.
Our businesses are subject to a wide variety of laws, rules, regulations and government policies that may
change in significant ways, and changes to such laws and regulations or changes in existing regulatory
guidance or their interpretation or enforcement could materially adversely impact our business and results
of operations.
Our businesses are subject to a wide variety of U.S. federal and state and non-U.S. laws, rules, regulations and
policies. There can be no assurance that these laws, rules, regulations and policies will not be changed in ways that
will require us to modify our business models or objectives or in ways that affect our returns on investment by
restricting existing activities or services, change how our companies operate or the characteristics of our assets,
subjecting them to escalating costs or new or increased taxes or prohibiting them outright.
The CFPB has authority with respect to several aspects of our business. It has authority to write regulations under
federal consumer financial protection laws and to directly or indirectly enforce those laws and examine us for
compliance. The CFPB also has examination and enforcement authority with respect to various federal consumer
financial laws for some providers of consumer financial products and services, including us. New rules if
implemented, could have a material effect on our consumer lending or asset recovery businesses and may result in
significant capital expenditures to develop systems that enable us to comply with the new regulations.
The CFPB is authorized to impose monetary penalties, collect fines and provide consumer restitution in the event of
violations, engage in consumer financial education, track consumer complaints, request data and promote the
availability of financial services to underserved consumers and communities. The CFPB has authority to bring an
action to prevent unfair, deceptive or abusive acts or practices and to ensure that all consumers have access to fair,
transparent and competitive markets for consumer financial products and services. The review of products and
practices to prevent unfair, deceptive or abusive conduct will be a continuing focus of the CFPB. The ultimate impact
of this heightened scrutiny is uncertain, but it has resulted in, and could continue to result in, changes to pricing,
practices, products and procedures. It has also resulted in, and could continue to result in, increased costs related to
regulatory oversight, supervision and examination, additional remediation efforts and possible penalties.
In addition, where a company has violated Title X of the Dodd-Frank Act or CFPB regulations implemented under
Title X of the Dodd-Frank Act, the Dodd-Frank Act empowers State Attorneys General and state regulators, under
certain circumstances to bring civil actions to remedy violations of state law. If the CFPB or one or more State
Attorneys General or state regulators believe that we have violated any of the applicable laws or regulations, they
could exercise their enforcement powers in ways that could have a material adverse effect on us or our business.
The CFPB filed an action against us in January of 2017 which is currently pending. A description of the CFPB action
is included in the Commitments, Contingencies and Guarantees section of this Form 10-K. Also, in January 2022, we
entered into a series of Consent Judgment and Orders (the “Agreements”) with 40 State Attorneys General to resolve
all matters in dispute related to the certain state attorneys general cases as well as the related investigations,
subpoenas, civil investigative demands and inquiries from various other state regulators. For a description of the
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terms of the Agreements, please refer to Exhibit 10.24 or “Note 12 – Commitments, Contingencies and Guarantees”
of this Form 10-K.
Our FFELP loans are subject to the HEA and related laws, rules, regulations and policies. Our servicing operations
are designed and monitored to comply with the HEA, related regulations and program guidance; however, ED could
determine that we are not in compliance for a variety of reasons, including that we misinterpreted ED guidance or
incorrectly applied the HEA and its related laws, rules, regulations and policies. Failure to comply could result in fines,
the loss of the insurance and related federal guarantees on affected FFELP Loans, expenses required to cure
servicing deficiencies, suspension or termination of our right to participate as a FFELP servicer, negative publicity
and potential legal claims. The imposition of significant fines, the loss of the insurance and related federal guarantees
on a material number of FFELP Loans, the incurrence of additional expenses and/or the loss of our ability to
participate as a FFELP servicer could individually or in the aggregate have a material, negative impact on our
business, financial condition or results of operations.
Our businesses are also subject to regulation and oversight by various state and federal agencies, particularly in the
area of consumer protection, and are subject to numerous state and federal laws and regulations. Several states
have passed or proposed student loan servicing rules or legislation and several others have imposed license
requirements. Imposition of new laws, rules or regulations or the failure to comply with these laws and regulations
may result in significant costs, including litigation costs, and/or business sanctions including but not limited to
termination or non-renewal of contracts.
Expanded regulatory and governmental oversight of our businesses will increase our costs and risks.
We are now, and may in the future be subject, to inquiries and audits from state and federal regulators as well as
litigation from private plaintiffs. In recent years, we have entered into consent orders and other settlements. We have
provided monetary and other relief in connection with the resolution of some of these actions and settlements. We
have also enhanced our procedures and controls, expanded the risk and control functions within each line of
business, invested in technology and hired additional risk, control and compliance personnel.
If our risk and control procedures and processes fail to meet the heightened expectations of our regulators and other
government agencies, we could be required to enter into further orders and settlements, provide additional monetary
relief, or accept material regulatory restrictions on our businesses, which could adversely affect our operations and, in
turn, our financial results.
We expect heightened regulatory scrutiny and governmental investigations and enforcement actions to continue for
us and for the financial services industry as a whole. Such actions can have significant consequences for a financial
institution such as ours, including loss of customers and business and the inability to operate certain businesses.
Further, legislative and regulatory responses to COVID-19 have had a significant impact on our education loan
portfolios. In compliance with the CARES Act and related executive actions, payments and interest accrual on all
loans owned by ED were suspended until May 1, 2022 and may be further suspended after such date. While the
CARES Act applies only to loans owned by ED and we no longer act as the servicer for these loans, several states
have requested creditors and servicers to suspend payment obligations for other student loan borrowers in those
states. Additionally, in response to the pandemic, ED and other federal and state regulators have announced various
restrictions around the servicing and collection of consumer debts and some of these restrictions have been extended
multiple times.
Due to the uncertainty engendered by these new regulations, legislation, guidance and actions, coupled with the
likelihood of additional changes or additions to the local, state and federal statutes, regulations and practices
applicable to our business, we are not able to estimate the ultimate impact of changes in law on our financial results,
business operations or strategies. We believe that the cost of responding to and complying with these evolving laws
and regulations, as well as any guidance from enforcement actions, will continue to increase, as will the risk of
penalties and fines from any enforcement actions that may be imposed on our businesses. Our profitability, results of
operations, financial condition, cash flows or future business prospects could be materially and adversely affected as
a result.
GOVERNANCE RISK.
Certain provisions of Delaware law and our amended and restated certificate of incorporation and amended
and restated by-laws may prevent or delay an acquisition of us, which could decrease the trading price of
our common stock.
Certain provisions of Delaware law and of our amended and restated certificate of incorporation and second
amended and restated by-laws are intended to deter coercive takeover practices and inadequate takeover bids by,
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among other things, encouraging prospective acquirers to negotiate directly with our board of directors rather than to
attempt a hostile takeover. These provisions include, among others:
•
•
•
•
•
•
limitations on the ability of our shareholders to call a special meeting such that shareholder-requested
special meetings will only be called upon the request of the holders of at least one-third of our capital stock
issued and outstanding and entitled to vote at an election of directors;
rules regarding how shareholders may present proposals or nominate directors for election at shareholder
meetings;
the right of our board of directors to issue one or more series of preferred stock without shareholder
approval;
the inability of our shareholders to fill vacancies on our board of directors;
the requirement that the affirmative vote of the holders of at least 75% in voting power of our stock entitled
to vote thereon is required for shareholders to amend our amended and restated by-laws; and
the inability of our shareholders to cumulate their votes in the election of directors.
In addition, in December 2021, our Board of Directors adopted a short-term rights plan (Rights Plan) and declared a
dividend distribution of one preferred share purchase right on each outstanding share of common stock. The Rights
Plan is designed to protect shareholder interests by reducing the likelihood that any person or group would gain
control of the Company through the open-market accumulation of the Company’s shares without appropriately
compensating our shareholders for control. The rights will be exercisable only if a person or group acquires beneficial
ownership of 20% or more of Navient common stock (including certain derivative positions), subject to certain
exceptions. See “Note 9 – Stockholders’ Equity” for further discussion. In addition to the Rights Plan, we are subject
to Section 203 of the Delaware General Corporation Law. Section 203 generally provides that, with limited
exceptions, persons who acquire, or are affiliated with a person that acquires, 15% or more of the outstanding voting
stock of a Delaware corporation shall not engage in any business combination with that corporation, including by
merger, consolidation or acquisitions of additional shares, for a three-year period following the time at which that
person or its affiliates becomes the holder of 15% or more of the corporation’s outstanding voting stock. Being subject
to Section 203 and our adoption of the Rights Plan could cause a delay in or completely prevent a change of control
that shareholders may favor.
We believe these provisions protect our shareholders from coercive or otherwise unfair takeover tactics by requiring
potential acquirers to negotiate with our board of directors and by providing our board of directors with more time to
assess any acquisition proposal. These provisions are not intended to make us immune from takeovers. However,
these provisions will apply even if the offer may be considered beneficial by some shareholders and could delay or
prevent an acquisition that our board of directors determines is not in the best interests of us and our shareholders.
Shareholders’ percentage ownership in Navient may be diluted in the future.
In the future, shareholders’ percentage ownership in Navient may be diluted as a result of equity issuances for
acquisitions, capital market transactions or otherwise, including future equity awards that we may grant to our
directors, officers and employees. If made, these awards will have a dilutive effect on our earnings per share, which
could adversely affect the market price of shares of our common stock.
In addition, our amended and restated certificate of incorporation permits us to issue, without the approval of our
shareholders, one or more series of preferred stock. Our board of directors generally may determine the rights of
preferred shareholders including their powers, preferences and relative, participating, optional and other special
rights, including preferences over our common stock with respect to dividends and distributions. If our board were to
approve the issuance of preferred stock in the future, the terms of one or more series of such preferred stock could
dilute the voting power or reduce the value of our common stock. For example, we could grant the holders of
preferred stock the right to elect some number of our directors in all circumstances or upon the happening of
specified events, or the right to veto specified transactions. Similarly, we could grant the preferred shareholders
certain repurchase or redemption rights or liquidation preferences that could affect the value of the common stock.
Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive
forum for certain litigation that may be initiated by our shareholders, which could limit our shareholders’
ability to obtain a favorable judicial forum for disputes with us.
Our certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the sole and
exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of
breach of a fiduciary duty owed to us or our shareholders by any of our directors, officers, employees or agents,
(iii) any action asserting a claim against us arising under the General Corporation Law of the State of Delaware
(DGCL) or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine. By becoming a
shareholder in our company, holders of our common stock will be deemed to have notice of and have consented to
the provisions of our amended and restated certificate of incorporation related to choice of forum. The choice of forum
provision in our amended and restated certificate of incorporation may limit our shareholders’ ability to obtain a
favorable judicial forum for disputes with us.
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REPUTATIONAL/POLITICAL RISK.
Reputational risk and social factors may impact our results and damage our brand.
Negative public opinion or damage to our brand could occur as a result of actual or alleged conduct in any number of
activities or circumstances, including lending practices, regulatory compliance, security breaches (including the use
and protection of customer information), corporate governance, and sales and marketing, and from actions taken by
regulators or other persons. Such conduct could fall short of our customers’ and the public’s heightened expectations
of companies of our size with rigorous data, privacy and compliance practices, and could further harm our reputation.
In addition, third parties with whom we have important relationships may take actions over which we have limited
control that could negatively impact perceptions about us or the financial services industry. The proliferation of social
media may increase the likelihood that negative public opinion from any of the events discussed above will impact our
reputation and business.
RISKS ASSOCIATED WITH OUR SPIN-OFF.
Navient owes obligations, including service and indemnification obligations, to SLM BankCo under various
transaction agreements that were executed as part of the Spin-Off. These obligations could be materially
disruptive to Navient’s business or subject it to substantial liabilities, including contingent liabilities and
liabilities that are presently unknown.
In connection with the Spin-Off from SLM BankCo, Navient, SLM Corporation and SLM BankCo entered into various
agreements.
The separation and distribution agreement between Navient, SLM Corporation and SLM BankCo provides for, among
other things, indemnification obligations designed to make Navient financially responsible for substantially all liabilities
that may exist whether incurred prior to or after the Spin-Off, relating to the business activities of SLM Corporation
prior to the Spin-Off, other than those arising out of the consumer banking business and expressly assumed by SLM
BankCo in the separation and distribution agreement. If Navient is required to indemnify SLM BankCo under the
circumstances set forth in the separation and distribution agreement, Navient may be subject to substantial liabilities
including liabilities that are accrued, contingent or otherwise and regardless of whether the liabilities were known or
unknown at the time of the Spin-Off. SLM BankCo is party to various claims, litigation and legal, regulatory and other
proceedings resulting from ordinary business activities relating to its current and former operations. Previous
business activities of SLM BankCo, including originations and acquisitions of various classes of consumer loans
outside of Sallie Mae Bank, may also result in liability due to future laws, rules, interpretations or court decisions
which purport to have retroactive effect, and such liability could be significant. SLM BankCo may also be subject to
liabilities related to past activities of acquired businesses. It is inherently difficult, and in some cases impossible, to
estimate the probable losses associated with contingent and unknown liabilities of this nature, but future losses may
be substantial and may be borne by Navient in accordance with the terms of the separation and distribution
agreement.
STRATEGIC RISK.
Legislation passed by Congress in 2010 ended new loan originations under the FFELP program and no new
FFELP Loans are being originated, and, as a result, net income on our existing FFELP Loan portfolio is
declining over time. We may not be able to develop revenue streams to fully replace the declining revenue
from FFELP Loans.
In 2010, Congress passed legislation ending the origination of education loans under the FFELP program. Since
then, all federal education loans have been originated through the DSLP of the ED. While the 2010 law did not alter
or affect the terms and conditions of existing FFELP Loans, it significantly impacted the education loan industry. As a
result of this legislation, net income on our FFELP Loan portfolio is declining, and is anticipated to continue to decline,
over time as those existing FFELP Loans are paid down, refinanced or repaid after default.
Acquisitions or strategic investments that we pursue may not be successful and could harm our business
and financial condition.
Our growth strategy has included making opportunistic acquisitions of, or material investments in, loan portfolios and
complementary businesses and products.
All acquisitions of companies, operations or loan portfolios involve financial risks as well as operational risks. There
may be additional risks if we enter into a line of business in which we have limited experience or which operates in a
legal, regulatory or competitive environment with which we are not familiar. The expected benefits of acquisitions and
investments also may not be realized for various reasons, including the loss of key personnel, customers or vendors.
If we fail to integrate or realize the expected benefits of our acquisitions or investments, we may lose the return on
these acquisitions or investments or incur additional transaction costs, and our business and financial condition may
be harmed as a result.
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GENERAL RISK FACTORS.
Our framework for managing risks may not be effective in mitigating the risk of loss.
Our enterprise risk management framework seeks to mitigate risk and appropriately balance risk and returns. We
have established processes and procedures intended to identify, measure, monitor, control and report the types of
risk to which we are subject. We seek to monitor and control risk exposure through a framework of policies,
procedures, limits and reporting requirements. Management of risks in some cases depends upon the use of
analytical and forecasting models. If the models we use to mitigate these risks are inadequate, we may incur
increased losses. In addition, there may be risks that exist, or that develop in the future, that we have not
appropriately anticipated, identified or mitigated. If our risk management framework does not effectively identify or
mitigate risks, we could suffer unexpected losses, and our results of operations, cash flow or financial condition could
be materially adversely affected.
We are subject to various legal proceedings and some of these legal proceedings or other contingencies
may materially adversely affect our business, financial condition or results from operations.
We are subject to a variety of legal proceedings in virtually every part of our business, including the legal proceedings
described in the Legal Proceedings section of this Annual Report. While we believe we have adopted appropriate
legal and risk management and compliance programs, the diverse nature of our operations, including operations of
business we have recently acquired, means that legal and compliance risks will continue to exist and additional legal
proceedings and other contingencies, the outcome of which cannot be predicted with certainty, will arise from time to
time. Some of these legal proceedings or other contingencies may materially adversely affect our business, financial
condition or results from operations.
Incorrect estimates and assumptions by management in connection with the preparation of our consolidated
financial statements could adversely affect our reported assets, liabilities, income, revenue or expenses.
The preparation of our consolidated financial statements requires management to make critical accounting estimates
and assumptions that affect the reported amounts of assets, liabilities, income, revenue or expenses during the
reporting periods. Incorrect estimates and assumptions by management could adversely affect our reported amounts
of assets, liabilities, income, revenue and expenses during the reporting periods. If we make incorrect assumptions or
estimates, our reported financial results may be over or understated, which could materially and adversely affect our
business, financial condition and results of operations.
If we are unable to attract and retain professionals with strong leadership skills, our business, results of
operations and financial condition may be materially adversely affected.
Our success is dependent, in large part, on our ability to attract and retain personnel with the knowledge and skills to
lead our business. Experienced personnel in our industry are in high demand, and competition for talent is very high.
We must hire, retain and motivate appropriate numbers of talented people with diverse skills in order to serve our
clients, respond quickly to rapid and ongoing technology, industry and macroeconomic developments, and grow and
manage our business. As our business evolves, we must also hire and retain an increasing number of professionals
with different skills and professional expectations than those of the professionals we have historically hired and
retained. If we are unable to successfully integrate, motivate and retain these professionals, our ability to continue to
secure work in those industries and for our services and solutions may suffer.
Our businesses operate in competitive environments and could lose market share and revenues if
competitors compete more aggressively or effectively.
We compete with for-profit and not-for-profit servicing, asset recovery and business processing businesses, many
with strong records of performance. We compete based on price, effectiveness and customer service metrics. To the
extent our competitors compete aggressively or more effectively than us, we could lose market share to them or Our
service offerings may not prove to be profitable. Our business and financial condition may be harmed as a result.
64
Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Sensitivity Analysis
LIBOR Transition
We continue to work internally as well as with external parties to ensure an orderly transition from one-month and
three-month LIBOR to an alternative benchmark rate by the June 30, 2023 transition date. We have established an
internal LIBOR transition team whose purpose is to assess impacts, recommend plans and coordinate transition
efforts among different business areas. Executive management and the LIBOR transition team provide quarterly
reports to our Board of Directors. We have also established internal LIBOR working groups comprised of members
from different business areas who meet regularly to assess specific business-level impacts and to implement
operational changes necessary to effectuate a successful transition from LIBOR. In addition to our enterprise-wide
efforts, we engage with market participants, industry groups and regulators, including the ARRC, to develop plans
and documentation to facilitate the transition to an alternative benchmark rate.
We support the ARRC’s recommendation to replace LIBOR with SOFR and continue to comply with the ARRC’s
recommended best practices for completing the transition from LIBOR. All our new variable rate Private Education
Loans issued since December 2021 are indexed to SOFR. Also, as of December 31, 2021, we have ceased entering
into any other new contracts that are indexed to LIBOR and, where practicable, have engaged with counterparties to
modify certain existing contracts to transition the existing reference rate from LIBOR to SOFR. With respect to our
legacy variable rate Private Education Loans and other financial contracts that reference USD LIBOR and contain
fallbacks provisions that clearly specify a method for the transition from LIBOR, we plan to transition such loans using
such existing fallbacks. We have engaged with our IT vendors and impacted internal work groups to prepare and
update our systems, procedures and processes to transition LIBOR-indexed contracts to SOFR. With respect to our
financial instruments that do not include fallback provisions that clearly specify a method for the transition from LIBOR
to an alternative benchmark rate, where practicable and commercially reasonable, we have made efforts to engage
with customers, counterparties and investors to modify such instruments. Due to stringent noteholder consent
requirements, it may be impracticable or impossible to modify certain financial instruments like certain of our ABS.
Further, the SAP formula for our FFELP Loans, which is indexed to one-month LIBOR, cannot be modified without
legislative action. Thus, in such instances, we may need to rely on the New York state LIBOR legislation or the
proposed federal legislation to transition to SOFR. We continue to monitor developments in the LIBOR transition and
the proposed federal legislation related to the LIBOR transition to facilitate an orderly transition away from the use of
LIBOR.
For a discussion of the risks related to the LIBOR transition, see “Risk Factors – Market, Funding & Liquidity Risk –
The transition away from the LIBOR reference rate to an alternative reference rate may create uncertainty in the
capital markets and may negatively impact the value of existing LIBOR based financial instruments. Post transition
alternative reference rates may perform significantly different than LIBOR.”
65
Our interest rate risk management seeks to limit the impact of short-term movements in interest rates on our results
of operations and financial position. The following tables summarize the potential effect on earnings over the next 12
months and the potential effect on fair values of balance sheet assets and liabilities at December 31, 2021 and
December 31, 2020, based upon a sensitivity analysis performed by management assuming a hypothetical increase
and decrease in market interest rates of 100 basis points. The earnings sensitivities assume an immediate increase
and decrease in market interest rates of 100 basis points and are applied only to financial assets and liabilities,
including hedging instruments, that existed at the balance sheet date and do not take into account any new assets,
liabilities or hedging instruments that may arise over the next 12 months.
(Dollars in millions, except per share amounts)
Effect on Earnings:
Change in pre-tax net income before mark-to
-market gains (losses) on derivative and
hedging activities(1)
Mark-to-market gains (losses) on derivative and
hedging activities
Increase (decrease) in income before taxes
Increase (decrease) in net income after taxes
Increase (decrease) in diluted earnings per
common share
As of December 31, 2021
Impact on Annual Earnings
If:
Interest Rates:
As of December 31, 2020
Impact on Annual Earnings
If:
Interest Rates:
Increase
100 Basis
Points
Decrease
100 Basis
Points
Increase
100 Basis
Points
Decrease
100 Basis
Points
$
$
$
$
4 $
40 $
(40 ) $
15
73
77 $
59 $
(103 )
(63 ) $
(49 ) $
127
87 $
67 $
(171 )
(156 )
(120 )
.38 $
(.31 ) $
.36 $
(.64 )
(1) If decreasing interest rates by 100 basis points results in a negative interest rate, we assume the interest rate is 0% for this disclosure (as opposed
to being a negative interest rate).
66
(Dollars in millions)
Effect on Fair Values:
Assets
Education Loans
Other earning assets
Other assets
Total assets gain/(loss)
Liabilities
Interest-bearing liabilities
Other liabilities
Total liabilities (gain)/loss
(Dollars in millions)
Effect on Fair Values:
Assets
Education Loans
Other earning assets
Other assets
Total assets gain/(loss)
Liabilities
Interest-bearing liabilities
Other liabilities
Total liabilities (gain)/loss
At December 31, 2021
Interest Rates:
Change from
Increase of
100 Basis
Points
Fair Value
$
%
Change from
Decrease of
100 Basis
Points
$
%
$ 74,772 $
3,845
3,948
$ 82,565 $
(279 )
—
(124 )
(403 )
$ 77,040 $
1,019
$ 78,059 $
(356 )
(40 )
(396 )
— % $
—
(3 )
— % $
— % $
(4 )
(1 )% $
432
—
263
695
386
193
579
1 %
—
7
1 %
1 %
19
1 %
At December 31, 2020
Interest Rates:
Change from Increase
of
100 Basis Points
%
$
Change from Decrease
of
100 Basis Points
%
$
Fair Value
$ 81,579 $
3,822
4,227
$ 89,628 $
(419 )
—
(248 )
(667 )
(1 )% $
—
(6 )
(1 )% $
$ 83,345 $
1,020
$ 84,365 $
(373 )
(274 )
(647 )
— % $
(27 )
(1 )% $
669
—
300
969
406
358
764
1 %
—
7
1 %
— %
35
1 %
A primary objective in our funding is to minimize our sensitivity to changing interest rates by generally funding our
floating rate education loan portfolio with floating rate debt and our fixed rate education loan portfolio with fixed rate
debt although we can have a mismatch at times. In addition, we can have a mismatch in the index (including the
frequency of reset) of floating rate debt versus floating rate assets. In addition, due to the ability of some FFELP
Loans to earn Floor Income, we can have a fixed versus floating mismatch in funding if the education loan earns at
the fixed borrower rate and the funding remains floating. During 2021 and 2020, certain FFELP Loans were earning
Floor Income and we locked in a portion of that Floor Income through the use of derivative contracts. The result of
these hedging transactions was to fix the relative spread between the education loan asset rate and the variable rate
liability.
In the preceding tables, under the scenario where interest rates increase or decrease by 100 basis points, the change
in pre-tax net income before the mark-to-market gains (losses) on derivative and hedging activities is primarily due to
the impact of (i) our unhedged FFELP Loans being in a fixed-rate mode due to Floor Income, while being funded with
variable rate debt in low interest rate environments; and (ii) a portion of our variable rate assets being funded with
fixed rate liabilities. Item (i) will generally cause income to decrease when interest rates increase and income to
increase when interest rates decrease. Item (ii) has the opposite effect. The changes due to the interest rates
scenarios in the current year, in relation to each other and in relation to the prior year, are primarily a result of two
developments that occurred during 2021: (1) the 1-year LIBOR forward curve has increased significantly from the
prior year which results in less loss of Floor Income when interest rates are increased and a greater increase to Floor
Income when rates are decreased and (2) there is a larger portion of variable rate assets funded with fixed rate
liabilities as of December 31, 2021 compared to December 31, 2020. This was a purposeful strategy to take
advantage of historically low interest rates and serves as a natural hedge related to movements in rates and the
impact on Floor Income. The increase in interest rates as of December 31, 2021 is the only scenario above where the
impact from (ii) above more than offsets the impact from (i) above.
In the preceding tables, under the scenario where interest rates increase or decrease by 100 basis points, the change
in mark-to-market gains (losses) on derivative and hedging activities in 2021 and 2020 is primarily due to (i) the
notional amount and remaining term of our derivative portfolio and related hedged debt and (ii) the interest rate
67
environment. In 2021 and 2020, the mark-to-market gains (losses) are primarily related to derivatives that don’t
qualify for hedge accounting that are used to economically hedge Floor Income as well as the origination of fixed rate
Private Education Refinance loans. As a result of not qualifying for hedge accounting, there is not an offsetting mark-
to-market of the hedged item in this analysis. The mark-to-market gains (losses) where interest rates increase and
decrease 100 basis points are lower in 2021 than 2020 primarily as a result of a decline in the notional amount of
derivatives outstanding in connection with the decrease in the education loan portfolio over that time period.
In addition to interest rate risk addressed in the preceding tables, we are also exposed to risks related to foreign
currency exchange rates. Foreign currency exchange risk is primarily the result of foreign currency denominated debt
issued by us. When we issue foreign denominated corporate unsecured and securitization debt, our policy is to use
cross currency interest rate swaps to swap all foreign currency denominated debt payments (fixed and floating) to
USD LIBOR using a fixed exchange rate. In the tables above, there would be an immaterial impact on earnings if
exchange rates were to decrease or increase, due to the terms of the hedging instrument and hedged items
matching. The balance sheet interest-bearing liabilities would be affected by a change in exchange rates; however,
the change would be materially offset by the cross-currency interest rate swaps in other assets or other liabilities. In
certain economic environments, volatility in the spread between spot and forward foreign exchange rates has resulted
in mark-to-market impacts to current period earnings which have not been factored into the above analysis. The
earnings impact is noncash, and at maturity of the instruments the cumulative mark-to-market impact will be zero.
Navient has not issued foreign currency denominated debt since 2008.
Asset and Liability Funding Gap
The tables below present our assets and liabilities (funding) arranged by underlying indices as of December 31, 2021.
In the following GAAP presentation, the funding gap only includes derivatives that qualify as effective hedges (those
derivatives which are reflected in net interest margin, as opposed to those reflected in the “gains (losses) on
derivatives and hedging activities, net” line on the consolidated statements of income). The difference between the
asset and the funding is the funding gap for the specified index. This represents our exposure to interest rate risk in
the form of basis risk and repricing risk, which is the risk that the different indices may reset at different frequencies or
may not move in the same direction or at the same magnitude.
Management analyzes interest rate risk and in doing so includes all derivatives that are economically hedging our
debt whether they qualify as effective hedges or not (Core Earnings basis). Accordingly, we are also presenting the
asset and liability funding gap on a Core Earnings basis in the table that follows the GAAP presentation.
GAAP Basis
Index
(Dollars in billions)
3-month Treasury bill
3-month Treasury bill
Prime
Prime
Prime
3-month LIBOR
3-month LIBOR(2)
3-month LIBOR(2)
1-month LIBOR
1-month LIBOR
Non-Discrete reset(2)(3)
Non-Discrete reset(4)
Fixed Rate(5)
Total
Frequency of
Variable
Resets
weekly
annual
annual
quarterly
monthly
quarterly
monthly
daily
monthly
daily
monthly
daily/weekly
$
Funding(1)
Funding
Gap
Assets
$
2.6 $
.2
.2
1.5
5.3
.3
—
—
3.6
49.7
—
3.8
13.4
80.6 $
— $
—
—
—
—
24.2
.5
—
30.5
—
3.4
.2
21.8
80.6 $
2.6
.2
.2
1.5
5.3
(23.9 )
(.5 )
—
(26.9 )
49.7
(3.4 )
3.6
(8.4 )
—
(1)
(2)
(3)
(4)
(5)
Funding (by index) includes all derivatives that qualify as hedges.
Funding includes loan repurchase facilities.
Funding consists of auction rate ABS and ABCP facilities.
Assets include restricted and unrestricted cash equivalents and other overnight type instruments. Funding includes the obligation to
return cash collateral held related to derivatives exposures.
Assets include receivables and other assets (including goodwill and acquired intangibles). Funding includes other liabilities and
stockholders’ equity.
68
Core Earnings Basis
Index
(Dollars in billions)
3-month Treasury bill
3-month Treasury bill
Prime
Prime
Prime
3-month LIBOR
3-month LIBOR(2)
3-month LIBOR(2)
1-month LIBOR
1-month LIBOR
Non-Discrete reset(2)(3)
Non-Discrete reset(4)
Fixed Rate(5)
Total
Frequency of
Variable Resets Assets
Funding(1)
Funding
Gap
$
weekly
annual
annual
quarterly
monthly
quarterly
monthly
daily
monthly
daily
monthly
daily/weekly
$
2.6 $
.2
.2
1.5
5.3
.3
—
—
3.6
49.7
—
3.8
13.2
80.4 $
— $
—
—
—
—
6.4
.5
—
47.3
—
3.4
.2
22.6
80.4 $
2.6
.2
.2
1.5
5.3
(6.1 )
(.5 )
—
(43.7 )
49.7
(3.4 )
3.6
(9.4 )
—
(1)
(2)
(3)
(4)
(5)
Funding (by index) includes all derivatives that management considers economic hedges of interest rate risk and reflects how we
internally manage our interest rate exposure.
Funding includes loan repurchase facilities.
Funding consists of auction rate ABS and ABCP facilities.
Assets include restricted and unrestricted cash equivalents and other overnight type instruments. Funding includes the obligation to
return cash collateral held related to derivatives exposures.
Assets include receivables and other assets (including goodwill and acquired intangibles). Funding includes other liabilities and
stockholders’ equity.
We use interest rate swaps and other derivatives to achieve our risk management objectives. Our asset liability
management strategy is to match assets with debt (in combination with derivatives) that have the same underlying
index and reset frequency or, when economical, have interest rate characteristics that we believe are highly
correlated. Interest earned on our FFELP Loans is primarily indexed to daily one-month LIBOR and our cost of funds
is primarily indexed to rates other than daily one-month LIBOR. A source of variability in FFELP net interest income
could also be Floor Income we earn on certain FFELP Loans. Pursuant to the terms of the FFELP, certain FFELP
Loans can earn interest at the stated fixed rate of interest as underlying debt interest rate expense remains variable.
We refer to this additional spread income as “Floor Income.” Floor Income can be volatile since it is dependent on
interest rate levels. We frequently hedge this volatility with derivatives which lock in the value of the Floor Income
over the term of the contract. Interest earned on our Private Education Refinance Loans is generally fixed rate with
the related cost of funds generally fixed rate as well. Interest earned on the remaining Private Education Loans is
generally indexed to either one-month Prime or LIBOR rates and our cost of funds is primarily indexed to one-month
or three-month LIBOR. The use of funding with index types and reset frequencies that are different from our assets
exposes us to interest rate risk in the form of basis and repricing risk. This could result in our cost of funds not moving
in the same direction or with the same magnitude as the yield on our assets. While we believe this risk is low, as all of
these indices are short-term with rate movements that are highly correlated over a long period of time, market
disruptions (which have occurred in prior years) can lead to a temporary divergence between indices resulting in a
negative impact to our earnings.
69
46,000
45,000
Approximate
Square Feet
58,000
55,000
46,000
43,000
22,000
30,000
21,000
21,000
14,000
Properties
The following table lists the principal facilities owned by us as of December 31, 2021:
Location
Fishers, IN(1)
Function
Loan Servicing and Data Center
Wilkes-Barre, PA
Muncie, IN
Big Flats, NY
Arcade, NY
Loan Servicing Center
Processing Center
Pioneer Credit Recovery —
Processing Center
Pioneer Credit Recovery — Processing Center
Business Segment(s)
Federal Education Loans; Consumer Lending;
Other
Approximate
Square Feet
450,000
Federal Education Loans; Consumer Lending
Business Processing
Federal Education Loans; Business
133,000
75,400
60,000
Processing
Federal Education Loans; Business
Processing
Perry, NY
Pioneer Credit Recovery — Processing Center
Federal Education Loans; Business
Processing
The following table lists the principal facilities leased by us as of December 31, 2021:
Xtend Healthcare — Revenue Cycle Management
Business Processing; Other
Function
Business Segment(s)
Location
Hendersonville,
TN(2)
Austin, TX(3)
Wilmington, DE
Gila MSB — Business Processing
Headquarters
Herndon, VA
Administrative Offices
Milwaukee, WI
Moorestown, NJ
Duncan Solutions – Business Processing
Pioneer Credit Recovery – Processing Center
Guaynabo, PR
Irving, TX
Salt Lake City, UT
Gila MSB Puerto Rico – Business Processing
Duncan Solutions - Business Processing
Earnest – Loan Originations
Business Processing; Other
Federal Education Loans; Consumer Lending;
Business Processing; Other
Federal Education Loans; Consumer Lending;
Business Processing; Other
Business Processing Other
Federal Education Loans; Business
Processing
Business Processing; Other
Business Processing; Other
Consumer Lending, Other
(1)
(2)
(3)
Approximately 38,000 square feet leased to Fiserv (previously First Data) beginning April 2019. Approximately 32,000 square feet leased to
Pendrick beginning June 2021. Navient signed a letter of intent (LOI) in December 2021 to sell this building and lease back office and data
center space over a 10-year lease term.
Approximately 34,000 square feet was vacated and the lease for this space terminated.
Austin, TX lease facility was vacated in September 2020 and the Company took a lease abandonment charge. Lease expires September 30,
2022.
None of the facilities that we own is encumbered by a mortgage. We believe that our headquarters, loan servicing
centers, data center and other business processing centers are generally adequate to meet our long-term needs and
business goals. Our headquarters is currently in leased space at 123 Justison Street, Wilmington, Delaware, 19801.
70
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our common stock is listed and traded on the NASDAQ under the symbol NAVI. As of January 31, 2022, there were
152,132,902 shares of our common stock outstanding and 267 holders of record.
We paid quarterly cash dividends on our common stock of $0.16 per share for each quarter of 2020 and 2021.
Issuer Purchases of Equity Securities
The following table provides information relating to our purchases of shares of our common stock in the three months
ended December 31, 2021.
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans
or
Programs(2)
Approximate
Dollar
Value
of Shares that
May Yet Be
Purchased
Under
Publicly
Announced
Plans or
Programs(2)
Total
Number
of Shares
Purchased(1)
Average
Price
Paid per
Share
2.8 $
2.5
2.2
7.5 $
19.68
20.04
20.97
20.17
2.8 $
2.5 $
2.1 $
7.4
96
46
1,000
(In millions, except per share data)
Period:
Oct 1 – Oct 31, 2021
Nov 1 – Nov 30, 2021
Dec 1 – Dec 31, 2021
Total fourth quarter
(1)
(2)
The total number of shares purchased includes: (i) shares purchased under the stock repurchase program discussed below and
(ii) shares of our common stock tendered to us to satisfy the exercise price in connection with cashless exercise of stock options, and
tax withholding obligations in connection with exercise of stock options and vesting of restricted stock and restricted stock units.
In October 2019, our board of directors approved a $1 billion multi-year share repurchase program which was fully utilized in 2021, and
in December 2021 an additional $1 billion multi-year program was approved.
71
Stock Performance
The following performance graph compares the yearly dollar change in our cumulative total shareholder return on our
common stock to that of the S&P 400 Financials and the S&P Midcap 400 Index. The graph assumes a base
investment of $100 at December 31, 2016 and reinvestment of dividends through December 31, 2021.
Company/Index
Navient Corporation
S&P 400 Financials
S&P Midcap 400 Index
Source: Bloomberg Total Return Analysis
12/31/16 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21
59.0 $
$ 100.0 $
74.0 $ 165.8
84.9 $
$ 100.0 $ 113.9 $
95.7 $ 120.8 $ 118.8 $ 157.9
$ 100.0 $ 116.2 $ 103.3 $ 130.4 $ 148.2 $ 184.8
96.3 $
72
Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Principal Executive and Principal Financial Officers, evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange Act)) as of December 31, 2021. Based on this
evaluation, our Principal Executive and Principal Financial Officers concluded that, as of December 31, 2021, our
disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported within the
time periods specified in the SEC’s rules and forms and (b) accumulated and communicated to our management,
including our Principal Executive and Principal Financial Officers as appropriate, to allow timely decisions regarding
required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rule 13a-15(f) under the Exchange Act). Under the supervision and with the participation of our
management, including our Principal Executive Officer and Principal Financial Officer, we assessed the effectiveness
of our internal control over financial reporting as of December 31, 2021. In making this assessment, our management
used the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment and those criteria,
management concluded that, as of December 31, 2021, our internal control over financial reporting was effective.
KPMG LLP, an independent registered public accounting firm, audited the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2021, as stated in their report which appears below.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) occurred during the fiscal quarter ended December 31, 2021 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
73
Directors, Executive Officers and Corporate Governance
The information required by this item will be contained in the 2022 Proxy Statement, including in the sections titled
“Proposal 1 — Election of Directors,” “Executive Officers,” “Other Matters — Delinquent Section 16(a) Reports, if
applicable” and “Corporate Governance,” and is incorporated herein by reference.
Executive Compensation
The information required by this item will be contained in the 2022 Proxy Statement, including in the sections titled
“Executive Compensation” and “Director Compensation,” and is incorporated herein by reference.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be contained in the 2022 Proxy Statement, including in the sections titled
“Ownership of Common Stock” and “Ownership of Common Stock by Directors and Executive Officers,” and is
incorporated herein by reference.
The table below presents information as of December 31, 2021, relating to our equity compensation plans or
arrangements pursuant to which grants of options, restricted stock, restricted stock units, stock units or other rights to
acquire shares may be granted from time to time.
Plan Category
Equity compensation plans approved by security holders:
Navient Corporation 2014 Omnibus Incentive Plan:
Traditional options
Net-Settled Options
RSUs
PSUs
Total
ESPP(2)
Total approved by security holders
Total not approved by security holders
Number of
Securities to
be
Issued Upon
Exercise of
Outstanding
Options and
Rights (1)
Weighted
Average
Exercise
Price of
Outstanding
Options and
Rights
Number of
Securities
Remaining
Available
for Future
Issuance
Under Equity
Compensation
Plans
Average
Remaining
Life (Years)
of Options
Outstanding
— $
452,245
2,314,399
1,492,134
4,258,778
—
4,258,778 $
— $
—
14.28
—
—
14.28
—
14.28
—
—
.7
—
—
.7 14,982,113
—
1,660,310
.7 16,642,423
—
—
(1)
(2)
Upon exercise of a net-settled option, optionees are entitled to receive the after-tax spread shares only. The spread shares equal the gross
number of options granted less shares for the option cost. Accordingly, this column reflects the net-settled option spread shares issuable on
December 31, 2021, where provided. PSUs granted in 2019 vest after a three-year performance period (2019-2021), with the potential payout
ranging from 0% to 150% of the target award. Based on the Company’s actual performance during the three-year performance period relative
to pre-established performance goals, these PSUs will vest at 119% of the target amount and will be settled in shares of the Company’s
common stock two business days after the Company files its Form 10-K for the year ended December 31, 2021. These 2019 PSUs are shown
above as outstanding on December 31, 2021, based on the final achieved amount (i.e., 119% of the target amount).
Number of shares available for issuance under the Navient Corporation ESPP as of December 31, 2021. The ESPP was approved on April 8,
2014 by the company now known as SLM Corporation, then our sole shareholder. The ESPP became effective May 1, 2014. The Company
amended the ESPP effective November 1, 2015 to alter the offering period for employees of recently acquired subsidiaries. The Company
again amended the ESPP on April 4, 2019, subject to shareholder approval, to increase the shares available for issuance under the plan by 2
million shares. This amendment was approved by the Company’s shareholders on June 6, 2019. The Company again amended the ESPP on
May 21, 2020, to eliminate the accrual of interest on individual account balances for periods after July 31, 2020.
Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be contained in the 2022 Proxy Statement, including under “Other
Matters — Certain Relationships and Transactions” and “Corporate Governance,” and is incorporated herein by
reference.
Principal Accountant Fees and Services
The information required by this item will be contained in the 2022 Proxy Statement, including under “Independent
Registered Public Accounting Firm,” and is incorporated herein by reference.
74
Exhibits and Financial Statement Schedules
(a)
1. Financial Statements
The following consolidated financial statements of Navient Corporation and the Report of the Independent
Registered Public Accounting Firm thereon are included:
Report of Independent Registered Public Accounting Firm ..................................................................
Report of Independent Registered Public Accounting Firm ..................................................................
Consolidated Balance Sheets as of December 31, 2021 and 2020 ......................................................
Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019 ...........
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020
and 2019 .............................................................................................................................................
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31,
F-2
F-4
F-7
F-8
F-9
2019, 2020 and 2021 ..........................................................................................................................
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019 ....
Notes to Consolidated Financial Statements ........................................................................................
F-10
F-13
F-14
2. Financial Statement Schedules
All schedules are omitted because they are not applicable or the required information is shown in the
consolidated financial statements or notes thereto.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this
Annual Report on Form 10-K.
We will furnish at cost a copy of any exhibit filed with or incorporated by reference into this Annual Report on
Form 10-K. Oral or written requests for copies of any exhibits should be directed to the Secretary.
4. Appendices
Appendix A — Federal Family Education Loan Program
Appendix B — Form 10-K Cross-Reference Index
(b)
2.1
Exhibits
The Agreement and Plan of Merger, dated as of October 16, 2014, between Navient Corporation and
Navient, LLC (incorporated by reference to Exhibit 2.1 to Navient Corporation’s Current Report on Form
8-K filed on October 17, 2014).
3.1
Amended and Restated Certificate of Incorporation of Navient Corporation (incorporated by reference to
Exhibit 3.1 of Amendment No. 3 to Navient Corporation’s Registration Statement on Form 10 (File
No. 001-36228) filed on March 27, 2014).
3.2
3.3
4.1
4.2
4.3
4.4
Second Amended and Restated By-Laws of Navient Corporation adopted April 4, 2018 (incorporated by
reference to Exhibit 3.1 to Navient Corporation’s Current Report on Form 8-K filed on April 9, 2018).
Certificate of Designations of Series A Junior Participating Preferred Stock of Navient Corporation
(incorporation by reference to Exhibit 3.1 to Navient Corporation’s Current Report on Form 8-K filing on
December 20, 2021).
Description of Registrant’s Securities (incorporated by reference to Form S-3ASR filed on July 18, 2014.
Indenture, dated as of July 18, 2014, between Navient Corporation and Bank of New York Mellon, as
trustee, (incorporated by reference to Exhibit 4.1 to Form S-3ASR filed on July 18, 2014).
First Supplemental Indenture, dated as of November 6, 2014, between Navient Corporation and Bank of
New York Mellon, as trustee, (incorporated by reference to Exhibit 4.2 to Navient Corporation’s Current
Report on Form 8-K filed on November 11, 2006.
Second Supplemental Indenture dated as of March 27, 2015 between Navient Corporation and Bank of
New York Mellon, as trustee (incorporated by reference to Exhibit 4.2 to Navient Corporation’s Current
Report on Form 8-K filed on March 27, 2015.
4.5
The Third Supplemental Indenture, dated as of July 29, 2016, between Navient Corporation and The
Bank of New York Mellon as trustee (incorporated by reference to Exhibit 4.2 to Navient Corporation’s
Current Report on Form 8-K filed on July 29, 2016).
75
4.6
4.7
4.8
4.9
4.10
The Fourth Supplemental Indenture, dated as of September 16, 2016, between Navient Corporation
and The Bank of New York Mellon as trustee (incorporated by reference to Exhibit 4.2 to Navient
Corporation’s Current Report on Form 8-K filed on September 16, 2016).
The Fifth Supplemental Indenture, dated as of March 7, 2017 to the Indenture dated as of July 18, 2014
between Navient Corporation and The Bank of New York Mellon as trustee (incorporated by reference
to Exhibit 4.2 to Navient Corporation’s Current Report on Form 8-K filed on March 7, 2017).
The Sixth Supplemental Indenture, dated as of March 17, 2017 to the Indenture dated as of July 18,
2014 between Navient Corporation and The Bank of New York Mellon as trustee (incorporated by
reference to Exhibit 4.3 to Navient Corporation’s Current Report on Form 8-K filed on March 7, 2017).
The Seventh Supplemental Indenture, dated as of May 26, 2017 to the Indenture dated as of July 18,
2014 between Navient Corporation and The Bank of New York Mellon as trustee (incorporated by
reference to Exhibit 4.2 to Navient Corporation’s Current Report on Form 8-K filed on May 26, 2017).
The Eighth Supplemental Indenture, dated as of June 9, 2017 to the Indenture dated as of July 18,
2014 between Navient Corporation and The Bank of New York Mellon as trustee (incorporated by
reference to Exhibit 4.4 to Navient Corporation’s Current Report on Form 8-K filed on June 9, 2017).
4.11
The Ninth Supplemental Indenture, dated as of December 4, 2017 to the Indenture dated as of July 18,
2014 between Navient Corporation and The Bank of New York Mellon as trustee (incorporated by
reference to Exhibit 4.3 to Navient Corporation’s Current Report on Form 8-K filed on December 4,
2017).
4.12
4.13
4.14
The Tenth Supplemental Indenture, dated as of June 11, 2018 to the Indenture dated as of July 18,
2014 between Navient Corporation and The Bank of New York Mellon as trustee (incorporated by
reference to Exhibit 4.2 to Navient Corporation’s Current Report on Form 8-K filed on June 11, 2018).
The Eleventh Supplemental Indenture, dated as of January 27, 2020 (this “Supplemental Indenture”),
between Navient Corporation, a Delaware corporation (the “Company”), and The Bank of New York
Mellon, a New York banking corporation, as trustee (the “Trustee”) (incorporated by reference to Exhibit
4.2 on Form 8-K filed on January 27, 2020).
The Twelfth Supplemental Indenture, dated as of February 2, 2021, between Navient Corporation and
The Bank of New York Mellon as trustee (incorporated by reference to Exhibit 4.2 on Form 8-K filed on
February 2, 2021).
4.15
The Thirteenth Supplemental Indenture, dated as of November 4, 2021, between Navient Corporation
and The Bank of New York Mellon as trustee (incorporated by reference to Exhibit 4.2 on Form 8-K filed
on November 5, 2021.
4.16
Rights Agreement dated as of December 20, 2021 between Navient Corporation and Computershare
Trust Company, N.A., which includes the form of Certificate of Designations as Exhibit A, the form of
Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C
(incorporated by reference to Exhibit 4.1 on Form 8-K filed on December 20, 2021).
10.1†
Form of Navient Corporation 2014 Omnibus Incentive Plan, Stock Option Agreement, Net Settled
Options — 2011 (incorporated by reference to Exhibit 10.22 of the Company’s Quarterly Report on
Form 10-Q filed on August 1, 2014).
10.2†
Form of Navient Corporation 2014 Omnibus Incentive Plan, Stock Option Agreement, Net Settled
Options — 2010 (incorporated by reference to Exhibit 10.23 of the Company’s Quarterly Report on
Form 10-Q filed on August 1, 2014).
10.3†
Form of Navient Corporation 2014 Omnibus Incentive Plan, Independent Director Stock Option
Agreement — 2011 (incorporated by reference to Exhibit 10.31 of the Company’s Quarterly Report on
Form 10-Q filed on August 1, 2014).
10.4†
Form of Navient Corporation 2014 Omnibus Incentive Plan, Independent Director Stock Option
Agreement — 2010 (incorporated by reference to Exhibit 10.32 of the Company’s Quarterly Report on
Form 10-Q filed on August 1, 2014).
10.5†
Form of Navient Corporation 2014 Omnibus Incentive Plan Stock Option Agreement — Net Settled
Options (incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q
filed on April 28, 2016).
76
10.6†
Form of Navient Corporation 2014 Omnibus Incentive Plan Stock Option Agreement (incorporated by
reference to Exhibit 10.3 to Navient Corporation’s Quarterly Report on Form 10-Q filed on April 27,
2017).
10.7†
Form of Navient Corporation 2014 Omnibus Incentive Plan Performance Stock Unit Agreement
(incorporated by reference to Exhibit 10.1 to Navient Corporation’s Quarterly Report on Form 10-Q filed
on May 3, 2018).
10.8†
Form of Navient Corporation 2014 Omnibus Incentive Plan Restricted Stock Unit Agreement
(incorporated by reference to Exhibit 10.2 to Navient Corporation’s Quarterly Report on Form 10-Q filed
on May 3, 2018).
10.9†
Form of Navient Corporation 2014 Omnibus Incentive Plan Stock Option Agreement (incorporated by
reference to Exhibit 10.3 to Navient Corporation’s Quarterly Report on Form 10-Q filed on May 3, 2018).
10.10†
Navient Corporation 2014 Omnibus Incentive Plan, Amended and Restated as of May 24, 2018
incorporated by reference to Exhibit 10.1 to Navient Corporation’s Quarterly Report filed on Form 10-Q
filed on August 3, 2018.
10.11†
10.12†
10.13†
Navient Deferred Compensation Plan for Directors, as amended and restated effective October 1, 2015
(incorporated by reference to Exhibit 10.1 of the Company’s Form 10-K (File No. 001-36228) filed on
October 30, 2015).
Navient Corporation Change in Control Severance Plan for Senior Officers, Amended and Restated as
of May 24, 2018 incorporated by reference to Exhibit 10.3 to Navient Corporation’s Quarterly Report
filed on Form 10-Q filed on August 3, 2018.
Navient Corporation Executive Severance Plan for Senior Officers, Amended and Restated as of May
24, 2018 incorporated by reference to Exhibit 10.4 to Navient Corporation’s Quarterly Report filed on
Form 10-Q filed on August 3, 2018.
10.14†
Navient Corporation Deferred Compensation Plan, Amended and Restated as of May 24, 2018
incorporated by reference to Exhibit 10.2 to Navient Corporation’s Quarterly Report filed on Form 10-Q
filed on August 3, 2018.
10.15†
Form of Navient Corporation 2014 Omnibus Incentive Plan, Performance Stock Unit Agreement
(incorporated by reference to Exhibit 10.1 to Navient Corporation’s Quarterly Report on Form 10-Q filed
on May 3, 2019).
10.16†
Form of Navient Corporation 2014 Omnibus Incentive Plan, Restricted Stock Unit Agreement
(incorporated by reference to Exhibit 10.2 to Navient Corporation’s Quarterly Report on Form 10-Q filed
on May 3, 2019).
10.17†
Form of Navient Corporation 2014 Omnibus Incentive Plan, Independent Director Restricted Stock
Agreement (incorporated by reference to Exhibit 10.3 to Navient Corporation’s Quarterly Report on
Form 10-Q filed on May 3, 2019).
10.18†
Amended and Restated Navient Corporation Employee Stock Purchase Plan (incorporated by reference
to Appendix A to Navient Corporation’s Definitive Proxy Statement filed on April 30, 2019.
10.19
Underwriting Agreement dated January 28, 2021 among Navient Corporation and J.P. Morgan
Securities LLC, Barclays Capital Inc. and RBC Capital Markets, LLC, as representatives of the
underwriters named therein (incorporated by reference to Exhibit 4.2 on Form 8-K filed on February 2,
2021).
10.20†
Form of Navient Corporation 2014 Omnibus Incentive Plan Performance Stock Unit Agreement
(incorporated by reference to Exhibit 10.1 on Form 10-Q filed on May 1, 2020).
10.21†
Form of Navient Corporation 2014 Omnibus Incentive Plan Restricted Stock Unit Agreement
(incorporated by reference to Exhibit 10.2 on Form 10-Q filed on May 1, 2020).
10.22†
Form of Navient Corporation 2014 Omnibus Incentive Plan Independent Director Stock Agreement
(incorporated by reference to Exhibit 10.3 on Form 10-Q filed on May 1, 2020).
77
10.23
10.24*
Underwriting Agreement dated November 1, 2021 among Navient Corporation and J.P. Morgan
Securities LLC, Barclays Capital Inc. and RBC Capital Markets, LLC, as representatives of the
underwriters named therein (incorporated by reference to Exhibit 1.1 on Form 8-K filed on November 5,
2021).
Consent Judgment and Orders (“Agreement”) dated January 13, 2022 between Navient Corporation,
Navient Solutions, LLC and Pioneer Credit Recovery, Inc. (the “Navient Parties”) and the Attorney
General for the State of Washington as a representative example, except for the payment amounts, of
the Agreement between the Navient Parties and the State Attorneys General for the States set forth in
Exhibit 10.24.1 (attached herewith).
10.24.1*
List of States and Localities that are a party to the Consent Judgment and Orders described in Exhibit
10.24 (attached herewith).
10.25†
Form of Navient Corporation 2014 Omnibus Incentive Plan, Performance Stock Unit Agreement
(incorporated by reference to Exhibit 10.1 to Navient Corporation’s Quarterly Report on Form 10-Q filed
on April 28, 2021).
21.1*
List of Subsidiaries.
23.1*
31.1*
Consent of KPMG LLP.
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
32.2**
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
101.INS*
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*
Inline XBRL Taxonomy Extension Schema Document.
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
†
*
**
Management Contract or Compensatory Plan or Arrangement
Filed herewith
Furnished herewith
78
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: February 25, 2022
NAVIENT CORPORATION
By:
/s/ JOHN F. REMONDI
John F. Remondi
President and Chief Executive Officer
Pursuant to the requirement of the Securities Exchange Act of 1934, as amended, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
/s/ JOHN F. REMONDI
John F. Remondi
/s/ JOE FISHER
Joe Fisher
/s/ LINDA A. MILLS
Linda A. Mills
/s/ FREDERICK ARNOLD
Frederick Arnold
/s/ ANNA ESCOBEDO CABRAL
Anna Escobedo Cabral
/s/ LARRY A. KLANE
Larry A. Klane
/s/ MICHAEL A. LAWSON
Michael A. Lawson
/s/ KATHERINE A. LEHMAN
Katherine A. Lehman
/s/ JANE J. THOMPSON
Jane J. Thompson
/s/ LAURA S. UNGER
Laura S. Unger
/s/ DAVID L. YOWAN
David L. Yowan
Title
President, Chief Executive Officer and
Director (Principal Executive Officer)
Chief Financial Officer (Principal
Financial and Accounting Officer)
Date
February 25, 2022
February 25, 2022
Chair of the Board of Directors
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
Director
Director
Director
Director
Director
Director
Director
Director
79
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Report of Independent Registered Public Accounting Firm .................................................................................
Report of Independent Registered Public Accounting Firm .................................................................................
Consolidated Balance Sheets .............................................................................................................................
Consolidated Statements of Income ...................................................................................................................
Consolidated Statements of Comprehensive Income .........................................................................................
Consolidated Statements of Changes in Stockholders’ Equity ............................................................................
Consolidated Statements of Cash Flows ............................................................................................................
Notes to Consolidated Financial Statements ......................................................................................................
Page
F-2
F-4
F-7
F-8
F-9
F-10
F-13
F-14
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Navient Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited Navient Corporation and subsidiaries' (the Company) internal control over financial reporting as of
December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related
consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each
of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated
financial statements), and our report dated February 25, 2022 expressed an unqualified opinion on those
consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
F-2
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
McLean, Virginia
February 25, 2022
/s/ KPMG LLP
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Navient Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Navient Corporation and subsidiaries (the
Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive
income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-
year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission, and our report dated February 25, 2022 expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting
for recognition and measurement of credit losses as of January 1, 2020 due to the adoption of Accounting Standards
Update No. 2016-13, Financial Instruments - Credit Losses (Accounting Standards Codification Topic 326).
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks
of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that: (1)
relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating
the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
Assessment of the allowance for loan losses on private education loans
As discussed in Notes 2 and 4 to the consolidated financial statements, the Company’s total allowance for loan
losses for private education loans (private education ALL) was $1,009 million as of December 31, 2021. For the
private education ALL, the expected credit losses are the product of a transition rate model determining the
Company’s estimates of probability of default and prepayment as well as loss given default on an undiscounted
basis. The Company makes estimates regarding transition rates including prepayments and recoveries on
F-4
defaults including expected future recoveries on charged-off loans (expected recoveries). The model used to
project losses utilizes key credit quality indicators of the loan portfolio and predicts how those attributes are
expected to perform at the loan level in connection with the forecasted economic conditions over the contractual
term of the loans including any prepayments and extension options within the control of the borrower. The private
education ALL incorporates reasonable and supportable forecasts of various macro-economic variables and
several forecast scenarios over the remaining life of the loans. The development of the reasonable and
supportable forecasts incorporates an assumption that each macro-economic variable will revert to a long-term
expectation. Qualitative adjustments are based on factors not reflected in the quantitative model.
We identified the assessment of the private education ALL as a critical audit matter. A high degree of audit effort,
including skills and knowledge, and subjective and complex auditor judgment was involved in the assessment.
Specifically, the assessment encompassed an evaluation of the private education ALL methodology including the
method and model used to estimate the projected losses and their significant assumptions. Such significant
assumptions included (1) the forecasted economic scenarios, including related weightings, (2) the reasonable
and supportable forecast periods, (3) the transition rates including estimated prepayments, (4) the expected
recoveries, and (5) the qualitative adjustments. The assessment also included an evaluation of the conceptual
soundness and performance of the model. In addition, auditor judgment was required to evaluate the sufficiency
of audit evidence obtained.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the
design and tested the operating effectiveness of certain internal controls related to the Company’s measurement
of the private education ALL estimate including controls over:
● development of the private education ALL methodology
● continued use and appropriateness of changes made to the model
●
identification and determination of significant assumptions used in the model to estimate credit losses
● development of the qualitative adjustments
● performance monitoring of the model
● analysis of private education ALL results, trends, and ratios.
We evaluated the Company’s process to develop the private education ALL estimate by testing certain sources
of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such
data, factors, and assumptions. In addition, we involved credit risk professionals with specialized industry
knowledge and experience who assisted in:
● evaluating the Company’s private education ALL methodology for compliance with U.S. generally accepted
accounting principles
● evaluating the judgments made by the Company relative to the assessment and performance testing of the
model including transition rates used by the Company by comparing them to relevant Company-specific
metrics and trends and the applicable industry and regulatory practices
● assessing the conceptual soundness and performance testing of the model including transition rates by
inspecting the model documentation to determine whether the model is suitable for their intended use
● evaluating the selection of the economic forecasted scenarios, including the weighting of the scenarios, and
underlying assumptions by comparing it to business environment and relevant industry practices
● evaluating the length of reasonable and supportable forecast periods by comparing them to specific portfolio
risk characteristics and trends
● evaluating the expected recoveries by comparing them to relevant Company-specific metrics and trends, the
applicable industry and regulatory practices, and to an independently developed expected recoveries range
F-5
● evaluating the methodology used to develop the qualitative adjustments and the effect of those adjustments
on the private education ALL compared with relevant credit risk factors and consistency with credit trends
and identified limitations of the underlying quantitative model.
We also assessed the sufficiency of the audit evidence obtained related to the Company’s private education ALL
estimate by evaluating the:
● cumulative results of the audit procedures
● qualitative aspects of the Company’s accounting practices
● potential bias in the accounting estimates.
/s/ KPMG LLP
We have served as the Company’s auditor since 2012.
McLean, Virginia
February 25, 2022
F-6
NAVIENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
Assets
FFELP Loans (net of allowance for losses of $262 and $288, respectively)
Private Education Loans (net of allowance for losses of $1,009 and $1,089,
respectively)
Investments
Held-to-maturity
Other
Total investments
Cash and cash equivalents
Restricted cash and cash equivalents
Goodwill and acquired intangible assets, net
Other assets
Total assets
Liabilities
Short-term borrowings
Long-term borrowings
Other liabilities
Total liabilities
Commitments and contingencies
Equity
Series A Junior Participating Preferred Stock, par value $0.20 per share;
2 million shares authorized at December 31, 2021; no shares issued
or outstanding
Common stock, par value $0.01 per share; 1.125 billion shares authorized:
459 million and 454 million shares issued, respectively
Additional paid-in capital
Accumulated other comprehensive loss (net of tax benefit of
$45 and $90, respectively)
Retained earnings
Total Navient Corporation stockholders’ equity before treasury stock
Less: Common stock held in treasury at cost: 305 million and 267 million
shares, respectively
Total Navient Corporation stockholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
$
$
$
December 31,
2021
December 31,
2020
$
52,641 $
58,284
20,171
21,079
74
193
267
905
2,673
725
3,223
80,605 $
2,490 $
74,488
1,019
77,997
15
270
285
1,183
2,354
735
3,492
87,412
6,613
77,332
1,020
84,965
—
—
4
3,282
(133 )
3,939
7,092
(4,495 )
2,597
11
2,608
80,605 $
4
3,226
(274 )
3,331
6,287
(3,854 )
2,433
14
2,447
87,412
Supplemental information — assets and liabilities of consolidated variable interest entities:
FFELP Loans
Private Education Loans
Restricted cash
Other assets, net
Short-term borrowings
Long-term borrowings
Net assets of consolidated variable interest entities
December 31,
2021
December 31,
2020
$
$
52,502 $
18,147
2,649
1,522
2,188
67,107
5,525 $
58,068
18,658
2,322
1,420
5,595
68,900
5,973
See accompanying notes to consolidated financial statements.
F-7
NAVIENT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
$
Interest income:
FFELP Loans
Private Education Loans
Other loans
Cash and investments
Total interest income
Total interest expense
Net interest income
Less: provisions for loan losses
Net interest income after provisions for loan losses
Other income (loss):
Servicing revenue
Asset recovery and business processing revenue
Other income
Gains on sales of loans
Gains (losses) on debt repurchases
Gains (losses) on derivative and hedging activities, net
Total other income
Expenses:
Salaries and benefits
Other operating expenses
Total operating expenses
Goodwill and acquired intangible asset impairment and
amortization expense
Restructuring/other reorganization expenses
Total expenses
Income before income tax expense
Income tax expense
Net income
Basic earnings per common share
Average common shares outstanding
Diluted earnings per common share
Average common and common equivalent shares outstanding
Dividends per common share
$
$
$
$
Years Ended December 31,
2020
2021
2019
1,464 $
1,181
—
3
2,648
1,316
1,332
(61 )
1,393
168
539
30
78
(73 )
64
806
569
638
1,207
30
26
1,263
936
219
717 $
4.23 $
170
4.18 $
172
.64 $
1,837 $
1,445
—
16
3,298
2,046
1,252
155
1,097
214
458
20
—
(6 )
(256 )
430
497
467
964
22
9
995
532
120
412 $
2.14 $
193
2.12 $
195
.64 $
2,847
1,731
2
93
4,673
3,488
1,185
258
927
240
488
45
16
45
22
856
488
496
984
30
6
1,020
763
166
597
2.59
230
2.56
233
.64
See accompanying notes to consolidated financial statements.
F-8
NAVIENT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
Net income
Net changes in cash flow hedges, net of taxes(1)
Total comprehensive income
(1)
See “Note 7 – Derivative Financial Instruments.”
Years Ended December 31,
2020
2021
2019
$
$
717 $
141
858 $
412 $
(183 )
229 $
597
(204 )
393
See accompanying notes to consolidated financial statements.
F-9
Balance at December 31, 2018
Comprehensive income:
Net income
Other comprehensive income (loss),
net of tax
Total comprehensive income
Cash dividends:
Common stock ($.64 per share)
Dividend equivalent units related to
employee stock-based compensation
plans
Issuance of common shares
Stock-based compensation expense
Common stock repurchased
Shares repurchased related to employee
stock-based compensation plans
Net activity in noncontrolling interest
Balance at December 31, 2019
NAVIENT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In millions, except share and per share amounts)
Common Stock Shares
Common
Issued
Treasury
Outstanding Stock
Capital
Income (Loss) Earnings Stock
445,377,826 (197,940,553 ) 247,437,273 $
4 $
3,145 $
113 $ 3,218 $ (2,961 )
Additional
Paid-In
Accumulated
Other
Comprehensive Retained Treasury
Total
Stockholders’ Noncontrolling Total
Equity
28 3,547
3,519 $
Interest
Equity
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
597
—
597
— 597
(204 )
—
—
—
—
—
(204 )
393
— (204 )
— 393
—
—
—
—
(147 )
—
(147 )
— (147 )
—
—
—
5,717,053
—
—
— (34,491,342 )
—
5,717,053
—
(34,491,342 )
(3,226,301 )
—
451,094,879 (235,658,196 ) 215,436,683 $
(3,226,301 )
—
—
—
—
—
—
—
—
—
4 $
—
28
25
—
—
—
3,198 $
—
—
—
—
(4 )
—
—
—
—
—
—
(440 )
—
—
(38 )
—
—
—
(91 ) $ 3,664 $ (3,439 ) $
(4 )
28
25
(440 )
(38 )
—
3,336 $
—
(4 )
—
28
—
25
— (440 )
—
(38 )
(15 )
(15 )
13 $ 3,349
See accompanying notes to consolidated financial statements.
F-10
Balance at December 31, 2019
Cumulative adjustment for the adoption of
ASU No. 2016-13
Comprehensive income:
Net income
Other comprehensive income (loss),
net of tax
Total comprehensive income
Cash dividends:
Common stock ($.64 per share)
Dividend equivalent units related to
employee stock-based compensation
plans
Issuance of common shares
Stock-based compensation expense
Common stock repurchased
Shares repurchased related to employee
stock-based compensation plans
Net activity in noncontrolling interest
Balance at December 31, 2020
NAVIENT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In millions, except share and per share amounts)
Common Stock Shares
Common
Issued
Treasury
Outstanding Stock
Capital
Income (Loss) Earnings Stock
451,094,879 (235,658,196 ) 215,436,683 $
4 $
3,198 $
(91 ) $ 3,664 $ (3,439 )
Additional
Paid-In
Accumulated
Other
Comprehensive Retained Treasury
Total
Stockholders’ Noncontrolling Total
Equity
13 3,349
3,336 $
Interest
Equity
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(620 )
—
(620 )
— (620 )
—
—
—
—
—
—
—
—
—
—
412
(183 )
—
—
—
—
—
—
412
(183 )
229
— 412
— (183 )
— 229
—
—
—
—
(123 )
—
(123 )
— (123 )
—
—
—
2,684,096
—
—
— (30,628,580 )
—
2,684,096
—
(30,628,580 )
(1,189,745 )
—
453,778,975 (267,476,521 ) 186,302,454 $
(1,189,745 )
—
—
—
—
—
—
—
—
—
4 $
—
10
18
—
—
—
3,226 $
—
—
—
—
(2 )
—
—
—
—
—
—
(400 )
—
—
(15 )
—
(274 ) $ 3,331 $ (3,854 ) $
—
—
(2 )
10
18
(400 )
(15 )
—
2,433 $
—
(2 )
—
10
—
18
— (400 )
—
1
(15 )
1
14 $ 2,447
See accompanying notes to consolidated financial statements.
F-11
Balance at December 31, 2020
Comprehensive income (loss):
Net income
Other comprehensive income (loss),
net of tax
Total comprehensive income (loss)
Cash dividends:
Common stock ($.64 per share)
Dividend equivalent units related to
employee stock-based compensation
plans
Issuance of common shares
Stock-based compensation expense
Common stock repurchased
Shares repurchased related to employee
stock-based compensation plans
Net activity in noncontrolling interest
Balance at December 31, 2021
NAVIENT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In millions, except share and per share amounts)
Common Stock Shares
Common
Issued
Treasury
Outstanding Stock
Capital
Income (Loss) Earnings Stock
453,778,975 (267,476,521 ) 186,302,454 $
4 $
3,226 $
(274 ) $ 3,331 $ (3,854 ) $
Accumulated
Other
Additional
Paid-In
Comprehensive Retained Treasury
Total
Stockholders’ Noncontrolling Total
Equity
14 $ 2,447
2,433 $
Interest
Equity
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
717
141
—
—
—
—
—
—
717
141
858
— 717
— 141
— 858
—
—
—
—
(107 )
—
(107 )
— (107 )
—
—
—
4,850,409
—
—
— (34,371,073 )
—
4,850,409
—
(34,371,073 )
(3,039,019 )
—
458,629,384 (304,886,613 ) 153,742,771 $
(3,039,019 )
—
—
—
—
—
—
—
—
—
4 $
—
34
22
—
—
—
3,282 $
—
—
—
—
(2 )
—
—
—
—
—
—
(600 )
—
—
(41 )
—
(133 ) $ 3,939 $ (4,495 ) $
—
—
(2 )
34
22
(600 )
(41 )
—
2,597 $
—
(2 )
—
34
—
22
— (600 )
—
(41 )
(3 )
(3 )
11 $ 2,608
See accompanying notes to consolidated financial statements.
F-12
NAVIENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
(Gains) on sale of education loans
(Gains) losses on debt repurchases
Goodwill and acquired intangible asset impairment and amortization expense
Stock-based compensation expense
Mark-to-market (gains)/losses on derivative and hedging activities, net
Provisions for loan losses
Decrease in accrued interest receivable
(Decrease) in accrued interest payable
Decrease in other assets
Increase (decrease) in other liabilities
Total adjustments
Total net cash provided by operating activities
Investing activities
Education loans acquired
Principal payments on education loans
Proceeds from sales of education loans
Other investing activities, net
Purchase of subsidiary, net of cash acquired
Total net cash provided by investing activities
Financing activities
Borrowings collateralized by loans in trust - issued
Borrowings collateralized by loans in trust - repaid
Asset-backed commercial paper conduits, net
Long-term unsecured notes issued
Long-term unsecured notes repaid
Other financing activities, net
Common stock repurchased
Common dividends paid
Total net cash used in financing activities
Years Ended December 31,
2020
2019
2021
$
717 $
412 $
597
(78 )
73
30
22
(433 )
(61 )
47
(55 )
145
295
(15 )
702
(6,104 )
11,137
1,588
68
(16 )
6,673
7,973
(11,163 )
(2,169 )
1,237
(2,702 )
197
(600 )
(107 )
(7,334 )
—
6
22
18
340
155
22
(113 )
177
(52 )
575
987
(4,641 )
11,179
—
(90 )
—
6,448
7,959
(11,858 )
(1,915 )
682
(1,832 )
(192 )
(400 )
(123 )
(7,679 )
(16 )
(45 )
30
25
130
258
78
(96 )
191
(133 )
422
1,019
(5,411 )
12,472
408
16
—
7,485
7,919
(14,271 )
(907 )
—
(1,950 )
(189 )
(440 )
(147 )
(9,985 )
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted
cash equivalents
Cash, cash equivalents, restricted cash and restricted cash equivalents at
beginning of period
Cash, cash equivalents, restricted cash and restricted cash equivalents at
end of period
Cash disbursements made (refunds received) for:
Interest
Income taxes paid
Income taxes received
Reconciliation of the Consolidated Statements of Cash Flows to
the Consolidated Balance Sheets:
Cash and cash equivalents
Restricted cash and restricted cash equivalents
Total cash, cash equivalents, restricted cash and restricted cash equivalents at
end of period
Supplemental cash flow information:
Non-cash activities
41
(244 )
(1,481 )
3,537
3,781
5,262
3,578 $
3,537 $
3,781
1,378 $
190 $
(11 ) $
2,059 $
74 $
— $
3,479
93
(4 )
905 $
2,673
1,183 $
2,354
1,233
2,548
$
$
$
$
$
$
3,578 $
3,537 $
3,781
Investing activity - Held-to-maturity asset backed securities retained related to
sales of education loans
Operating activity - Servicing assets recognized upon sales of education loans
$
83 $
21
— $
—
22
3
See accompanying notes to consolidated financial statements.
F-13
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Business
Navient’s Business
Navient is a leading provider of education loan management and business processing solutions for education,
healthcare, and government clients at the federal, state, and local levels. We help our clients and millions of
Americans achieve success through technology-enabled financing, services and support.
With a focus on data-driven insights, service, compliance and innovative support, Navient’s business consists of:
•
Federal Education Loans
We own a portfolio of $52.6 billion of federally guaranteed Federal Family Education Loan Program (FFELP)
Loans. We service and provide asset recovery services on this portfolio and for third parties, deploying data-
driven approaches to support the success of our customers. Our flexible and scalable infrastructure
manages large volumes of complex transactions, simplifying the customer experience and continually
improving efficiency.
• Consumer Lending
We own, service and originate Private Education Loans that enable students to pursue higher education and
economic opportunities. Our $20.2 billion private loan portfolio demonstrates high customer success rates.
We help people simplify their finances through student loan refinancing, and we help families finance their
higher education through transparent, affordable private education loans. In 2021, we originated $6.0 billion
in Private Education Loans.
• Business Processing
Through our business processing solutions, we support more than 600 public sector and healthcare
organizations, and their tens of millions of clients, patients, and constituents. Our suite of solutions and
customer experience expertise enable our clients to focus on their missions and optimize their cash flow,
while helping those they serve successfully navigate complex programs, transactions and decisions. For
each client, we customize a blend of technologies to deliver personalized, omnichannel communication
experiences; machine learning automation; root-cause business analytics; secure cloud computing; and
intelligent customer relationship platforms.
2. Significant Accounting Policies
Use of Estimates
Our financial reporting and accounting policies conform to generally accepted accounting principles in the United
States of America (GAAP). The preparation of financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Uncertain and volatile market and economic conditions increase the risk and
complexity of the judgments in these estimates and actual results could differ from estimates. Accounting policies that
include the most significant judgments, estimates and assumptions include the allowance for loan losses, goodwill
and intangible asset impairment assessment and the amortization of loan premiums and discounts using the effective
interest rate method.
Consolidation
The consolidated financial statements include the accounts of Navient Corporation and its majority-owned and
controlled subsidiaries and those Variable Interest Entities (VIEs) for which we are the primary beneficiary, after
eliminating the effects of intercompany accounts and transactions.
F-14
2. Significant Accounting Policies (Continued)
We consolidate any VIEs where we have determined we are the primary beneficiary. A VIE is a legal entity that does
not have sufficient equity at risk to finance its own operations, or whose equity holders do not have the power to
direct the activities that most significantly affect the economic performance of the entity, or whose equity holders do
not share proportionately in the losses or benefits of the entity. The primary beneficiary of the VIE is the entity which
has both: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic
performance and (2) the obligation to absorb losses or receive benefits of the entity that could potentially be
significant to the VIE. As it relates to our securitizations and other secured borrowing facilities that are VIEs as of
December 31, 2021 that we consolidate, we are the primary beneficiary as we are the servicer of the related
education loan assets and own the Residual Interest of the securitization trusts and secured borrowing facilities.
Fair Value Measurement
We use estimates of fair value in applying various accounting standards for our financial statements. Fair value
measurements are used in one of four ways:
•
•
•
•
In the balance sheet with changes in fair value recorded in the statement of income;
In the balance sheet with changes in fair value recorded in the accumulated other comprehensive income
section of the statement of changes in stockholders’ equity;
In the balance sheet for instruments carried at lower of cost or fair value with impairment charges recorded
in the statement of income; and
In the notes to the financial statements.
Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and
able market participants. In general, our policy in estimating fair value is to first look at observable market prices for
identical assets and liabilities in active markets, where available. When these are not available, other inputs are used
to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates
and credit spreads, relying first on observable data from active markets. Depending on current market conditions,
additional adjustments to fair value may be based on factors such as liquidity and credit spreads. Transaction costs
are not included in the determination of fair value. When possible, we seek to validate the model’s output to market
transactions. Depending on the availability of observable inputs and prices, different valuation models could produce
materially different fair value estimates. The values presented may not represent future fair values and may not be
realizable.
We categorize our fair value estimates based on a hierarchical framework associated with three levels of price
transparency utilized in measuring financial instruments at fair value. Classification is based on the lowest level of
input that is significant to the fair value of the instrument. The three levels are as follows:
Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the
ability to access at the measurement date. The types of financial instruments included in level 1 are highly
liquid instruments with quoted prices.
Level 2 — Inputs from active markets, other than quoted prices for identical instruments, are used to
determine fair value. Significant inputs are directly observable from active markets for substantially the full
term of the asset or liability being valued.
Level 3 — Pricing inputs significant to the valuation are unobservable. Inputs are developed based on the
best information available. However, significant judgment is required by us in developing the inputs.
•
•
•
Loans
Loans, consisting of federally insured education loans and Private Education Loans, that we have the ability and
intent to hold for the foreseeable future are classified as held-for-investment and are carried at amortized cost.
Amortized cost includes the unamortized premiums, discounts, and capitalized origination costs and fees, all of which
are amortized to interest income as further discussed below. Loans which are held-for-investment also have an
allowance for loan loss. Any loans we have not classified as held-for-investment are classified as held-for-sale and
carried at the lower of cost or fair value. Loans are classified as held-for-sale when we have the intent and ability to
sell such loans. Loans which are held-for-sale do not have the associated premium, discount, and capitalized
origination costs and fees amortized into interest income. In addition, once a loan is classified as held-for-sale, any
allowance for loan losses that existed immediately prior to the reclassification to held-for-sale is reversed through
provision.
F-15
2. Significant Accounting Policies (Continued)
Allowance for Loan Losses
On January 1, 2020, we adopted ASU No. 2016-13, “Financial Instruments — Credit Losses,” which requires
measurement and recognition of an allowance for loan loss that estimates the remaining current expected credit
losses (CECL) for financial assets measured at amortized cost held at the reporting date. Our prior allowance for loan
loss was an incurred loss model. As a result, the new guidance resulted in an increase to our allowance for loan
losses. The new standard impacts the allowance for loan losses related to our Private Education Loans and FFELP
Loans.
The standard was applied through a cumulative-effect adjustment to retained earnings (net of tax) as of January 1,
2020, the effective date, for the education loans on our balance sheet as of that date (except for the $70 million
Purchased Credit Deteriorated (PCD) portfolio where the related $43 million allowance is recorded as an increase to
the basis of the loans). Subsequently, changes in the estimated remaining current expected credit losses, including
estimated losses on newly originated education loans, are recorded through provision (net income). This standard
represents a significant change from prior GAAP and has resulted in material changes to the Company’s accounting
for the allowance for loan losses.
Related to this new standard:
• We have determined that, for modeling current expected credit losses, we can reasonably estimate
expected losses that incorporate current and forecasted economic conditions over a “reasonable and
supportable” period. For Private Education Loans, we incorporate a reasonable and supportable forecast of
various macro-economic variables over the remaining life of the loans. The development of the reasonable
and supportable forecast incorporates an assumption that each macro-economic variable will revert to a
long-term expectation starting in years 2-4 of the forecast and largely completing within the first five years of
the forecast. For FFELP Loans, after a three-year reasonable and supportable period, there is an immediate
reversion to a long-term expectation. The models used to project losses utilize key credit quality indicators of
the loan portfolio and predict how those attributes are expected to perform in connection with the forecasted
economic conditions. These losses are calculated on an undiscounted basis. For Private Education Loans,
we utilize a transition rate model that estimates the probability of prepayment and default and apply the loss
given default. For FFELP Loans, we use historical transition rates to determine prepayments and defaults.
The forecasted economic conditions used in our modeling of expected losses are provided by a third party.
The primary economic metrics we use in the economic forecast are unemployment, GDP, interest rates,
consumer loan delinquency rates and consumer income. Several forecast scenarios are provided which
represent the baseline economic expectations as well as favorable and adverse scenarios. We analyze and
evaluate the alternative scenarios for reasonableness and determine the appropriate weighting of these
alternative scenarios based upon the current economic conditions and our view of the likelihood and risks of
the alternative scenarios. We project losses at the loan level and make estimates regarding prepayments,
recoveries on defaults and reasonably expected new Troubled Debt Restructurings (TDRs).
• Separately, as it relates to interest rate concessions granted as part of our Private Education Loan
modification program, a discounted cash flow model is used to calculate the amount of interest forgiven for
loans currently in the program. The present value of this interest rate concession is included in our
allowance for loan loss.
• Charge-offs include the discount or premium related to such defaulted loan.
• CECL requires our expected future recoveries on charged-off loans to be presented within the allowance for
loan loss whereas previously, we accounted for our receivable for partially charged-off loans as part of our
Private Education Loan portfolio. This change is only a change in classification on the balance sheet and did
not impact retained earnings at adoption of CECL or provision and net income post-adoption.
• Once our loss model calculations are performed, we determine if qualitative adjustments are needed for
factors not reflected in the quantitative model. These adjustments may include, but are not limited to,
changes in lending and servicing and collection policies and practices, as well as the effect of other external
factors such as the economy and changes in legal or regulatory requirements that impact the amount of
future credit losses.
F-16
2. Significant Accounting Policies (Continued)
At the end of each month, for Private Education Loans that are 212 days past due, we charge off the estimated loss
of a defaulted loan balance. Actual recoveries are applied against the remaining loan balance that was not charged
off. We refer to this remaining loan balance as the “expected future recoveries on charged-off loans.” If actual
periodic recoveries are less than expected, the difference is immediately charged off through the allowance for
Private Education Loan losses with an offsetting reduction in the expected future recoveries on charged-off loans. If
actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for
Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally
expected to be recovered.
FFELP Loans are insured as to their principal and accrued interest in the event of default subject to a Risk Sharing
level based on the date of loan disbursement. These insurance obligations are supported by contractual rights
against the United States. For loans disbursed after October 1, 1993, and before July 1, 2006, we receive
98% reimbursement on all qualifying default claims. For loans disbursed on or after July 1, 2006, we receive
97% reimbursement. For loans disbursed prior to October 1, 1993, we receive 100% reimbursement.
Upon adoption of CECL on January 1, 2020, the total allowance for loan losses increased by $802 million (excluding
the impact of the balance sheet reclassifications related to the expected future recoveries and PCD portfolio
discussed above). This had a corresponding reduction to equity of $620 million.
(Dollars in millions)
Allowance as of December 31, 2019 (prior to CECL)
Transition adjustments made under CECL on January 1, 2020:
Current expected credit losses on non-PCD portfolio(1)
Current expected credit losses on PCD portfolio(2)
Reclassification of the expected future recoveries on
charged-off loans(3)
Net increase to allowance for loan losses under CECL
Allowance as of January 1, 2020 after CECL
FFELP
Loans
Private
Education
Loans
Total
$
64 $
1,048
$
1,112
260
—
542
43
—
260
324 $
(588 )
(3 )
1,045 $
$
802
43
(588 )
257
1,369
(1) Recorded net of tax through retained earnings. Resulted in a $620 million reduction to equity.
(2) Recorded as an increase in basis of the loans. No impact to equity.
(3) Reclassification of the expected future recoveries on charged-off loans (previously referred to as the receivable for partially
charged-off loans) from the Private Education Loan balance to the allowance for loan losses. No impact to equity.
Allowance for Loan Losses Prior to the Adoption of CECL
Private Education Loans
We consider a loan to be impaired when, based on current information, a loss has been incurred and it is probable
that we will not receive all contractual amounts due. When making our assessment as to whether a loan is impaired,
we also take into account more than insignificant delays in payment. We generally evaluate impaired loans on an
aggregate basis by grouping similar loans. Impaired loans also include those loans which are individually assessed
for impairment at a loan level, such as in a troubled debt restructuring (TDR). We maintain an allowance for loan
losses at an amount sufficient to absorb losses incurred in our portfolios at the reporting date based on a projection of
estimated probable credit losses incurred in the portfolio.
F-17
2. Significant Accounting Policies (Continued)
Our Private Education Loan portfolio contains TDR and non-TDR loans. For customers experiencing financial
difficulty, certain Private Education Loans for which we have granted a forbearance of greater than three months, an
interest rate reduction or an extended repayment plan are classified as TDRs. The allowance requirements are
different based on these designations. In determining the allowance for loan losses on our non-TDR portfolio, we
estimate the principal amount of loans that will default over the next two years (two years being the expected period
between a loss event and default) and how much we expect to recover over time related to the defaulted amount.
Expected defaults less our expected recoveries equal the allowance related to this portfolio. Our historical experience
indicates that, on average, the time between the date that a customer experiences a default causing event (i.e., the
loss trigger event) and the date that we charge off the unrecoverable portion of that loan is two years. Separately, for
our TDR portfolio, we estimate an allowance amount sufficient to cover life-of-loan expected losses through an
impairment calculation based on the difference between the loan’s basis and the present value of expected future
cash flows (which would include life-of-loan default and recovery assumptions) discounted at the loan’s original
effective interest rate. Our TDR portfolio is comprised mostly of loans with forbearance usage greater than three
months and interest rate reductions. The separate allowance estimates for our TDR and non-TDR portfolios are
combined into our total allowance for Private Education Loan losses.
In estimating both the non-TDR and TDR allowance amounts, we start with historical experience of customer default
behavior. We make judgments about which historical period to start with and then make further judgments about
whether that historical experience is representative of future expectations and whether additional adjustments may be
needed to those historical default rates. We also take the economic environment into consideration when calculating
the allowance for loan losses. We analyze key economic statistics and the effect we expect them to have on future
defaults. Key economic statistics analyzed as part of the allowance for loan losses are primarily unemployment rates.
Our allowance for loan losses is estimated using an analysis of delinquent and current accounts. Our model is used
to estimate the likelihood that a loan may progress through the various delinquency stages and ultimately charge off.
The evaluation of the allowance for loan losses is inherently subjective, as it requires material estimates that may be
susceptible to significant changes. The estimate for the allowance for loan losses is subject to a number of
assumptions. If actual future performance in delinquency, charge-offs and recoveries are significantly different than
estimated, this could materially affect our estimate of the allowance for loan losses and the related provision for loan
losses on our income statement.
We determine the collectability of our Private Education Loan portfolio by evaluating certain risk characteristics. We
consider credit score (FICO), loan status, loan seasoning, existence of a cosigner and school type as the key credit
quality indicators because they have the most significant effect on our determination of the adequacy of our
allowance for loan losses.
To estimate the probable credit losses incurred in the loan portfolio at the reporting date, we use historical experience
of customer payment behavior in connection with the key credit quality indicators and incorporate management
expectations regarding macroeconomic and collection performance factors. Our model is based upon the most recent
12 months of actual collection experience as the starting point for the non-TDR portfolio and the most recent
approximate 15 years for the TDR portfolio and applies expected macroeconomic changes and collection procedure
changes to estimate expected losses caused by loss events incurred as of the balance sheet date. Our model for the
non-TDR portfolio places a greater emphasis on the more recent default experience rather than the default
experience for older historical periods, as we believe the more recent default experience is more indicative of the
probable losses incurred in the loan portfolio today that will default over the next two years. The TDR portfolio uses a
longer historical default experience since we are projecting life of loan remaining losses. Similar to estimating
defaults, we use historical customer payment behavior to estimate the timing and amount of future recoveries on
charged-off loans. We use judgment in determining whether historical performance is representative of what we
expect to collect in the future. We then apply the default and collection rate projections to each category of loans.
Once the quantitative calculation is performed, we review the adequacy of the allowance for loan losses and
determine if qualitative adjustments need to be considered. Additionally, we consider changes in laws and regulations
that could potentially impact the allowance for loan losses.
FFELP Loans
Similar to the allowance for Private Education Loan losses, the allowance for FFELP Loan losses uses historical
experience of customer default behavior and a two-year loss confirmation period to estimate the credit losses
incurred in the loan portfolio at the reporting date. We apply the default rate projections, net of applicable Risk
Sharing, to each category for the current period to perform our quantitative calculation. Once the quantitative
calculation is performed, we review the adequacy of the allowance for loan losses and determine if qualitative
adjustments need to be considered. For FFELP Loans that have lost their government insurance and have been
charged off, any subsequent cash recoveries benefit the allowance for loan losses when received.
F-18
2. Significant Accounting Policies (Continued)
Investments
Other investments are primarily receivables for cash collateral posted to derivative counterparties.
Cash and Cash Equivalents
Cash and cash equivalents can include term federal funds, Eurodollar deposits, commercial paper, asset-backed
commercial paper (ABCP), CDs, treasuries and money market funds with original terms to maturity of less than three
months.
Restricted Cash and Investments
Restricted cash primarily includes amounts held in education loan securitization trusts and other secured borrowings.
This cash must be used to make payments related to trust obligations. Amounts on deposit in these accounts are
primarily the result of timing differences between when principal and interest is collected on the trust assets and when
principal and interest is paid on trust liabilities.
Securities pledged as collateral related to our derivative portfolio, where the counterparty has rights to replace the
securities, are classified as restricted. When the counterparty does not have these rights, the security is recorded in
investments and disclosed as pledged collateral in the notes. Additionally, certain counterparties require cash
collateral pledged to us to be segregated and held in restricted cash accounts.
Goodwill and Acquired Intangible Assets
Acquisitions are accounted for under the acquisition method of accounting which results in the Company allocating
the purchase price to the fair value of the acquired assets, liabilities and non-controlling interests, if any, with the
remaining purchase price allocated to goodwill.
Goodwill is not amortized but is tested periodically for impairment. We test goodwill for impairment annually as of
October 1 at the reporting unit level, which is the same as or one level below a business segment. Goodwill is also
tested at interim periods if an event occurs or circumstances change that would indicate the carrying amount may be
impaired.
We complete a goodwill impairment analysis which may be a qualitative or a quantitative analysis depending on the
facts and circumstances associated with the reporting unit. In conjunction with a qualitative impairment analysis, we
assess relevant qualitative factors to determine whether it is “more-likely-than-not” that the fair value of a reporting
unit is less than its carrying amount. The “more-likely-than-not” threshold is defined as having a likelihood of more
than 50%. If, based on first assessing impairment utilizing a qualitative approach, we determine it is “more-likely-than-
not” that the fair value of the reporting unit is less than its carrying amount, we will also complete a quantitative
impairment analysis. In conjunction with a quantitative impairment analysis, we compare the fair value of the reporting
unit to the reporting unit’s carrying value, including goodwill. If the carrying value of the reporting unit exceeds the fair
value, goodwill is impaired in an amount equal to the amount by which the carrying value exceeds the fair value of the
reporting unit not to exceed the goodwill amount attributed to the reporting unit.
Acquired intangible assets include, but are not limited to, trade names, customer and other relationships, and non-
compete agreements. Acquired intangible assets with finite lives are amortized over their estimated useful lives in
proportion to their estimated economic benefit. Finite-lived acquired intangible assets are reviewed for impairment
using an undiscounted cash flow analysis when an event occurs or circumstances change indicating the carrying
amount of a finite-lived asset or asset group may not be recoverable. If the carrying amount of the asset or asset
group exceeds the undiscounted cash flows, the fair value of the asset or asset group is determined using an
acceptable valuation technique. An impairment loss would be recognized if the carrying amount of the asset
or asset group exceeds the fair value of the asset or asset group. The impairment loss recognized would be the
difference between the carrying amount and fair value.
F-19
2. Significant Accounting Policies (Continued)
Securitization Accounting
Our securitizations use a two-step structure with a special purpose entity that legally isolates the transferred assets
from us, even in the event of bankruptcy. Transactions receiving sale treatment are also structured to ensure that the
holders of the beneficial interests issued are not constrained from pledging or exchanging their interests, and that we
do not maintain effective control over the transferred assets. If these criteria are not met, then the transaction is
accounted for as an on-balance sheet secured borrowing. In all cases, irrespective of whether they qualify as
accounting sales our securitizations are legally structured to be sales of assets that isolate the transferred assets
from us. If a securitization qualifies as a sale, we then assess whether we are the primary beneficiary of the
securitization trust (VIE) and are required to consolidate such trust. If we are the primary beneficiary, then no gain or
loss is recognized. See “Consolidation” of this Note 2 for additional information regarding the accounting rules for
consolidation when we are the primary beneficiary of these trusts.
Irrespective of whether a securitization receives sale or on-balance sheet treatment, our continuing involvement with
our securitization trusts is generally limited to:
• Owning equity certificates or other certificates of certain trusts and, in certain cases, securities retained for the
purpose of complying with risk retention requirements under securities laws.
•
Lending to certain trusts, under a revolving credit, amounts necessary to cover temporary cash flow needs of the
trust. These amounts are repaid to us on subordinated basis with interest at a market rate.
• The servicing of the education loan assets within the securitization trusts, on both a pre- and post-default basis.
• Our acting as administrator for the securitization transactions we sponsored, which includes remarketing certain
bonds at future dates.
• Our responsibilities relative to representation and warranty violations.
• Temporarily advancing to the trust certain borrower benefits afforded the borrowers of education loans that have
been securitized. These advances subsequently are returned to us in the next quarter.
• Certain back-to-back derivatives entered into by us contemporaneously with the execution of derivatives by
certain Private Education Loan securitization trusts.
• The option held by us to buy certain delinquent loans from certain Private Education Loan securitization trusts.
• The option to exercise the clean-up call and purchase the education loans from the trust when the asset balance
is 10% or less of the original loan balance.
• The option, on some trusts, to purchase education loans aggregating up to 10% of the trust’s initial pool balance.
• The option (in certain trusts) to call rate reset notes in instances where the remarketing process has failed.
The investors of the securitization trusts have no recourse to our other assets should there be a failure of the trusts to
pay when due. Generally, the only arrangements under which we have to provide financial support to the trusts are
representation and warranty violations requiring the buyback of loans.
Under the terms of the transaction documents of certain trusts, we have, from time to time, exercised our options to
purchase delinquent loans from Private Education Loan trusts, to purchase the remaining loans from trusts once the
loan balance falls below 10% of the original amount, to purchase education loans up to 10% of the trust’s initial
balance, or to call rate reset notes. Certain trusts maintain financial arrangements with third parties also typical of
securitization transactions, such as derivative contracts (swaps).
We do not record servicing assets or servicing liabilities when our securitization trusts are consolidated. As of
December 31, 2021, we had $21 million of servicing assets on our balance sheet, recorded in connection with asset
sales where we retained the servicing.
F-20
2. Significant Accounting Policies (Continued)
Education Loan Interest Income
For loans classified as held-for-investment, we recognize education loan interest income as earned, adjusted for the
amortization of premiums (which includes premiums from loan purchases and capitalized direct origination costs),
discounts and Repayment Borrower Benefits. These adjustments result in income being recognized based upon the
expected yield of the loan over its life after giving effect to expected prepayments. We amortize premium and
discount on education loans using a Constant Prepayment Rate (CPR) which measures the rate at which loans in the
portfolio pay down principal compared to their stated terms. In determining the CPR, we only consider payments
made in excess of contractually required payments. This would include loan refinancing and consolidations and other
early payoff activity. For Repayment Borrower Benefits, the estimates of their effect on education loan yield are based
on analyses of historical payment behavior of customers who are eligible for the incentives and its effect on the
ultimate qualification rate for these incentives. We regularly evaluate the assumptions used to estimate the
prepayment speeds and the qualification rates used for Repayment Borrower Benefits. In instances where there are
changes to the assumptions, amortization is adjusted on a cumulative basis to reflect the change since the
acquisition of the loan. We do not amortize any premiums, discounts or other adjustments to the basis of education
loans when they are classified as held-for-sale.
Interest Expense
Interest expense is based upon contractual interest rates adjusted for the amortization of debt issuance costs,
premiums and discounts. Our interest expense is also adjusted for net payments/receipts related to interest rate and
foreign currency swap agreements that qualify and are designated as hedges, as well as the mark-to-market impact
of derivatives and debt in fair value hedge relationships. Interest expense also includes the amortization of deferred
gains and losses on closed hedge transactions that qualified as hedges. Amortization of debt issuance costs,
premiums, discounts and terminated hedge-basis adjustments are recognized using the effective interest rate
method.
Servicing Revenue
We perform loan servicing functions for third parties in return for a servicing fee. Our compensation is typically based
on a per-unit fee arrangement or a percentage of the loans outstanding. We recognize servicing revenues associated
with these activities based upon the contractual arrangements as the services are rendered. We recognize late fees
on third-party serviced loans as well as on loans in our portfolio according to the contractual provisions of the
promissory notes, as well as our expectation of collectability.
Asset Recovery and Business Processing Revenue
We account for certain asset recovery and business processing contract revenue (herein referred to as revenue from
contracts with customers) in accordance with ASC 606, “Revenue from Contracts with Customers.” (All Business
Processing segment and the majority of the Federal Education Loan segment asset recovery and business
processing revenue is accounted for under ASC 606.) Revenue earned by our Federal Education Loans segment is
derived from asset recovery activities related to the collection of delinquent education loans on behalf of ED,
Guarantor agencies and other institutions, as well as certain other Guarantor activities. Revenue earned by our
Business Processing segment is derived from government services, which includes receivables management
services and account processing solutions, and healthcare services, which includes revenue cycle management
services.
F-21
2. Significant Accounting Policies (Continued)
Most of our revenue from contracts with customers is derived from long-term contracts, the duration of which is
expected to span more than one year. These contracts are billable monthly, as services are rendered, based on a
percentage of the balance collected or the transaction processed, a flat fee per transaction or a stated rate per the
service performed. In accordance with ASC 606, the unit of account is a contractual performance obligation, a
promise to provide a distinct good or service to a customer. The transaction price is allocated to each distinct
performance obligation when or as the good or service is transferred to the customer and the obligation is satisfied.
Distinct performance obligations are identified based on the services specified in the contract that are capable of
being distinct such that the customer can benefit from the service on its own or together with other resources that are
available from the Company or a third party, and are also distinct in the context of the contract such that the transfer
of the services is separately identifiable from other services promised in the contract. Most of our contracts include
integrated service offerings that include obligations that are not separately identifiable and distinct in the context of
our contracts. Accordingly, our contracts generally have a single performance obligation. A limited number of full-
service offerings include multiple performance obligations.
Substantially all our revenue is variable revenue which is recognized over time as our customers receive and
consume the benefit of our services in an amount consistent with monthly billings. Accordingly, we do not disclose
variable consideration associated with the remaining performance obligation as we have recognized revenue in the
amount we have the right to invoice for services performed. Our fees correspond to the value the customer has
realized from our performance of each increment of the service (for example, an individual transaction processed or
collection of a past due balance).
Transfer of Financial Assets and Extinguishments of Liabilities
Our securitizations and other secured borrowings are generally accounted for as on-balance sheet secured
borrowings. See “Securitization Accounting” of this Note 2 for further discussion on the criteria assessed to determine
whether a transfer of financial assets is a sale or a secured borrowing. If a transfer of loans qualifies as a sale, we
derecognize the loan and recognize a gain or loss as the difference between the carrying basis of the loan sold and
liabilities retained and the compensation received.
We periodically repurchase our outstanding debt in the open market or through public tender offers. We record a gain
or loss on the early extinguishment of debt based upon the difference between the carrying cost of the debt and the
amount paid to the third party and net of hedging gains and losses when the debt is in a qualifying hedge relationship.
We recognize the results of a transfer of loans and the extinguishment of debt based upon the settlement date of the
transaction.
Derivative Accounting
Derivative instruments that are used as part of our interest rate and foreign currency risk management strategy
include interest rate swaps, cross-currency interest rate swaps, and interest rate floor contracts. The accounting for
derivative instruments requires that every derivative instrument, including certain derivative instruments embedded in
other contracts, be recorded on the balance sheet as either an asset or liability measured at its fair value. As more
fully described below, if certain criteria are met, derivative instruments are classified and accounted for by us as
either fair value or cash flow hedges. If these criteria are not met, the derivative financial instruments are accounted
for as trading. Derivative positions are recorded as net positions by counterparty based on master netting
arrangements exclusive of accrued interest and cash collateral held or pledged. Many of our derivatives, mainly fixed
to variable or variable to fixed interest rate swaps and cross-currency interest rate swaps, qualify as effective hedges.
For these derivatives, at the inception of the hedge relationship, the following is documented: the relationship
between the hedging instrument and the hedged items (including the hedged risk, the method for assessing
effectiveness, and the results of the upfront effectiveness testing), and the risk management objective and strategy
for undertaking the hedge transaction. Each derivative is designated to either a specific (or pool of) asset(s) or
liability(ies) on the balance sheet or expected future cash flows and designated as either a “fair value” or a “cash flow”
hedge. The assessment of the hedge’s effectiveness is performed at inception and on an ongoing basis, generally
using regression testing. For hedges of a pool of assets or liabilities, tests are performed to demonstrate the similarity
of individual instruments of the pool. When it is determined that a derivative is not currently an effective hedge,
ineffectiveness is recognized for the full change in value of the derivative with no offsetting mark-to-market of the
hedged item for the current period. If it is also determined the hedge will not be effective in the future, we discontinue
the hedge accounting prospectively, cease recording changes in the fair value of the hedged item, and begin
amortization of any basis adjustments that exist related to the hedged item.
F-22
2. Significant Accounting Policies (Continued)
Fair Value Hedges
Fair value hedges are generally used by us to hedge the exposure to changes in the fair value of a recognized fixed
rate asset or liability. We enter into interest rate swaps to economically convert fixed rate assets into variable rate
assets and fixed rate debt into variable rate debt. We also enter into cross-currency interest rate swaps to
economically convert foreign currency denominated fixed and floating debt to U.S. dollar denominated variable debt.
For fair value hedges, we generally consider all components of the derivative’s gain and/or loss when assessing
hedge effectiveness and generally hedge changes in fair values due to interest rates or interest rates and foreign
currency exchange rates. For fair value hedges, both the derivative and the hedged item (for the risk being hedged)
are marked-to-market through net interest income with any difference reflecting ineffectiveness.
Cash Flow Hedges
We use cash flow hedges to hedge the exposure to variability in cash flows for a forecasted debt issuance and for
exposure to variability in cash flows of floating rate debt or assets. This strategy is used primarily to minimize the
exposure to volatility from future changes in interest rates. For cash flow hedges, the change in the fair value of the
derivative is recorded in other comprehensive income, net of tax, and recognized in earnings in the same period as
the earnings effects of the hedged item. In the case of a forecasted debt issuance, gains and losses are reclassified
to earnings over the period which the stated hedged transaction affects earnings. If we determine it is not probable
that the anticipated transaction will occur, gains and losses are reclassified immediately to earnings. In assessing
hedge effectiveness, generally all components of each derivative’s gains or losses are included in the assessment.
We generally hedge exposure to changes in cash flows due to changes in interest rates or total changes in cash flow.
Trading Activities
When derivative instruments do not qualify as hedges, they are accounted for as trading instruments where all
changes in fair value are recorded through earnings with no consideration for the corresponding change in fair value
of the economically hedged item. Some of our derivatives, primarily Floor Income Contracts, basis swaps and at
times, certain other LIBOR swaps do not qualify for hedge accounting treatment. Regardless of the accounting
treatment, we consider these derivatives to be economic hedges for risk management purposes. We use this strategy
to minimize our exposure to changes in interest rates.
The “gains (losses) on derivative and hedging activities, net” line item in the consolidated statements of income
includes the mark-to-market gains and losses of our derivatives that do not qualify for hedge accounting, as well as
the realized changes in fair value related to derivative net settlements and dispositions that do not qualify for hedge
accounting.
Accounting for Stock-Based Compensation
We recognize stock-based compensation cost in our statements of income using the fair value-based method. Under
this method we determine the fair value of the stock-based compensation at the time of the grant and recognize the
resulting compensation expense over the grant’s vesting period. We record stock-based compensation expense net
of estimated forfeitures and as such, only those stock-based awards that we expect to vest are recorded. We
estimate the forfeiture rate based on historical forfeitures of equity awards and adjust the rate to reflect changes in
facts and circumstances, if any. Ultimately, the total expense recognized over the vesting period will equal the fair
value of awards that actually vest.
F-23
2. Significant Accounting Policies (Continued)
Restructuring and Other Reorganization Expenses
From time to time we implement plans to restructure our business. In conjunction with these restructuring plans,
involuntary benefit arrangements, disposal costs (including contract termination costs and other exit costs), as well as
certain other costs that are incremental and incurred as a direct result of our restructuring plans, are classified as
restructuring expenses in the consolidated statements of income.
The Company administers the Navient Corporation Employee Severance Plan and the Navient Corporation Executive
Severance Plan for Senior Officers (collectively, the Severance Plan). The Severance Plan provides severance
benefits in the event of termination of the Company’s full-time employees and part-time employees who work at least
24 hours per week. The Severance Plan establishes specified benefits based on base salary, job level immediately
preceding termination and years of service upon involuntary termination of employment. The benefits payable under
the Severance Plan relate to past service, and they accumulate and vest. Accordingly, we recognize severance
expenses to be paid pursuant to the Severance Plan when payment of such benefits is probable and can be
reasonably estimated. Such benefits include severance pay calculated based on the Severance Plan, medical and
dental benefits, and outplacement services expenses.
Contract termination costs are expensed at the earlier of (1) the contract termination date or (2) the cease use date
under the contract. Other exit costs are expensed as incurred and classified as restructuring expenses if (1) the cost
is incremental to and incurred as a direct result of planned restructuring activities and (2) the cost is not associated
with or incurred to generate revenues subsequent to our consummation of the related restructuring activities.
Other reorganization expenses include certain internal costs and third-party costs incurred in connection with our cost
reduction initiatives.
During 2021 and 2020, the Company incurred $26 million and $9 million, respectively, of restructuring/other
reorganization expense in connection with an effort that will reduce costs and improve operating efficiency. These
charges were primarily related to the impairment of a facility that is held for sale, facility lease terminations and
severance-related costs.
Income Taxes
We account for income taxes under the asset and liability approach which requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary differences between the carrying
amounts and tax basis of our assets and liabilities. To the extent tax laws change, deferred tax assets and liabilities
are adjusted in the period that the tax change is enacted.
“Income tax expense/(benefit)” includes (i) deferred tax expense/(benefit), which represents the net change in the
deferred tax asset or liability balance during the year plus any change in a valuation allowance and (ii) current tax
expense/(benefit), which represents the amount of tax currently payable to or receivable from a tax authority plus
amounts accrued for unrecognized tax benefits. Income tax expense/(benefit) excludes the tax effects related to
adjustments recorded in equity.
If we have an uncertain tax position, then that tax position is recognized only if it is more likely than not to be
sustained upon examination based on the technical merits of the position. The amount of tax benefit recognized in
the financial statements is the largest amount of benefit that is more than 50% likely of being sustained upon ultimate
settlement of the uncertain tax position. We recognize interest related to unrecognized tax benefits in income tax
expense/(benefit) and penalties, if any, in operating expenses.
Earnings (Loss) per Common Share
We compute earnings (loss) per common share (EPS) by dividing net income allocated to common shareholders by
the weighted average common shares outstanding. Diluted earnings per common share is computed by dividing
income allocated to common shareholders by the weighted average common shares outstanding plus amounts
representing the dilutive effect of stock options outstanding, restricted stock, restricted stock units, and the
outstanding commitment to issue shares under the Employee Stock Purchase Plan. See “Note 10 — Earnings (Loss)
per Common Share” for further discussion.
F-24
2. Significant Accounting Policies (Continued)
Recently Issued Accounting Pronouncements
Effective in 2020 and Forward
Rate Reform
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform: Facilitation of the Effects of Reference
Rate Reform on Financial Reporting,” which provides optional temporary relief for companies who are preparing for
the discontinuation of interest rates indexed to the London Interbank Offered Rate (LIBOR). The ASU provides
companies with guidance in the form of expedients and exceptions related to contract modifications and hedge
accounting to ease the burden of and simplify the accounting associated with transitioning away from
LIBOR. Modifications of qualifying contracts are accounted for as the continuation of an existing contract rather than
as a new contract. Modifications of qualifying hedging relationships will not require discontinuation of the existing
hedge accounting relationships. This guidance, which will only be available through December 31, 2022, can be
applied commencing in March 2020. We have approximately $172 billion of financial instruments indexed to one-
month or three-month U.S. Dollar (USD) LIBOR as of December 31, 2021. One-month and three-month USD LIBOR
will no longer be published after June 30, 2023. The Company continues to assess the implications of this and has
not concluded whether it will apply the expedients and exceptions provided in this new standard. This decision will be
made in 2022.
3. Education Loans
Education loans consist of FFELP and Private Education Loans.
There are two principal categories of FFELP Loans: Stafford and FFELP Consolidation Loans. Generally, Stafford
loans have repayment periods of between 5 and 10 years. FFELP Consolidation Loans have repayment periods of 12
to 30 years. FFELP Loans do not require repayment, or have modified repayment plans, while the customer is in-
school and during the grace period immediately upon leaving school. The customer may also be granted a deferment
or forbearance for a period of time based on need, during which time the customer is not considered to be in
repayment. Interest continues to accrue on loans in the in-school, deferment and forbearance period. FFELP Loans
obligate the customer to pay interest at a stated fixed rate or a variable rate reset annually (subject to a cap) on July 1
of each year depending on when the loan was originated and the loan type. FFELP Loans disbursed before April 1,
2006 earn interest at the greater of the borrower’s rate or a floating rate based on the Special Allowance Payment
(SAP) formula, with the interest earned on the floating rate that exceeds the interest earned from the customer being
paid directly by ED. For loans disbursed after April 1, 2006, FFELP Loans effectively only earn at the SAP rate, as the
excess interest earned when the borrower rate exceeds the SAP rate (Floor Income) is required to be rebated to ED.
FFELP Loans are insured as to their principal and accrued interest in the event of default subject to a Risk Sharing
level based on the date of loan disbursement. These insurance obligations are supported by contractual rights
against the United States. For loans disbursed after October 1, 1993 and before July 1, 2006, we receive 98%
reimbursement on all qualifying default claims. For loans disbursed on or after July 1, 2006, we receive
97% reimbursement.
F-25
3. Education Loans (Continued)
Private Education Loans bear the full credit risk of the customer. Private Education Refinance Loans generally have a
fixed interest rate with the non-refinance Private Education Loans generally at a variable rate indexed to LIBOR or
Prime indices. The majority of non-refinance loans in our portfolio are cosigned. Similar to FFELP loans, Private
Education Loans are generally non-dischargeable in bankruptcy. Most loans have repayment terms of 10 to 15 years
or more, and for loans made prior to 2009, payments are typically deferred until after graduation. However, since
2009 we began to encourage interest-only or fixed payment options while the customer is enrolled in school.
The estimated weighted average life of education loans in our portfolio was approximately 6 years at December 31,
2021 and 2020. The following table reflects the distribution of our education loan portfolio by program.
(Dollars in millions)
FFELP Stafford Loans, net
FFELP Consolidation Loans, net
Private Education Loans, net
Total education loans, net
(Dollars in millions)
FFELP Stafford Loans, net
FFELP Consolidation Loans, net
Private Education Loans, net
Total education loans, net
December 31, 2021
Year Ended
December 31, 2021
Ending
Balance
% of
Balance
Average
Balance
Average
Effective
Interest
Rate
$
$
18,219
34,422
20,171
72,812
25 % $
47
28
100 % $
19,270
36,748
21,225
77,243
2.19 %
2.84
5.57
3.42 %
December 31, 2020
Year Ended
December 31, 2020
Ending
Balance
% of
Balance
Average
Balance
Average
Effective
Interest
Rate
$
$
19,607
38,677
21,079
79,363
25 % $
49
26
100 % $
20,844
40,678
22,720
84,242
2.80 %
3.08
6.36
3.90 %
As of December 31, 2021 and 2020, 87% and 85%, respectively, of our education loan portfolio was in repayment.
F-26
4. Allowance for Loan Losses
Allowance for Loan Losses Metrics
(Dollars in millions)
Beginning balance
Provision:
Reversal of allowance related to loan sales(1)
Remaining provision
Total provision
Charge-offs:
Net adjustment resulting from the change in the charge-off rate(2)
Net charge-offs remaining(3)
Total charge-offs(3)
Decrease in expected future recoveries on charged-off loans(4)
Allowance at end of period
Plus: expected future recoveries on charged-off loans(4)
Allowance at end of period excluding expected future recoveries on
charged-off loans(5)
Net charge-offs as a percentage of average loans in repayment,
excluding the net adjustment resulting from the change in the
charge-off rate(2)
Net adjustment resulting from the change in charge-off rate
as a percentage of average loans in repayment(2)
Allowance coverage of charge-offs(6)
Allowance as a percentage of the ending total loan balance(6)
Allowance as a percentage of the ending loans in repayment(6)
Ending total loans
Average loans in repayment
Ending loans in repayment
Year Ended December 31, 2021
Private
Education
Loans
FFELP
Loans
Total
$
288
$
1,089
$
1,377
—
—
—
—
(26 )
(26 )
—
262
—
(107 )
46
(61 )
(16 )
(153 )
(169 )
150
1,009
329
(107 )
46
(61 )
(16 )
(179 )
(195 )
150
1,271
329
$
262
$
1,338
$
1,600
.06 %
.76 %
— %
10.0
.5 %
.6 %
52,903
45,781
44,390
$
$
$
$
$
$
.08 %
7.9
6.3 %
6.6 %
21,180
20,150
20,284
(1)
(2)
In connection with the sale of approximately $1.6 billion of Private Education Loans in 2021.
In 2021, the portion of the loan amount charged off at default on Private Education Loans increased from 81.4% to 81.7%. This change resulted
in a $16 million reduction to the balance of the expected future recoveries on charged-off loans in 2021.
(3) Charge-offs are reported net of expected recoveries. For Private Education Loans, at the time of charge-off, the expected recovery amount is
transferred from the education loan balance to the allowance for loan loss and is referred to as the expected future recoveries on charged-off
loans. For FFELP Loans, the recovery is received at the time of charge-off.
(4) At the end of each month, for Private Education Loans that are 212 or more days past due, we charge off the estimated loss of a defaulted loan
balance. Actual recoveries are applied against the remaining loan balance that was not charged off. We refer to this as the “expected future
recoveries on charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately charged off through the
allowance for Private Education Loan losses with an offsetting reduction in the expected future recoveries for charged-off loans. If actual periodic
recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the
cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. The following table summarizes the activity in
the expected future recoveries on charged-off loans:
(Dollars in millions)
Beginning of period expected recoveries
Expected future recoveries of current period defaults
Recoveries
Charge-offs
Reduction in expected recoveries related to regulatory settlement(5)
End of period expected recoveries
Change in balance during period
Year Ended
December 31,
2021
$
$
$
479
22
(87 )
(35 )
(50 )
329
(150 )
(5) See “Note 12 – Commitments, Contingencies and Guarantees” for further discussion.
(6)
The allowance used for these metrics excludes the expected future recoveries on charged-off loans to better reflect the current expected credit
losses remaining in the portfolio.
F-27
4. Allowance for Loan Losses (Continued)
See “Note 2 – Significant Accounting Policies” for discussion of the adoption of CECL on January 1, 2020.
(Dollars in millions)
Allowance at beginning of period
Transition adjustment made under CECL on January 1, 2020(1)
Allowance at beginning of period after transition adjustment to CECL
Total provision
Charge-offs:
$
Net adjustment resulting from the change in the charge-off rate(2)
Net charge-offs remaining(3)
Total charge-offs(3)
Decrease in expected future recoveries on charged-off loans(4)
Allowance at end of period
Plus: expected future recoveries on charged-off loans(4)
Allowance at end of period excluding expected future recoveries on
charged-off loans(5)
Net charge-offs as a percentage of average loans in repayment,
excluding the net adjustment resulting from the change in the
charge-off rate(2)
Net adjustment resulting from the change in charge-off rate
as a percentage of average loans in repayment(2)
Allowance coverage of charge-offs(5)
Allowance as a percentage of the ending total loan balance(5)
Allowance as a percentage of the ending loans in repayment(5)
Ending total loans
Average loans in repayment
Ending loans in repayment
Year Ended December 31, 2020
Private
Education
Loans
FFELP
Loans
Total
$
64
260
324
13
—
(49 )
(49 )
—
288
—
$
1,048
(3 )
1,045
142
(23 )
(184 )
(207 )
109
1,089
479
1,112
257
1,369
155
(23 )
(233 )
(256 )
109
1,377
479
$
288
$
1,568
$
1,856
.10 %
.88 %
— %
5.9
.5 %
.6 %
58,572
48,130
48,057
$
$
$
$
$
$
.11 %
7.6
7.1 %
7.5 %
22,168
20,790
20,841
(1)
(2)
(3)
(4)
For a further discussion of our adoption of CECL, see “Note 2 – Significant Accounting Policies.”
In 2020, the portion of the loan amount charged off at default on Private Education Loans increased from 81% to 81.4%. This charge resulted
in a $23 million reduction to the balance of the receivable for partially charged-off loan balance.
Charge-offs are reported net of expected recoveries. For Private Education Loans, at the time of charge-off, the expected recovery amount is
transferred from the education loan balance to the allowance for loan loss and is referred to as the expected future recoveries on charged-off
loans. For FFELP Loans, the recovery is received at the time of charge-off.
At the end of each month, for Private Education Loans that are 212 or more days past due, we charge off the estimated loss of a defaulted loan
balance. Actual recoveries are applied against the remaining loan balance that was not charged off. We refer to this as the “expected future
recoveries on charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately charged off through the
allowance for Private Education Loan losses with an offsetting reduction in the expected future recoveries for charged-off loans. If actual
periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses
once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. The following table summarizes the
activity in the expected future recoveries on charged-off loans.
(Dollars in millions)
Beginning of period expected recoveries
Expected future recoveries of current period defaults
Recoveries
Charge-offs
End of period expected recoveries
Change in balance during period
Year Ended
December 31,
2020
$
$
$
588
32
(107 )
(34 )
479
(109 )
(5)
The allowance used for these metrics excludes the expected future recoveries on charged-off loans to better reflect the current expected credit
losses remaining in the portfolio.
F-28
4. Allowance for Loan Losses (Continued)
(Dollars in millions)
Beginning balance
Total provision
Charge-offs:
Net adjustment resulting from the change in the charge-off
rate(1)
Net charge-offs remaining(2)
Total charge-offs(2)
Reclassification of interest reserve(3)
Loan sales
Ending balance
Allowance Ending Balance:
Individually evaluated for impairment — TDR
Collectively evaluated for impairment:
Excluding Purchased Non-Credit Impaired Loans
acquired at a discount and Purchased Credit Impaired
Loans
Purchased Non-Credit Impaired Loans acquired at a
discount(4)
Purchased Credit Impaired Loans(4)
Ending total allowance
Loans Ending Balance:
Individually evaluated for impairment — TDR
Collectively evaluated for impairment:
Excluding Purchased Non-Credit Impaired Loans
acquired at a discount and Purchased Credit Impaired
Loans
Purchased Non-Credit Impaired Loans acquired at a
discount(4)
Purchased Credit Impaired Loans(4)
Ending total loans(5)
Net charge-offs as a percentage of average loans in
repayment, excluding the net adjustment resulting
from the change in the charge-off rate(1)
Net adjustment resulting from the change in charge-off rate
as a percentage of average loans in repayment(1)
Allowance coverage of charge-offs
Allowance as a percentage of the ending total loan balance
Allowance as a percentage of the ending loans in repayment
Ending total loans(5)
Average loans in repayment
Ending loans in repayment
FFELP
Loans
$
Year Ended December 31, 2019
Private
Education
Loans
Other
Loans
Total
76
30
$
1,201
226
$
$
9
1
1,286
258
—
(42 )
(42 )
—
—
64
$
(21 )
(364 )
(385 )
7
(1 )
1,048
$
—
(2 )
(2 )
—
(8 )
—
$
(21 )
(408 )
(429 )
7
(9 )
1,112
—
$
941
$
—
$
941
$
$
$
$
64
—
—
64
$
107
—
—
1,048
$
—
$
9,617
$
61,589
12,286
2,505
—
64,094
$
$
1,806
201
23,910
$
.07 %
1.67 %
— %
1.5
.10 %
.12 %
64,094
55,978
53,538
$
$
$
$
$
$
.10 %
2.7
4.38 %
4.74 %
23,910
21,859
22,089
$
$
$
171
—
—
1,112
9,617
73,884
4,311
201
88,013
$
$
$
—
—
—
—
—
9
—
—
9
— %
— %
—
— %
— %
9
29
9
(1)
(2)
(3)
(4)
(5)
In 2019, the portion of the loan amount charged off at default on Private Education Loans increased from 80.5% to 81%. This charge resulted
in a $21 million reduction to the balance of the receivable for partially charged-off loan balance.
Charge-offs are reported net of expected recoveries. For Private Education Loans, the expected recovery amount is transferred to the
receivable for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which
represents the difference between what was expected to be recovered and any shortfalls in what was actually recovered in the period. For
FFELP Loans, the recovery is received at the time of charge-off.
Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the
period to the allowance for loan losses when interest is capitalized to a loan’s principal balance.
The Purchased Credit Impaired Loans’ losses are not provided for by the allowance for loan losses in the above table as these loans are
separately reserved for, if needed. No allowance for loan losses has been established for these loans as of December 31, 2019. The losses of
the Purchased Non-Credit Impaired Loans acquired at a discount are not provided for by the allowance for loan losses in the above table as
the remaining purchased discount associated with the FFELP and Private Education Loans of $33 million and $268 million, respectively, as of
December 31, 2019 is greater than the incurred losses and as a result no allowance for loan losses has been established for these loans as of
December 31, 2019.
Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.
F-29
4. Allowance for Loan Losses (Continued)
Troubled Debt Restructurings (TDRs)
We sometimes modify the terms of loans for customers experiencing financial difficulty. Certain Private Education
Loans for which we have granted either a forbearance of greater than three months, an interest rate reduction or an
extended repayment plan are classified as TDRs. Approximately 75% and 72% of the loans granted forbearance
have qualified as a TDR loan at December 31, 2021 and 2020, respectively. The unpaid principal balance of TDR
loans that were in an interest rate reduction program as of December 31, 2021 and 2020 was $831 million and $948
million, respectively.
The following table provides the amount of loans modified in the periods presented that resulted in a TDR.
Additionally, the table summarizes charge-offs occurring in the TDR portfolio, as well as TDRs for which a payment
default occurred in the current period within 12 months of the loan first being designated as a TDR. We define
payment default as 60 days past due for this disclosure.
(Dollars in millions)
Modified loans(1)
Charge-offs(2)
Payment default
2021
Years Ended December 31,
2020
2019
$
$
$
149 $
124 $
21 $
264 $
157 $
47 $
475
324
109
(1)
(2)
Represents period ending balance of loans that have been modified during the period and resulted in a TDR.
Represents loans that charged off that were classified as TDRs
F-30
4. Allowance for Loan Losses (Continued)
Key Credit Quality Indicators
We assess and determine the collectability of our education loan portfolios by evaluating certain risk characteristics
we refer to as key credit quality indicators. Key credit quality indicators are incorporated into the allowance for loan
losses calculation.
FFELP Loans
FFELP Loans are substantially insured and guaranteed as to their principal and accrued interest in the event of
default. The key credit quality indicators are loan status and loan type.
(Dollars in millions)
Loans in-school/grace/deferment(1)
Loans in forbearance(2)
Loans in repayment and percentage of each status:
Loans current
Loans delinquent 31-60 days(3)
Loans delinquent 61-90 days(3)
Loans delinquent greater than 90 days(3)
Total FFELP Loans in repayment
Total FFELP Loans
FFELP Loan allowance for losses
FFELP Loans, net
Percentage of FFELP Loans in repayment
Delinquencies as a percentage of FFELP Loans in
repayment
FFELP Loans in forbearance as a percentage of
loans in repayment and forbearance
FFELP Loan Delinquencies
December 31, 2021
%
Balance
December 31, 2020
%
Balance
$
2,220
6,292
$
39,679
1,696
904
2,112
44,391
52,903
(262 )
52,641
$
89.4 %
3.8
2.0
4.8
100 %
$
83.9 %
10.6 %
12.4 %
2,791
7,725
43,623
1,374
836
2,223
48,056
58,572
(288 )
58,284
90.8 %
2.9
1.7
4.6
100 %
82.0 %
9.2 %
13.8 %
(1)
(2)
(3)
Loans for customers who may still be attending school or engaging in other permitted educational activities and are not yet required to make
payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation, as well as loans for
customers who have requested and qualify for other permitted program deferments such as military, unemployment, or economic hardships.
Loans for customers who have used their allowable deferment time or do not qualify for deferment, that need additional time to obtain
employment or who have temporarily ceased making full payments due to hardship or other factors such as disaster relief, including COVID-19
relief programs, consistent with established loan program servicing policies and procedures.
The period of delinquency is based on the number of days scheduled payments are contractually past due.
Loan type:
(Dollars in millions)
Stafford Loans
Consolidation Loans
Rehab Loans
Total loans, gross
December 31,
2021
December 31,
2020
Change
$
$
16,329 $
31,873
4,701
52,903 $
17,686 $
35,968
4,918
58,572 $
(1,357 )
(4,095 )
(217 )
(5,669 )
F-31
4. Allowance for Loan Losses (Continued)
Private Education Loans
The key credit quality indicators are credit scores (FICO scores), loan status, loan seasoning, whether a loan is a
TDR, the existence of a cosigner and school type. The FICO score is the higher of the borrower or co-borrower score
and is updated at least every six months while school type is assessed at origination. The other Private Education
Loan key quality indicators are updated quarterly.
(Dollars in millions)
Credit Quality
Indicators
FICO Scores:
640 and above
Below 640
Total
Loan Status:
2021
2020
2019
2018
2017
Prior
Total
% of Total
Private Education Loan Credit Quality Indicators by Origination Year
$
$
5,185
42
5,227
$
$
1,990 $
15
2,005 $
1,862
37
1,899
$
$
695 $
21
716 $
209
8
217
$
9,606 $ 19,547
1,633
1,510
$ 11,116 $ 21,180
92 %
8
100 %
In-school/grace/
deferment/forbearance $
Current/90 days or
less delinquent
Greater than 90 days
delinquent
Total
Seasoning(1):
1-12 payments
13-24 payments
25-36 payments
37-48 payments
More than 48
payments
Loans in-school/
grace/deferment
Total
TDR Status:
TDR
Non-TDR
Total
Cosigners:
With cosigner(2)
Without cosigner
Total
School Type:
Not-for-profit
For-profit
Total
Allowance for loan
losses
Total loans, net
$
$
$
$
$
$
$
$
$
41
$
30 $
34
$
17 $
6
$
768 $
896
4 %
5,184
1,973
1,860
697
211
10,062
19,987
94
$
$
2
5,227
5,208
—
—
—
2
2,005 $
5
1,899
161 $
1,824
—
—
27
568
1,283
—
$
$
2
716 $
—
217
286
297
$ 11,116 $ 21,180
2
100 %
5 $
14
165
524
$
1
3
9
61
133 $
150
248
380
5,535
2,559
1,705
965
26 %
12
8
5
—
—
—
—
141
9,914
10,055
47
19
5,227
2
5,225
5,227
17
5,210
5,227
4,918
309
5,227
$
$
$
$
$
$
$
20
2,005 $
21
1,899
8 $
1,997
2,005 $
31
1,868
1,899
33 $
1,972
2,005 $
12
1,887
1,899
1,916 $
89
2,005 $
1,771
128
1,899
$
$
$
$
$
$
$
8
716 $
28 $
688
716 $
— $
716
716 $
659 $
57
716 $
2
217
29
188
217
34
183
217
291
361
$ 11,116 $ 21,180
$
7,158 $
3,958
7,256
13,924
$ 11,116 $ 21,180
$
7,266 $
3,850
7,362
13,818
$ 11,116 $ 21,180
208
9
217
$
9,241 $ 18,713
2,467
1,875
$ 11,116 $ 21,180
(1,009 )
$ 20,171
2
100 %
34 %
66
100 %
35 %
65
100 %
88 %
12
100 %
(1)
(2)
Number of months in active repayment for which a scheduled payment was received.
Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 65% for total loans at December 31, 2021.
F-32
4. Allowance for Loan Losses (Continued)
(Dollars in millions)
Credit Quality
Indicators
FICO Scores:
640 and above
Below 640
Total
Loan Status:
2020
2019
2018
2017
2016
Prior
Total
% of Total
Private Education Loan Credit Quality Indicators by Origination Year
$
$
4,008
15
4,023
$
$
2,964 $
34
2,998 $
1,079
23
1,102
$
$
340 $
9
349 $
72
2
74
$ 11,746 $ 20,209
1,959
$ 13,622 $ 22,168
1,876
91 %
9
100 %
In-school/grace/
deferment/forbearance $
Current/90 days or
less delinquent
Greater than 90 days
delinquent
Total
Seasoning(1):
1-12 payments
13-24 payments
25-36 payments
37-48 payments
More than 48
payments
Loans in-school/
grace/deferment
Total
TDR Status:
TDR
Non-TDR
Total
Cosigners:
With cosigner(2)
Without cosigner
Total
School Type:
Not-for-profit
For-profit
Total
Allowance for loan
losses
Total loans, net
$
$
$
$
$
$
$
$
$
23
$
43 $
25
$
10 $
2
$
1,224 $
1,327
6 %
3,999
2,953
1,075
338
72
12,187
20,624
93
$
$
1
4,023
4,014
—
—
—
2
2,998 $
2
1,102
879 $
2,098
—
—
7
243
839
—
$
$
1
349 $
2 $
7
101
236
—
—
—
—
9
4,023
1
4,022
4,023
5
4,018
4,023
3,844
179
4,023
$
$
$
$
$
$
$
21
2,998 $
13
1,102
14 $
2,984
2,998 $
23
1,079
1,102
13 $
2,985
2,998 $
1
1,101
1,102
2,801 $
197
2,998 $
1,019
83
1,102
$
$
$
$
$
$
$
3
349 $
31 $
318
349 $
49 $
300
349 $
333 $
16
349 $
—
1
3
38
31
1
74
11
63
74
21
53
74
—
74
211
217
$ 13,622 $ 22,168
1
100 %
$
180 $
234
380
584
5,082
2,583
1,323
858
23 %
12
6
4
11,808
11,839
53
436
483
$ 13,622 $ 22,168
$
8,351 $
5,271
8,431
13,737
$ 13,622 $ 22,168
$
8,911 $
4,711
9,000
13,168
$ 13,622 $ 22,168
74
—
74
$ 11,255 $ 19,326
2,842
$ 13,622 $ 22,168
2,367
(1,089 )
$ 21,079
2
100 %
38 %
62
100 %
41 %
59
100 %
87 %
13
100 %
(1)
(2)
Number of months in active repayment for which a scheduled payment was received.
Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 65% for total loans at December 31, 2020.
F-33
4. Allowance for Loan Losses (Continued)
(Dollars in millions)
Loans in-school/grace/deferment(1)
Loans in forbearance(2)
Loans in repayment and percentage of each status:
Loans current
Loans delinquent 31-60 days(3)
Loans delinquent 61-90 days(3)
Loans delinquent greater than 90 days(3)
Total TDR loans in repayment
Total TDR loans
TDR loans allowance for losses
TDR loans, net
Percentage of TDR loans in repayment
Delinquencies as a percentage of TDR loans in
repayment
Loans in forbearance as a percentage of TDR
loans in repayment and forbearance
Private Education Loan Delinquencies
TDRs
December 31,
2021
December 31,
2020
Balance
$
194
446
%
Balance
$
280
703
%
6,023
199
120
274
6,616
7,256
(829 )
6,427
$
6,952
185
114
197
7,448
8,431
(929 )
7,502
91.0 %
3.0
1.8
4.2
100 %
$
91.2 %
9.0 %
6.3 %
93.4 %
2.5
1.5
2.6
100 %
88.3 %
6.6 %
8.6 %
(1)
(2)
(3)
Loans for customers who are attending school or are in other permitted educational activities and are not yet required to make payments on
their loans, e.g., internship periods, as well as loans for customers who have requested and qualify for other permitted program deferments
such as various military eligible deferments.
Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased
making full payments due to hardship or other factors such as disaster relief, including COVID-19 relief programs, consistent with established
loan program servicing policies and procedures.
The period of delinquency is based on the number of days scheduled payments are contractually past due.
F-34
4. Allowance for Loan Losses (Continued)
(Dollars in millions)
Loans in-school/grace/deferment(1)
Loans in forbearance(2)
Loans in repayment and percentage of each status:
Loans current
Loans delinquent 31-60 days(3)
Loans delinquent 61-90 days(3)
Loans delinquent greater than 90 days(3)
Total non-TDR loans in repayment
Total non-TDR loans
Non-TDR loans allowance for losses
Non-TDR loans, net
Percentage of non-TDR loans in repayment
Delinquencies as a percentage of non-TDR loans in
repayment
Loans in forbearance as a percentage of non-TDR
loans in repayment and forbearance
Private Education Loan Delinquencies
Non-TDRs
December 31,
2021
December 31,
2020
Balance
$
167
89
%
Balance
$
203
141
%
13,611
23
11
23
13,668
13,924
(180 )
13,744
$
13,335
26
12
20
13,393
13,737
(160 )
13,577
99.6 %
.2
.1
.1
100 %
$
98.2 %
.4 %
.6 %
99.6 %
.2
.1
.1
100 %
97.5 %
.4 %
1.0 %
(1) Loans for customers who are attending school or are in other permitted educational activities and are not yet required to make payments on their
loans, e.g., internship periods, as well as loans for customers who have requested and qualify for other permitted program deferments such as
various military eligible deferments.
(2) Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased
making full payments due to hardship or other factors such as disaster relief, including COVID-19 relief programs, consistent with established loan
program servicing policies and procedures.
(3) The period of delinquency is based on the number of days scheduled payments are contractually past due.
F-35
5. Business Combinations, Goodwill and Acquired Intangible
Goodwill
The following table summarizes our goodwill for our reporting units and reportable segments.
(Dollars in millions)
Federal Education Loans reportable segment:
FFELP Loans
Federal Education Loan Servicing(1)
Total
Consumer Lending reportable segment:
Private Education Loans
Private Education Refinance Loans
Private Education In-School Loans(2)
Total
Business Processing reportable segment:
Government Services
Healthcare Services
Total
Total goodwill
As of December 31,
2021
2020
$
$
227 $
5
232
106
77
14
197
136
106
242
671 $
227
13
240
106
77
—
183
136
106
242
665
(1)
(2)
We wrote off $8 million of goodwill in connection with the transfer of our ED contract to a third party in October 2021. This goodwill was
allocated to the ED Servicing component of the Federal Education Loan Servicing reporting unit based on relative fair value. The $8 million was
recorded as part of goodwill and acquired intangible asset impairment and amortization expense.
In the third quarter of 2021, we completed an acquisition for a purchase price of approximately $20 million. The preliminary purchase price
allocation resulted in goodwill of $14 million. The remainder of the purchase price was primarily allocated to developed technology.
Annual Goodwill Impairment Testing – October 1, 2021
We perform our goodwill impairment testing annually in the fourth quarter as of October 1. As part of the 2021 annual
impairment testing for each of our reporting units with goodwill, we assessed relevant qualitative factors to determine
whether it is “more-likely-than-not” that the fair value of an individual reporting unit is less than it’s carrying value. We
considered the amount of excess fair value for our FFELP Loans, Federal Education Loan Servicing, Private
Education Legacy Loans, and Private Education Refinance Loans over their carrying values as of October 1, 2019,
the last time an independent appraiser estimated the value of these reporting units, since the fair value of these
reporting units was substantially in excess of their carrying amounts. The outlook and cash flows for the FFELP
Loans and Private Education Legacy Loans reporting units have not changed significantly since our 2019
assessment, despite COVID-19. Likewise, the outlook and cash flows for the Federal Education Loan Servicing
components remaining after removing the cash flows attributed to the ED Servicing contract have not changed
significantly since 2019. For the Private Education Refinance Loans reporting unit, we considered current and
expected future origination volume both of which increased since 2019 and 2020 and the improved demand for the
reporting unit’s refinance loan products. We also considered Navient’s strong liquidity position, its ability to issue
Private Education Loan ABS comprised entirely of the reporting unit’s refinance loans and improved cost of funds in
2021 on these issuances. No goodwill was deemed impaired for these reporting units after assessing these relevant
qualitative factors.
As part of our annual impairment testing associated with our Government Services and Healthcare Services reporting
units, we also considered the amount of excess fair value over the carrying values of these reporting units as of
October 1, 2020 when we engaged an independent appraiser to estimate the fair value of these reporting units since
the fair value of these reporting units was substantially in excess of their carrying values. We also considered the
financial performance for both of these reporting units in 2021 during which the Government Services and Healthcare
Services reporting units significantly outperformed expectations due largely to significant contracts acquired in 2020
and 2021 to implement and administer programs under the CARES Act and perform contact tracing and vaccine
administration services. The outlook and long-term cash flow projections for both of these reporting units remain
favorable and have not changed significantly since our 2020 quantitative impairment assessment despite the
economic impact of COVID 19. No goodwill was deemed impaired for these reporting units after assessing these
relevant qualitative factors.
For each of our reporting units, we have also considered the current regulatory and legislative environment, the
current economic environment which is still heavily impacted by COVID-19, our 2021 earnings, 2022 expected
F-36
5. Business Combinations, Goodwill and Acquired Intangible Assets (Continued)
earnings, market expectations regarding our stock price which improved significantly in 2021, and our market
capitalization, which was in excess of our book equity at October 1, 2021 and remained in excess of our book equity
at December 31, 2021. If the regulatory environment changes such that it negatively impacts our reporting units and
future economic conditions are significantly worse than what was assumed as a part of our annual impairment testing
for each of our reporting units, specifically related to the impact of COVID-19 and the inflationary environment
stemming from the recovery in certain sectors, goodwill attributed to our reporting units could be impaired in future
periods.
Acquired Intangible Assets
Acquired intangible assets include the following:
(Dollars in millions)
Customer, services and lending
relationships
Software and technology(1)
Trade names and trademarks
Total acquired intangible assets $
$
As of December 31, 2021
Accumulated
Impairment and
Amortization(2)(3)
Cost
Basis(2)
Net
As of December 31, 2020
Accumulated
Impairment and
Amortization(2)(3)
Cost
Basis(2)
Net
246 $
120
40
406 $
(223 ) $
(105 )
(23 )
(351 ) $
23 $
15
17
55 $
262 $
114
52
428 $
(230 ) $
(101 )
(27 )
(358 ) $
32
13
25
70
(1)
(2)
(3)
In conjunction with the preliminary purchase price allocation associated with a third-quarter 2021 acquisition in the Consumer Lending
reportable segment, we recorded $7 million of acquired intangible assets which consisted primarily of developed technology.
Accumulated impairment and amortization include impairment amounts only if the acquired intangible asset has been deemed partially
impaired. When an acquired intangible asset is considered fully impaired and no longer in use, the cost basis and any accumulated
amortization related to the asset is written off.
We recorded amortization of acquired intangible assets of $19 million, $21 million and $25 million in 2021, 2020 and 2019, respectively. We will
continue to amortize our intangible assets with definite useful lives over their remaining estimated useful lives. We estimate amortization
expense associated with these intangible assets will be $14 million, $12 million, $10 million, $7 million and $12 million in 2022, 2023, 2024,
2025 and after 2025, respectively.
F-37
6. Borrowings
Borrowings consist of secured borrowings issued through our securitization program, borrowings through secured
facilities, unsecured notes issued by us, and other interest-bearing liabilities related primarily to obligations to return
cash collateral held.
The following table summarizes our borrowings.
(Dollars in millions)
Unsecured borrowings:
Senior unsecured debt(1)
Total unsecured borrowings
Secured borrowings:
FFELP Loan
securitizations(2)(3)(4)
Private Education Loan
securitizations(5)
FFELP Loan ABCP facilities
Private Education Loan ABCP
facilities
Other(6)
Total secured borrowings
Total before hedge accounting
adjustments(7)
Hedge accounting adjustments
Total
December 31, 2021
December 31, 2020
Weighted
Average
Interest
Rate(8)
Short
Term
Weighted
Average
Interest
Rate(8) Total
Long
Term
Weighted
Average
Interest
Rate(8)
Short
Term
Weighted
Average
Interest
Rate(8) Total
Long
Term
$ —
—
— % $ 7,014
— 7,014
5.83 % $ 7,014
5.83 7,014
$ 677
677
6.61 % $ 7,714
6.61 7,714
6.19 % $ 8,391
6.19 8,391
—
— 51,841
.85 51,841
—
— 54,697
.89 54,697
543
282
2.42 14,074
150
.97
1.82 14,617
432
.97
960
2,053
2.68 13,891
479
1.05
2.04 14,851
1.13 2,532
1,363
302
2,490
2,490
—
$ 2,490
1.05 1,152
—
1.24 67,217
.19
1.37 2,515
302
1.07 69,707
—
2,582
337
5,932
1.46
.09
—
—
1.44 69,067
— 2,582
—
337
1.12 74,999
1.24 74,231
257
1.24 % $ 74,488
—
1.52 76,721
(.01 )
257
1.51 % $ 76,978
6,609
4
$ 6,613
1.97 76,781
551
1.97 % $ 77,332
—
1.63 83,390
(.01 )
555
1.62 % $ 83,945
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Includes principal amount of $0 and $678 million of short-term debt as of December 31, 2021 and 2020, respectively. Includes principal amount
of $7.0 billion and $7.8 billion of long-term debt as of December 31, 2021 and 2020, respectively.
Includes $49 million and $157 million of long-term debt related to the FFELP Loan ABS repurchase facilities (FFELP Loan Repurchase
Facilities) as of December 31, 2021 and 2020, respectively.
Includes $2.1 billion and $3.6 billion of non-U.S. dollar-denominated debt as of December 31, 2021 and 2020, respectively, which has been
hedged with swaps converting to U.S. dollars.
During 2021, three FFELP secured debt tranches defaulted in the amount of $416 million as a result of not maturing by their respective
contractual maturity dates. Notices were delivered to the trustee, rating agencies and bondholders alerting them to these maturity date defaults.
At this time, it is expected the bonds will be paid in full between 2029 and 2035. There is no impact to the principal amount owed or the coupon
at which the bonds accrue, and there is no revised contractual maturity date.
Includes $543 million and $960 million of short-term debt related to the Private Education Loan ABS repurchase facilities (Private Education
Loan Repurchase Facilities) as of December 31, 2021 and 2020, respectively. Includes $0 and $260 million of long-term debt related to the
Private Education Loan Repurchase Facilities as of December 31, 2021 and 2020, respectively.
“Other” primarily includes the obligation to return cash collateral held related to derivative exposure.
Includes $55.5 billion and $60.0 billion of long-term floating rate debt as of December 31, 2021 and 2020, respectively, and $18.7 billion and
$16.8 billion of long-term fixed rate debt as of December 31, 2021 and 2020, respectively.
Weighted average interest rate is as of end of period.
F-38
6. Borrowings (Continued)
As of December 31, 2021, the expected maturities of our long-term borrowings are shown in the following table.
(Dollars in millions)
Year of Maturity
2022
2023
2024
2025
2026
2027-2043
Total before hedge accounting adjustments
Hedge accounting adjustments
Total
Expected Maturity
Senior
Unsecured
Debt
Secured
Borrowings(1) Total(2)
$
$
— $
1,312
1,350
551
522
3,279
7,014
367
7,381 $
6,965 $
7,747
5,868
5,476
5,194
35,967
67,217
(110 )
6,965
9,059
7,218
6,027
5,716
39,246
74,231
257
67,107 $ 74,488
(1)
(2)
We view our securitization trust debt as long-term based on the contractual maturity dates which range from 2022 to 2083.
However, we have projected the expected principal paydowns based on our current estimates regarding the securitized loans’
prepayment speeds for purposes of this disclosure to better reflect how we expect this debt to be paid down over time. The
projected principal paydowns in year 2022 include $7.0 billion related to the securitization trust debt.
The aggregate principal amount of debt that matures in each period is $7.0 billion in 2022, $9.1 billion in 2023, $7.2 billion in
2024, $6.1 billion in 2025, $5.8 billion in 2026 and $39.5 billion in 2027-2043.
Variable Interest Entities
We consolidated the following financing VIEs as of December 31, 2021 and 2020, as we are the primary beneficiary.
As a result, these VIEs are accounted for as secured borrowings.
December 31, 2021
(Dollars in millions)
Secured Borrowings — VIEs:
FFELP Loan securitizations
Private Education Loan securitizations
FFELP Loan ABCP facilities
Private Education Loan ABCP facilities
Total before hedge accounting
adjustments
Hedge accounting adjustments
Total
(Dollars in millions)
Secured Borrowings — VIEs:
FFELP Loan securitizations
Private Education Loan securitizations
FFELP Loan ABCP facilities
Private Education Loan ABCP facilities
Total before hedge accounting
adjustments
Hedge accounting adjustments
Total
Debt Outstanding
Long
Term
Short
Term
Carrying Amount of Assets Securing
Debt Outstanding
Other
Total
Loans
Cash
Assets, Net Total
$
— $ 51,841 $ 51,841 $ 52,066 $ 2,073 $
505
8
63
543 14,074 14,617 15,506
436
282
1,363 1,152 2,515 2,641
150
432
2,188 67,217 69,405 70,649 2,649
—
$ 2,188 $ 67,107 $ 69,295 $ 70,649 $ 2,649 $
(110 )
(110 )
—
—
1,520 $ 55,659
150 16,161
15
459
32 2,736
1,717 75,015
(195 )
1,522 $ 74,820
(195 )
December 31, 2020
Debt Outstanding
Long
Term
Short
Term
Carrying Amount of Assets Securing
Debt Outstanding
Other
Total
Loans
Cash
Assets, Net Total
$
— $ 54,697 $ 54,697 $ 55,535 $ 1,606 $
606
36
74
960 13,891 14,851 15,823
479 2,532 2,533
— 2,582 2,835
2,053
2,582
5,595 69,067 74,662 76,726 2,322
—
$ 5,595 $ 68,900 $ 74,495 $ 76,726 $ 2,322 $
(167 )
(167 )
—
—
F-39
1,438 $ 58,579
187 16,616
76 2,645
27 2,936
1,728 80,776
(308 )
1,420 $ 80,468
(308 )
6. Borrowings (Continued)
Secured Facilities and Unsecured Debt
FFELP Loan ABCP Facilities
We have various ABCP borrowing facilities that we use to finance our FFELP Loans. Liquidity is available under
these secured credit facilities to the extent we have eligible collateral and available capacity. The maximum borrowing
capacity under these facilities will vary and is subject to each agreement’s borrowing conditions. These include but
are not limited to the facility’s size, current usage and the availability and fair value of qualifying unencumbered
FFELP Loan collateral. Our borrowings under these facilities are non-recourse. The maturity dates on these facilities
range from November 2022 to April 2023. The interest rate on certain facilities can increase under certain
circumstances. The facilities are subject to termination under certain circumstances. As of December 31, 2021, there
was approximately $0.4 billion outstanding under these facilities, with approximately $0.5 billion of assets securing
these facilities. As of December 31, 2021, the maximum unused capacity under these facilities was $0.5 billion and
we had $0.1 billion of unencumbered FFELP Loans.
FFELP Loan Repurchase Facilities
In 2018, we closed a $0.9 billion FFELP Loan Repurchase Facility that provides liquidity for the acquisition of certain
Navient-sponsored auction rate securities. Borrowings under the facility are secured by the auction rate
securities. The lenders also have unsecured recourse to Navient Corporation as Guarantor for any shortfall in
amounts payable. Because the facility is secured by Navient-sponsored instruments issued in previous
securitizations, we show the debt as part of FFELP Loan securitizations in the various borrowing tables above. As of
December 31, 2021, there was approximately $49 million outstanding under this facility.
Private Education Loan ABCP Facilities
We have various ABCP borrowing facilities that we use to finance our Private Education Loans. Liquidity is available
under these secured credit facilities to the extent we have eligible collateral and available capacity. The maximum
borrowing capacity under these facilities will vary and is subject to each agreement’s borrowing conditions. These
include but are not limited to the facility’s size, current usage and the availability and fair value of qualifying
unencumbered Private Education Loan collateral. Our borrowings under these facilities are non-recourse. The
maturity dates on these facilities range from June 2022 to June 2023. The interest rate on certain facilities can
increase under certain circumstances. The facilities are subject to termination under certain circumstances. As of
December 31, 2021, there was approximately $2.5 billion outstanding under these facilities, with approximately $2.7
billion of assets securing these facilities. As of December 31, 2021, the maximum unused capacity under these
facilities was $2.2 billion and we had $2.0 billion of unencumbered Private Education Loans.
Private Education Loan Repurchase Facilities
These repurchase facilities are collateralized by the net assets in previously issued Private Education Loan ABS
trusts. The lenders also have unsecured recourse to Navient Corporation as Guarantor for any shortfall in amounts
payable. Because these facilities are secured by the Residual Interests in previous securitizations, we show the debt
as part of Private Education Loan securitizations in the various borrowing tables above. As of December 31, 2021,
there was approximately $0.5 billion outstanding under these facilities.
Senior Unsecured Debt
We issued $1.3 billion, $700 million and $0 of unsecured debt in 2021, 2020 and 2019, respectively.
Debt Repurchases
The following table summarizes activity related to our senior unsecured debt repurchases.
(Dollars in millions)
Debt principal repurchased
Gains (losses) on debt repurchases
Years Ended December 31,
2020
2021
2019
$
$
2,577 $
(73 ) $
768 $
(6 ) $
1,184
45
F-40
7. Derivative Financial Instruments
Risk Management Strategy
We maintain an overall interest rate risk management strategy that incorporates the use of derivative instruments to
minimize the economic effect of interest rate changes. Our goal is to manage interest rate sensitivity by modifying the
repricing frequency and underlying index characteristics of certain balance sheet assets and liabilities so the net
interest margin is not, on a material basis, adversely affected by movements in interest rates. We do not use
derivative instruments to hedge credit risk. As a result of interest rate fluctuations, hedged assets and liabilities will
appreciate or depreciate in market value. Income or loss on the derivative instruments that are linked to the hedged
assets and liabilities will generally offset the effect of this unrealized appreciation or depreciation for the period the
item is being hedged. We view this strategy as a prudent management of interest rate sensitivity. In addition, we
utilize derivative contracts to minimize the economic impact of changes in foreign currency exchange rates on certain
debt obligations that are denominated in foreign currencies. As foreign currency exchange rates fluctuate, these
liabilities will appreciate and depreciate in value. These fluctuations, to the extent the hedge relationship is effective,
are offset by changes in the value of the cross-currency interest rate swaps executed to hedge these instruments.
Management believes certain derivative transactions entered into as hedges, primarily Floor Income Contracts, basis
swaps and, at times, certain other LIBOR swaps, are economically effective; however, those transactions do not
qualify for hedge accounting under GAAP and thus may adversely impact earnings.
Although we use derivatives to minimize the risk of interest rate and foreign currency changes, the use of derivatives
does expose us to both market and credit risk. Market risk is the chance of financial loss resulting from changes in
interest rates, foreign exchange rates and market liquidity. Credit risk is the risk that a counterparty will not perform its
obligations under a contract and it is limited to the loss of the fair value gain in a derivative that the counterparty owes
us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, have no credit
risk exposure to the counterparty; however, the counterparty has exposure to us. We minimize the credit risk in
derivative instruments by entering into transactions with highly rated counterparties that are reviewed regularly by our
Credit Department. We also maintain a policy of requiring that all derivative contracts be governed by an International
Swaps and Derivative Association Master Agreement. Depending on the nature of the derivative transaction, bilateral
collateral arrangements related to Navient Corporation contracts generally are required as well. When we have more
than one outstanding derivative transaction with the counterparty, and there exists legally enforceable netting
provisions with the counterparty (i.e., a legal right to offset receivable and payable derivative contracts), the “net”
mark-to-market exposure, less collateral the counterparty has posted to us, represents exposure with the
counterparty. When there is a net negative exposure, we consider our exposure to the counterparty to be zero. At
December 31, 2021 and 2020, we had a net positive exposure (derivative gain positions to us less collateral which
has been posted by counterparties to us) related to Navient Corporation derivatives of $9 million and $13 million,
respectively.
F-41
7. Derivative Financial Instruments (Continued)
Our on-balance sheet securitization trusts have $2.1 billion of Euro denominated bonds outstanding as of December
31, 2021. To convert these non-US dollar denominated bonds into US dollar liabilities, the trusts have entered into
foreign-currency swaps with highly-rated counterparties. In addition, the trusts have entered into $1.1 billion notional
of interest rate swaps which are primarily used to convert Prime received on securitized education loans to LIBOR
paid on the bonds. Our securitization trusts with swaps have ISDA documentation with protections against
counterparty risk. The collateral calculations contemplated in the ISDA documentation of our securitization trusts
require collateral based on the fair value of the derivative which may be adjusted for additional collateral based on
rating agency criteria requirements considered within the collateral agreement. The trusts are not required to post
collateral to the counterparties. At December 31, 2021 and 2020, the net positive exposure on swaps in securitization
trusts was $0 and $28 million, respectively.
The table below highlights credit exposure related to our derivative counterparties at December 31, 2021.
Corporate
Contracts
9 $
$
Securitization
Trust
Contracts
100 %
— %
—
— %
— %
(Dollars in millions)
Exposure, net of collateral
Percent of exposure to counterparties with credit ratings
below S&P AA- or Moody’s Aa3
Percent of exposure to counterparties with credit ratings
below S&P A- or Moody’s A3
F-42
7. Derivative Financial Instruments (Continued)
Summary of Derivative Financial Statement Impact
The following tables summarize the fair values and notional amounts of all derivative instruments and their impact on
net income and other comprehensive income.
Impact of Derivatives on Balance Sheet
Cash Flow
(Dollars in millions)
Fair Values(1)
Derivative Assets:
Interest rate swaps
Cross-currency interest rate
swaps
Total derivative assets(2)
Derivative Liabilities:
Interest rate swaps
Floor Income Contracts
Cross-currency interest rate
swaps
Total derivative liabilities(2)
Net total derivatives
Hedged Risk
Exposure
Interest rate
Foreign currency and
interest rate
Interest rate
Interest rate
Foreign currency and
interest rate
Dec.
31,
2021
Dec.
31,
2020
Fair Value(3)
Dec.
31,
2020
Dec.
31,
2021
Trading
Total
Dec.
31,
2021
Dec.
31,
2020
Dec.
31,
2021
Dec.
31,
2020
$ — $ — $ 222 $ 323 $
2 $
6 $ 224 $ 329
—
—
—
—
—
—
—
222
28
351
—
2
—
6
—
224
28
357
—
—
—
—
—
—
(5 )
(65 )
(14 )
(197 )
(5 )
(65 )
(14 )
(197 )
—
—
—
—
$ — $ — $
(190 )
(190 )
32 $
(322 )
(322 )
29 $
—
—
(70 )
(211 )
(68 ) $ (205 ) $
(190 )
(260 )
(322 )
(533 )
(36 ) $ (176 )
(1)
(2)
Fair values reported are exclusive of collateral held and pledged and accrued interest. Assets and liabilities are presented without
consideration of master netting agreements. Derivatives are carried on the balance sheet based on net position by counterparty under master
netting agreements and classified in other assets or other liabilities depending on whether in a net positive or negative position.
The following table reconciles gross positions without the impact of master netting agreements to the balance sheet classification:
(Dollar in millions)
Gross position
Impact of master netting agreements
Derivative values with impact of master netting
agreements (as carried on balance sheet)
Cash collateral (held) pledged
Net position
Other Assets
Other Liabilities
December 31,
2021
December 31,
2020
December 31,
2021
December 31,
2020
$
$
224 $
(6 )
218
(244 )
(26 ) $
357 $
(50 )
307
(336 )
(29 ) $
(260 ) $
6
(254 )
147
(107 ) $
(533 )
50
(483 )
234
(249 )
(3)
The following table shows the carrying value of liabilities in fair value hedges and the related fair value hedging adjustments to these liabilities:
As of December 31, 2021
As of December 31, 2020
(Dollar in millions)
Short-term borrowings
Long-term borrowings
Carrying
Value
Hedge Basis
Adjustments
Carrying
Value
Hedge Basis
Adjustments
4
541
631 $
11,017 $
$
$
— $
8,503 $
— $
252 $
F-43
7. Derivative Financial Instruments (Continued)
The above fair values include adjustments when necessary for counterparty credit risk for both when we are exposed
to the counterparty, net of collateral postings, and when the counterparty is exposed to us, net of collateral postings.
The net adjustments decreased the asset position at December 31, 2021 and December 31, 2020 by $8 million and
$8 million, respectively. In addition, the above fair values reflect adjustments for illiquid derivatives as indicated by a
wide bid/ask spread in the interest rate indices to which the derivatives are indexed. These adjustments decreased
the overall net asset positions at December 31, 2021 and December 31, 2020 by $2 million and $5 million,
respectively.
Cash Flow
Dec. 31,
Fair Value
Dec. 31,
Dec. 31,
Dec. 31,
Dec. 31,
Dec. 31,
Dec. 31,
Dec. 31,
Trading
Total
(Dollars in billions)
Notional Values:
Interest rate swaps
Floor Income Contracts
Cross-currency interest rate
swaps
Total derivatives
2021
2020
2021
2020
2021
2020
2021
2020
$
12.1 $
—
16.7 $
—
6.2 $
—
7.5 $
—
28.4 $
12.5
26.8 $
17.0
46.7 $
12.5
51.0
17.0
—
12.1 $
—
16.7 $
2.1
8.3 $
3.7
11.2 $
—
40.9 $
—
43.8 $
2.1
61.3 $
3.7
71.7
$
Mark-to-Market Impact of Derivatives on Statements of Income
(Dollars in millions)
Fair Value Hedges(2):
Interest Rate Swaps
Gains (losses) recognized in net income on derivatives
Gains (losses) recognized in net income on hedged items
Net fair value hedge ineffectiveness gains (losses)
Cross currency interest rate swaps
Gains (losses) recognized in net income on derivatives
Gains (losses) recognized in net income on hedged items
Net fair value hedge ineffectiveness gains (losses)
Total fair value hedges(1)(2)
Cash Flow Hedges:
Total cash flow hedges(2)
Trading
Interest rate swaps
Floor Income Contracts
Cross currency interest rate swaps
Other
Total trading derivatives(3)
Mark-to-market gains (losses) recognized
Total Gains (Losses)
Years Ended December 31,
2020
2019
2021
$
(310 ) $
349
39
301 $
(327 )
(26 )
281
(299 )
(18 )
104
(55 )
49
88
—
30
34
—
—
64
152 $
281
(272 )
9
(17 )
—
(47 )
(209 )
—
—
(256 )
(273 ) $
57
(18 )
39
21
—
44
(22 )
(2 )
2
22
43
$
(1)
(2)
(3)
Recorded in interest expense in the consolidated statements of income.
The accrued interest income (expense) on fair value hedges and cash flow hedges is recorded in interest expense and is excluded from this
table.
Recorded in “gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.
F-44
7. Derivative Financial Instruments (Continued)
Impact of Derivatives on Other Comprehensive Income (Equity)
(Dollars in millions)
Total gains (losses) on cash flow hedges
Reclassification adjustments for derivative (gains) losses
included in net income (interest expense)(1)
Net changes in cash flow hedges, net of tax
(1)
Includes net settlement income/expense.
Years Ended December 31,
2020
2019
2021
$
55 $
(233 ) $
(165 )
$
86
141 $
50
(183 ) $
(39 )
(204 )
Collateral
The following table details collateral held and pledged related to derivative exposure between us and our derivative
counterparties.
(Dollars in millions)
Collateral held:
Cash (obligation to return cash collateral is recorded in short-term borrowings)
Securities at fair value — corporate derivatives (not recorded in financial
statements)(1)
Securities at fair value — on-balance sheet securitization derivatives (not
recorded in financial statements)(2)
Total collateral held
Derivative asset at fair value including accrued interest
Collateral pledged to others:
Cash (right to receive return of cash collateral is recorded in investments)
Total collateral pledged
Derivative liability at fair value including accrued interest and premium
receivable
December 31, 2021
December 31, 2020
$
244
$
—
1
245
242
147
147
271
$
$
$
$
$
$
$
$
$
$
336
—
78
414
351
234
234
504
(1)
(2)
The Company has the ability to sell or re-pledge securities it holds as collateral.
The trusts do not have the ability to sell or re-pledge securities they hold as collateral.
Our corporate derivatives contain credit contingent features. At our current unsecured credit rating, we have fully
collateralized our corporate derivative liability position (including accrued interest and net of premiums receivable) of
$72 million with our counterparties. Downgrades in our unsecured credit rating would not result in any additional
collateral requirements. Trust related derivatives do not contain credit contingent features related to our or the trusts’
credit ratings.
F-45
8. Other Assets
The following table provides the detail of our other assets.
(Dollars in millions)
Accrued interest receivable
Benefit and insurance-related investments
Income tax asset, net
Derivatives at fair value
Accounts receivable
Fixed assets
Other
Total
December 31,
2021
December 31,
2020
$
$
1,881 $
462
369
218
159
95
39
3,223 $
1,933
469
454
307
118
116
95
3,492
9. Stockholders’ Equity
Common Stock
Our shareholders have authorized the issuance of 1.125 billion shares of common stock. The par value of Navient
common stock is $0.01 per share. At December 31, 2021, 154 million shares were issued and outstanding and
21 million shares were unissued but encumbered for outstanding stock options, restricted stock units, performance
stock units and dividend equivalent units for employee compensation and remaining authority for stock-based
compensation plans.
F-46
9. Stockholders’ Equity (Continued)
Dividend and Share Repurchase Program
The following table summarizes our common share repurchases, issuances and dividends paid.
(Dollars and shares in millions, except per share amounts)
Common stock repurchased(1)
Common stock repurchased (in dollars)(1)
Average purchase price per share(1)
Remaining common stock repurchase authority(1)
Shares repurchased related to employee stock-based
compensation plans(2)
Average purchase price per share(2)
Common shares issued(3)
Dividends paid
Dividends per share
Years Ended December 31,
2020
2019
2021
$
$
$
$
$
$
34.4
600 $
17.46 $
1,000 $
3.0
13.65 $
4.9
107 $
.64 $
30.6
400 $
13.06 $
600 $
1.2
12.86 $
2.7
123 $
.64 $
34.5
440
12.76
1,000
3.2
11.62
5.7
147
.64
(1)
(2)
(3)
Common shares purchased under our share repurchase program. Our board of directors authorized a $1 billion share repurchase
program in October 2019 which was fully utilized in 2021, and in December 2021 an additional $1 billion multi-year program was
approved.
Comprises shares withheld from stock option exercises and vesting of restricted stock for employees’ tax withholding obligations and
shares tendered by employees to satisfy option exercise costs.
Common shares issued under our various compensation and benefit plans.
The closing price of our common stock on December 31, 2021 was $21.22.
Rights Offering
On December 20, 2021, the Board of Directors declared a dividend of one preferred share purchase right (a Right) for
each outstanding share of common stock of the Company, par value $0.01 per share, and adopted a shareholder
rights plan dated as of December 20, 2021 (the Rights Agreement). The dividend was paid on December 30,
2021. Each Right allows its holder to purchase from the Company one one-hundredth of a share of Series A Junior
Participating Preferred Stock (a Preferred Share) for $100 (the Exercise Price), once the Rights become exercisable.
The Rights will be exercisable only if a person or group acquires beneficial ownership of 20% or more of Navient
common stock (including certain derivative positions), subject to certain exceptions. The Rights will expire on
December 19, 2022.
In connection with the adoption of the Rights Agreement, the Board of Directors approved the Certificate of
Designations establishing the Preferred Shares and the rights, preferences and privileges thereof. The Company has
authorized 2,000,000 of the Preferred Shares, par value $0.20. Such number of shares may be increased or
decreased by resolution of the Board of Directors subject to certain limitations set forth in the Certificate of
Designations.
For additional information on the Rights Agreement and Certificate of Delegations, please refer to Exhibits 3.3 and
4.16 of this Form 10-K incorporated herein by reference.
F-47
10. Earnings (Loss) per Common Share
Basic earnings (loss) per common share (EPS) are calculated using the weighted average number of shares of
common stock outstanding during each period. A reconciliation of the numerators and denominators of the basic and
diluted EPS calculations on a GAAP basis follows.
(In millions, except per share data)
Numerator:
Net income
Denominator:
Weighted average shares used to compute basic EPS
Effect of dilutive securities:
Dilutive effect of stock options, restricted stock, restricted
stock units, performance stock units and Employee
Stock Purchase Plan (“ESPP”)(1)
Dilutive potential common shares(2)
Weighted average shares used to compute diluted EPS
Basic earnings per common share
Diluted earnings per common share
Years Ended December 31,
2020
2021
2019
$
717 $
412 $
597
170
193
230
2
2
172
4.23 $
4.18 $
2
2
195
2.14 $
2.12 $
3
3
233
2.59
2.56
$
$
(1)
(2)
Includes the potential dilutive effect of additional common shares that are issuable upon exercise of outstanding stock options, restricted stock,
restricted stock units, performance stock units and the outstanding commitment to issue shares under applicable ESPPs, determined by the
treasury stock method.
For the years ended December 31, 2021, 2020 and 2019, stock options covering approximately 0 million, 2 million and 4 million shares,
respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive.
F-48
11. Fair Value Measurements
We use estimates of fair value in applying various accounting standards in our financial statements. We categorize
our fair value estimates based on a hierarchical framework associated with three levels of price transparency utilized
in measuring financial instruments at fair value. The fair value of the items discussed below are separately disclosed
in this footnote.
During 2021, there were no significant transfers of financial instruments between levels, or changes in our
methodology used to value our financial instruments.
Education Loans
Our FFELP Loans and Private Education Loans are accounted for at cost or at the lower of cost or market if the loan
is held-for-sale. Fair values are determined by modeling loan cash flows using stated terms of the assets using
mostly internally developed assumptions that are validated against market transactions when available.
FFELP Loans
The significant assumptions used to determine fair value of our FFELP Loans are prepayment speeds, default rates,
cost of funds, discount rate, capital levels and expected Repayment Borrower Benefits to be earned. In addition, the
Floor Income component of our FFELP Loan portfolio is valued with option models using both observable market
inputs and internally developed inputs. A number of significant inputs into the models are internally derived and not
observable in active markets. While the resulting fair value can be validated against market transactions where we
are a participant, these markets are not considered active. As such, these are level 3 valuations.
Private Education Loans
The significant assumptions used to determine fair value of our Private Education Loans are prepayment speeds,
default rates, recovery rates, cost of funds, discount rate and capital levels. A number of significant inputs into the
models are internally derived and not observable in active markets. While the resulting fair value can be validated
against market transactions where we are a participant, these markets are not considered active. As such, these are
level 3 valuations.
Cash and Investments (Including “Restricted Cash”)
Cash and cash equivalents are carried at cost. Carrying value approximates fair value. The fair value of investments
in commercial paper, ABCP, or demand deposits that have a remaining term of less than 90 days when purchased
are estimated to equal their cost and, when needed, adjustments for liquidity and credit spreads are made depending
on market conditions and counterparty credit risks. No additional adjustments were deemed necessary. These
investments are level 2 valuations.
Borrowings
Borrowings are accounted for at cost in the financial statements except when denominated in a foreign currency or
when designated as the hedged item in a fair value hedge relationship. When the hedged risk is the benchmark
interest rate (which for us is LIBOR) and not full fair value, the cost basis is adjusted for changes in value due to
benchmark interest rates only. Foreign currency-denominated borrowings are re-measured at current spot rates in
the financial statements. Fair value was determined through standard bond pricing models and option models (when
applicable) using the stated terms of the borrowings, observable yield curves, foreign currency exchange rates,
volatilities from active markets or from quotes from broker-dealers. Fair value adjustments for unsecured corporate
debt are made based on indicative quotes from observable trades and spreads on credit default swaps specific to the
Company. Fair value adjustments for secured borrowings are based on indicative quotes from broker-dealers. These
adjustments for both secured and unsecured borrowings are material to the overall valuation of these items and,
currently, are based on inputs from inactive markets. As such, these are level 3 valuations.
F-49
11. Fair Value Measurements (Continued)
Derivative Financial Instruments
All derivatives are accounted for at fair value in the financial statements. The fair value of a majority of derivative
financial instruments was determined by standard derivative pricing and option models using the stated terms of the
contracts and observable market inputs and are therefore classified as level 2 fair values. In some cases, we utilized
internally developed inputs that are not observable in the market, and as such, classified these instruments as level 3
fair values. Complex structured derivatives or derivatives that trade in less liquid markets require significant estimates
and judgment in determining fair value that cannot be corroborated with market transactions.
When determining the fair value of derivatives, we take into account counterparty credit risk for positions where there
is exposure to the counterparty on a net basis by assessing exposure net of collateral held. See “Note 7 – Derivative
Financial Instruments” for further discussion on methodology. The net credit risk adjustment (adjustments for our
exposure to counterparties net of adjustments for the counterparties’ exposure to us) decreased the valuations at
December 31, 2021 by $8 million.
Inputs specific to each class of derivatives disclosed in the table below are as follows:
• Interest rate swaps — Fair value is determined using standard derivative cash flow models. Derivatives that
swap fixed interest payments for LIBOR interest payments (or vice versa) and derivatives swapping
quarterly reset LIBOR for daily reset LIBOR or one-month LIBOR were valued using the LIBOR swap yield
curve which is an observable input from an active market. These derivatives are level 2 fair value estimates
in the hierarchy. Other derivatives swapping LIBOR interest payments for another variable interest payment
(primarily Prime) are valued using the LIBOR swap yield curve and observable market spreads for the
specified index. The markets for these swaps are generally illiquid as indicated by a wide bid/ask spread.
The adjustment made for liquidity decreased the valuations by $2 million at December 31, 2021. These
derivatives are level 3 fair value estimates.
• Cross-currency interest rate swaps — Fair value is determined using standard derivative cash flow models.
Derivatives hedging foreign-denominated bonds are valued using the LIBOR swap yield curve (for both USD
and the foreign-denominated currency), cross-currency basis spreads and forward foreign currency
exchange rates. These inputs are observable inputs from active markets. Therefore, the resulting valuation
is a level 2 fair value estimate. Amortizing notional derivatives (derivatives whose notional amounts change
based on changes in the balance of, or pool of, assets or debt) hedging trust debt use internally derived
assumptions for the trust assets’ prepayment speeds and default rates to model the notional amortization.
Management makes assumptions concerning the extension features of derivatives hedging rate-reset notes
denominated in a foreign currency. These inputs are not market observable; therefore, these derivatives are
level 3 fair value estimates.
• Floor Income Contracts — Derivatives are valued using an option pricing model. Inputs to the model include
the LIBOR swap yield curve and LIBOR interest rate volatilities. The inputs are observable inputs in active
markets and these derivatives are level 2 fair value estimates.
The carrying value of borrowings designated as the hedged item in a fair value hedge is adjusted for changes in fair
value due to benchmark interest rates and foreign-currency exchange rates. These valuations are determined
through standard bond pricing models and option models (when applicable) using the stated terms of the borrowings,
and observable yield curves, foreign currency exchange rates and volatilities.
F-50
11. Fair Value Measurements (Continued)
The following table summarizes the valuation of our financial instruments that are marked-to-market on a recurring
basis. During 2021 and 2020, there were no significant transfers of financial instruments between levels.
(Dollars in millions)
Assets
Derivative instruments:(1)
Interest rate swaps
Cross-currency interest rate swaps
Total derivative assets(2)
Total
Liabilities(3)
Derivative instruments(1)
Interest rate swaps
Floor Income Contracts
Cross-currency interest rate swaps
Total derivative liabilities(2)
Total
Fair Value Measurements on a Recurring Basis
December 31, 2021
December 31, 2020
Level 1 Level 2 Level 3 Total
Level 1 Level 2 Level 3 Total
—
—
—
— $
223
—
223
223 $
1
—
1
1 $
224
—
224
224 $
—
—
—
— $
323
—
323
323 $
6
28
34
34 $
329
28
357
357
— $
—
—
—
— $
— $
(65 )
—
(65 )
(65 ) $
(5 ) $
—
(190 )
(195 )
(195 ) $
(5 ) $
(65 )
(190 )
(260 )
(260 ) $
— $
—
—
—
— $
— $
(197 )
—
(197 )
(197 ) $
(14 ) $
—
(322 )
(336 )
(336 ) $
(14 )
(197 )
(322 )
(533 )
(533 )
$
$
$
(1)
(2)
(3)
Fair value of derivative instruments excludes accrued interest and the value of collateral.
See “Note 7 — Derivative Financial Instruments” for a reconciliation of gross positions without the impact of master netting agreements to the
balance sheet classification.
Borrowings which are the hedged item in a fair value hedge relationship and which are adjusted for changes in value due to benchmark interest
rates only are not carried at full fair value and not reflected in this table.
F-51
11. Fair Value Measurements (Continued)
The following tables summarize the change in balance sheet carrying value associated with level 3 financial
instruments carried at fair value on a recurring basis.
(Dollars in millions)
Balance, beginning of period
Total gains/(losses):
Included in earnings(1)
Included in other comprehensive income
Settlements
Transfers in and/or out of level 3
Balance, end of period
Change in mark-to-market gains/(losses) relating to
instruments still held at the reporting date(2)
(Dollars in millions)
Balance, beginning of period
Total gains/(losses):
Included in earnings(1)
Included in other comprehensive income
Settlements
Transfers in and/or out of level 3
Balance, end of period
Change in mark-to-market gains/(losses) relating to
instruments still held at the reporting date(2)
(Dollars in millions)
Balance, beginning of period
Total gains/(losses):
Included in earnings(1)
Included in other comprehensive income
Settlements
Transfers in and/or out of level 3
Balance, end of period
Change in mark-to-market gains/(losses) relating to
instruments still held at the reporting date(2)
Year Ended December 31, 2021
Derivative Instruments
Cross
Currency
Interest
Rate
Swaps
Other
Interest
Rate
Swaps
$
(8 ) $
(294 ) $
— $
Total
Derivative
Instruments
(302 )
3
—
1
—
(4 ) $
81
—
23
—
(190 ) $
—
—
—
—
— $
84
—
24
—
(194 )
3 $
(157 ) $
— $
(154 )
$
$
Year Ended December 31, 2020
Derivative Instruments
Cross
Currency
Interest
Rate
Swaps
Other
Interest
Rate
Swaps
$
(17 ) $
(575 ) $
(1 ) $
Total
Derivative
Instruments
(593 )
8
—
1
—
(8 ) $
231
—
50
—
(294 ) $
—
—
1
—
— $
239
—
52
—
(302 )
5 $
273 $
1 $
279
$
$
Year Ended December 31, 2019
Derivative Instruments
Cross
Currency
Interest
Rate
Swaps
Other
Interest
Rate
Swaps
$
(27 ) $
(633 ) $
(4 ) $
Total
Derivative
Instruments
(664 )
8
—
2
—
(17 ) $
(60 )
—
118
—
(575 ) $
2
—
1
—
(1 ) $
(50 )
—
121
—
(593 )
9 $
58 $
3 $
70
$
$
(1)
“Included in earnings” is comprised of the following amounts recorded in the specified line item in the consolidated statements of
income:
(Dollars in millions)
Gains (losses) on derivative and hedging activities, net
Interest expense
Total
Years Ended December 31,
2020
2021
2019
$
$
3 $
81
84 $
8 $
231
239 $
10
(60 )
(50 )
(2)
Recorded in “gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.
F-52
11. Fair Value Measurements (Continued)
The following table presents the significant inputs that are unobservable or from inactive markets used in the
recurring valuations of the level 3 financial instruments detailed above.
(Dollars in millions)
Derivatives
Fair Value at
December 31,
2021
Valuation
Technique
Input
Range and
Weighted
Average
Prime/LIBOR basis swaps
$
(4 )
Cross-currency interest rate
swaps
Other
Total
(190 )
—
(194 )
$
Discounted cash
flow
Discounted cash
flow
Constant Prepayment
Rate
Bid/ask adjustment to
discount rate
Constant Prepayment
Rate
9%
.08%
5%
The significant inputs that are unobservable or from inactive markets related to our level 3 derivatives detailed in the
table above would be expected to have the following impacts to the valuations:
• Prime/LIBOR basis swaps — These swaps do not actively trade in the markets as indicated by a wide
bid/ask spread. A wider bid/ask spread will result in a decrease in the overall valuation. In addition, the
unobservable inputs include Constant Prepayment Rates of the underlying securitization trust the swap
references. A decrease in this input will result in a longer weighted average life of the swap which will
increase the value for swaps in a gain position and decrease the value for swaps in a loss position,
everything else equal. The opposite is true for an increase in the input.
• Cross-currency interest rate swaps — The unobservable inputs used in these valuations are Constant
Prepayment Rates of the underlying securitization trust the swap references. A decrease in this input will
result in a longer weighted average life of the swap. All else equal in a typical currency market, this will result
in a decrease to the valuation due to the delay in the cash flows of the currency exchanges as well as
diminished liquidity in the forward exchange markets as you increase the term. The opposite is true for an
increase in the input.
The following table summarizes the fair values of our financial assets and liabilities, including derivative financial
instruments.
(Dollars in millions)
Earning assets
FFELP Loans
Private Education Loans
Cash and investments
Total earning assets
Interest-bearing liabilities
Short-term borrowings
Long-term borrowings
Total interest-bearing liabilities
Derivative financial instruments
Floor Income Contracts
Interest rate swaps
Cross-currency interest rate swaps
Other
Excess of net asset fair value over
carrying value
December 31, 2021
Carrying
Value
December 31, 2020
Carrying
Value
Fair Value
Difference Fair Value
Difference
$
53,632 $
21,140
3,845
78,617
52,641 $
20,171
3,845
76,657
991 $
969
—
1,960
59,117 $
22,462
3,822
85,401
58,284 $
21,079
3,822
83,185
833
1,383
—
2,216
2,492
74,548
77,040
2,490
74,488
76,978
(2 )
(60 )
(62 )
6,626
76,719
83,345
6,613
77,332
83,945
(65 )
219
(190 )
—
(65 )
219
(190 )
—
—
—
—
—
(197 )
315
(294 )
—
(197 )
315
(294 )
—
(13 )
613
600
—
—
—
—
$
1,898
$
2,816
F-53
12. Commitments, Contingencies and Guarantees
Legal Proceedings
We and our subsidiaries and affiliates are subject to various claims, lawsuits and other actions that arise in the
normal course of business. We believe that these claims, lawsuits and other actions will not, individually or in the
aggregate, have a material adverse effect on our business, financial condition or results of operations, except as
otherwise disclosed. Most of these matters are claims including individual and class action lawsuits against our
servicing or business processing subsidiaries alleging the violation of state or federal laws in connection with
servicing or collection activities on their education loans and other debts.
In the ordinary course of our business, the Company and our subsidiaries and affiliates receive information and
document requests and investigative demands from various entities including State Attorneys General, U.S.
Attorneys, legislative committees, individual members of Congress and administrative agencies. These requests may
be informational, regulatory or enforcement in nature and may relate to our business practices, the industries in which
we operate, or companies with whom we conduct business. Generally, our practice has been and continues to be to
cooperate with these bodies and to be responsive to any such requests.
The number of these inquiries and the volume of related information demands continue to increase and therefore
continue to increase the time, costs and resources we must dedicate to timely respond to these requests and may,
depending on their outcome, result in payments of restitution, fines and penalties.
Certain Cases
During the first quarter of 2016, Navient Corporation, certain Navient officers and directors, and the underwriters of
certain Navient securities offerings were sued in three putative securities class action lawsuits filed on behalf of
certain investors in Navient stock or Navient unsecured debt. These three cases, which were filed in the U.S. District
Court for the District of Delaware, were consolidated by the District Court, with Lord Abbett Funds appointed as Lead
Plaintiff. The caption of the consolidated case is Lord Abbett Affiliated Fund, Inc., et al. v. Navient Corporation, et al.
Additionally, two putative class actions have been filed in the U.S. District Court for the District of New Jersey
captioned Eli Pope v. Navient Corporation, John F. Remondi, Somsak Chivavibul and Christian Lown, and Melvin
Gross v. Navient Corporation, John F. Remondi, Somsak Chivavibul and Christian M. Lown, both of which allege
violations of the federal securities laws under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The
cases were consolidated by the Court in February 2018 under the caption In Re Navient Corporation Securities
Litigation and the plaintiffs filed a consolidated amended complaint in April 2018. In the third quarter of 2021, the
Company reached tentative agreements to settle both cases for a total of $42.5 million. As a result of these
contingent losses being probable, such loss was accrued in the third quarter of 2021. However, the net impact to
operating expense for the quarter was $0 due to the accrual of the offsetting insurance reimbursements. The
settlements, in which the Company and other defendants expressly deny any admission or concession of wrongdoing
or fault, are subject to approval by the Court after notice and hearing. The Company can give no assurance whether
or when the tentative settlements will receive the required approvals.
The Company has been named as defendant in a number of putative class action cases alleging violations of various
state and federal consumer protection laws including the Telephone Consumer Protection Act (TCPA), the Consumer
Financial Protection Act of 2010 (CFPA), the Fair Credit Reporting Act (FCRA), the Fair Debt Collection Practices Act
(FDCPA), in adversarial proceedings under the U.S. Bankruptcy Code, and various state consumer protection laws.
At this point in time, the Company is unable to anticipate the timing of a resolution or the impact that these legal
proceedings may have on the Company’s consolidated financial position, liquidity, results of operation or cash flows.
As a result, it is not possible at this time to estimate a range of potential exposure, if any, for amounts that may be
payable in connection with these matters and reserves have not been established. It is possible that an adverse
ruling or rulings may have a material adverse impact on the Company.
F-54
12. Commitments, Contingencies and Guarantees (Continued)
In January 2017, the Consumer Financial Protection Bureau (the CFPB) and Attorneys General for the State of
Illinois and the State of Washington initiated civil actions naming Navient Corporation and several of its subsidiaries
as defendants alleging violations of certain Federal and State consumer protection statutes, including the CFPA,
FCRA, FDCPA and various state consumer protection laws. In October 2017, the Attorney General for the
Commonwealth of Pennsylvania initiated a civil action against Navient Corporation and Navient Solutions, LLC
(Solutions), containing similar alleged violations of the CFPA and the Pennsylvania Unfair Trade Practices and
Consumer Protection Law. The Attorneys General for the States of California, Mississippi and, in October 2020, New
Jersey also initiated actions against the Company and certain subsidiaries alleging violations of various state and
federal consumer protection laws based upon similar alleged acts or failures to act. We refer to the Illinois,
Pennsylvania, Washington, California, Mississippi and New Jersey Attorneys General collectively as the “State
Attorneys General.” In addition to these matters, a number of lawsuits have been filed by nongovernmental parties or,
in the future, may be filed by additional governmental or nongovernmental parties seeking damages or other
remedies related to similar issues raised by the CFPB and the State Attorneys General. In January 2022, we entered
into a series of Consent Judgment and Orders (the “Agreements”) with 40 state attorneys general to resolve all
matters in dispute related to the State Attorneys General cases as well as the related investigations, subpoenas, civil
investigative demands and inquiries from various other state regulators. These Agreements do not resolve the
litigation involving the Company and the CFPB. The Company will cancel the loan balance of approximately 66,000
borrowers with qualifying private education loans that were originated largely between 2002 and 2010 and later
defaulted and charged off. The loans to be cancelled have aggregate outstanding balances of approximately $1.7
billion. The expense to the Company to cancel these loans is approximately $50 million which represents the amount
of expected future recoveries of these charged-off loans on the balance sheet. In addition, the Company agreed to
make a one-time payment of approximately $145 million to the states. In the fourth quarter of 2021 when such loss
became probable, the Company recognized total regulatory expenses of approximately $205 million related to this
matter. Prior to the fourth quarter, this contingent liability was neither probable nor reasonably estimable and, as a
result, no contingent liability had been previously established. The complete text of the Agreement is included in this
Form 10-K and incorporated by reference herein as Exhibit 10.24.
As the Company has previously stated, we believe the allegations in the CFPB suit are false and that they improperly
seek to impose penalties on Navient based on new, previously unannounced servicing standards applied
retroactively against only one servicer. We therefore have denied these allegations and are vigorously defending
against the allegations in that case. At this point in time, it is reasonably possible that a loss contingency exists;
however, the Company is unable to anticipate the timing of a resolution or the impact that an adverse ruling in the
CFPB case may have on the Company’s consolidated financial position, liquidity, results of operation or cash flows.
As a result, it is not possible at this time to estimate a range of potential exposure, if any, for amounts that may be
payable in connection with this matter and reserves have not been established. It is possible that an adverse ruling or
rulings may have a material adverse impact on the Company.
Regulatory Matters
In addition, Navient and its subsidiaries are subject to examination or regulation by various federal regulatory, state
licensing or other regulatory agencies as part of its ordinary course of business including the SEC, CFPB, FFIEC and
ED. Items or matters similar to or different from those described above may arise during the course of those
examinations. We also routinely receive inquiries or requests from various regulatory entities or bodies or government
agencies concerning our business or our assets. Generally, the Company endeavors to cooperate with each such
inquiry or request. The Company subsequently received separate CIDs or subpoenas from the Attorneys General for
the District of Columbia, Kansas, Oregon, Colorado, New Jersey, New York and Indiana that are similar to the CIDs
or subpoenas that preceded the lawsuits referenced above. We have and, in the future, may receive additional CIDs
or subpoenas and other inquiries from these or other Attorneys General with respect to similar or different matters.
Under the terms of the Separation and Distribution Agreement between the Company and SLM BankCo, Navient
agreed to indemnify SLM BankCo for claims, actions, damages, losses or expenses that may arise from the conduct
of activities of pre-Spin-Off SLM BankCo occurring prior to the Spin-Off other than those specifically excluded in that
agreement. Also, as part of the Separation and Distribution Agreement, SLM BankCo agreed to indemnify Navient for
certain claims, actions, damages, losses or expenses subject to the terms, conditions and limitations set forth in that
agreement. As a result, subject to the terms, conditions and limitations set forth in that agreement, Navient agreed to
indemnify and hold harmless Sallie Mae and its subsidiaries, including Sallie Mae Bank from liabilities arising out of
the regulatory matters and CFPB and State Attorneys General lawsuits mentioned above. In addition, we asserted
various claims for indemnification against Sallie Mae and Sallie Mae Bank for such specifically excluded items arising
out of the CFPB and the State Attorneys General lawsuits if and to the extent any indemnified liabilities exist now or
in the future. We expect these various indemnification claims to be resolved at a future date as the cases move
toward conclusion. Navient has no reserves related to indemnification matters with SLM BankCo as of December 31,
2021.
F-55
12. Commitments, Contingencies and Guarantees (Continued)
OIG Audit
The Office of the Inspector General (the OIG) of ED commenced an audit regarding Special Allowance Payments
(SAP) on September 10, 2007. In September 2013, we received the final audit determination of Federal Student Aid
(the Final Audit Determination) on the final audit report issued by the OIG in August 2009 related to this audit. The
Final Audit Determination concurred with the final audit report issued by the OIG and instructed us to make
adjustment to our government billing to reflect the policy determination. In August 2016, we filed our notice of appeal
to the Administrative Actions and Appeals Service Group of ED, and a hearing was held in April 2017. In March 2019,
the administrative law judge hearing the appeal affirmed the audit’s findings, holding the then-existing Dear Colleague
letter relied upon by the Company and other industry participants was inconsistent with the statutory framework
creating the SAP rules applicable to loans funded by certain types of debt obligations at issue. We appealed the
administrative law judge’s decision to the Secretary of Education given Navient’s adherence to ED-issued guidance
and the potential impact on participants in any ED program student loan servicers if such guidance is deemed
unreliable and may not be relied upon. In January 2021, the Acting Secretary of Education upheld the decision of the
administrative law judge. In March 2021, we filed a complaint for declaratory judgment in federal court seeking to set
aside the Acting Secretary’s decision. We continue to believe that our SAP billing practices were proper, considering
then-existing ED guidance and lack of applicable regulations. We filed a lawsuit in federal court challenging the
Acting Secretary’s decision. That case is pending. The Company first established a reserve for this matter in 2014
and increased the reserve in 2020 in response to the decision by the Acting Secretary. We do not believe, at this
time, that an adverse ruling will have a material effect on the Company as a whole.
Contingencies
In the ordinary course of business, we and our subsidiaries are defendants in or parties to pending and threatened
legal actions and proceedings including actions brought on behalf of various classes of claimants. These actions and
proceedings may be based on alleged violations of consumer protection, securities, employment and other laws. In
certain of these actions and proceedings, claims for substantial monetary damage are asserted against us and our
subsidiaries. We and our subsidiaries are also subject to potential unasserted claims by third parties.
In the ordinary course of business, we and our subsidiaries are subject to regulatory examinations, information
gathering requests, inquiries and investigations. In connection with formal and informal inquiries in these cases, we
and our subsidiaries receive requests, subpoenas and orders for documents, testimony and information in connection
with various aspects of our regulated activities.
We are required to establish reserves for litigation and regulatory matters where those matters present loss
contingencies that are both probable and estimable. When loss contingencies are not both probable and estimable,
we do not establish reserves.
In view of the inherent difficulty of predicting the outcome of litigation and regulatory matters, we may not be able to
predict what the eventual outcome of the pending matters will be, what the timing or the ultimate resolution of these
matters will be, or what the eventual loss, fines or penalties, if any, related to each pending matter may be.
Based on current knowledge, reserves have been established for certain litigation, regulatory matters, and
unasserted contract claims where the loss is both probable and estimable. Based on current knowledge,
management does not believe that loss contingencies, if any, arising from pending investigations, litigation or
regulatory matters will have a material adverse effect on our consolidated financial position, liquidity, results of
operations or cash flows, except as otherwise disclosed.
F-56
13. Income Taxes
Reconciliations of the statutory U.S. federal income tax rates to our effective tax rate for continuing operations follow:
Years Ended December 31,
2020
2021
2019
Statutory rate
Non-deductible regulatory-related expenses(1)
State tax, net of federal benefit
Other, net
Effective tax rate
21.0 %
1.4
1.2
(.2 )
23.4 %
21.0 %
—
1.6
—
22.6 %
21.0 %
—
1.4
(.5 )
21.9 %
(1)
Regulatory expenses for 2021 include $205 million related to the resolution of State Attorneys General litigation and investigations, of
which approximately $50.7 million is non-deductible for income tax purposes. See “Note 12 – Commitments, Contingencies and
Guarantees” for further discussion.
Income tax expense consists of:
(Dollars in millions)
Current provision/(benefit):
Federal
State
Foreign
Total current provision/(benefit)
Deferred provision/(benefit):
Federal
State
Foreign
Total deferred provision/(benefit)
Provision for income tax expense/(benefit)
2021
December 31,
2020
2019
$
$
147 $
19
—
166
56
(3 )
—
53
219 $
98 $
14
(1 )
111
12
(3 )
—
9
120 $
78
11
—
89
73
3
1
77
166
F-57
13. Income Taxes (Continued)
The tax effect of temporary differences that give rise to deferred tax assets and liabilities include the following:
(Dollars in millions)
Deferred tax assets:
Loan reserves
Market value adjustments on education
loans, investments and derivatives
Education loan premiums and discounts, net
Operating loss and credit carryovers
Accrued expenses not currently deductible
Stock-based compensation plans
Other
Total deferred tax assets
Deferred tax liabilities:
Acquired intangible assets
Market value adjustments on education
loans, investments and derivatives
Original issue discount on borrowings
Other
Total deferred tax liabilities
Net deferred tax assets
December 31,
2021
2020
$
381 $
—
40
12
49
5
23
510
18
30
12
8
68
442 $
$
414
64
41
14
22
6
22
583
16
—
11
16
43
540
Included in operating loss and credit carryovers is a valuation allowance of $69 million and $64 million as of
December 31, 2021 and 2020, respectively, against a portion of the Company’s federal and state deferred tax assets.
The valuation allowance is primarily attributable to deferred tax assets for federal and state net operating loss
carryovers and state IRC § 163(j) disallowed interest expense carryovers that management believes it is more likely
than not will expire prior to being realized. The ultimate realization of the deferred tax assets is dependent upon the
generation of future taxable income of the appropriate character (i.e. capital or ordinary) during the period in which
the temporary differences become deductible. Factors generally considered by management include (but are not
limited to): any changes in economic conditions, the scheduled reversals of deferred tax liabilities, and the history of
positive taxable income available for net operating loss carrybacks in evaluating the realizability of the deferred tax
assets.
The operating loss and credit carryovers consist of:
December 31, 2021
Gross
Tax-
Effected
(Dollars in millions)
Federal operating loss carryovers $
State operating loss carryovers
State IRC § 163(j) disallowed
interest expense carryovers
47 $
511
2,239
$
Corresponding
Valuation
Allowance(1)
Operating
Loss
and Credit
Carryovers
9
3
1 $
32
Expiration
10 Begins in 2032 $
35 Begins in 2021
Indefinite
36
81
$
36
69 $
—
12
(1)
The valuation allowance attributable to deferred tax assets for federal and state net operating loss carryovers, and state IRC § 163(j)
disallowed interest expense carryovers, are amounts that management believes more likely than not will expire prior to being realized.
F-58
13. Income Taxes (Continued)
Accounting for Uncertainty in Income Taxes
The following table summarizes changes in unrecognized tax benefits:
(Dollars in millions)
Unrecognized tax benefits at beginning of year
Increases resulting from tax positions taken during a prior period
Decreases resulting from tax positions taken during a prior period
Increases resulting from tax positions taken during the current period
Decreases related to settlements with taxing authorities
Increases related to settlements with taxing authorities
Reductions related to the lapse of statute of limitations
Unrecognized tax benefits at end of year (1)
$
$
2021
December 31,
2020
2019
57.9 $
6.4
(4.2 )
6.4
(.3 )
—
(7.4 )
58.8 $
53.6 $
7.6
—
3.5
(.2 )
—
(6.6 )
57.9 $
65.7
4.0
(3.8 )
1.9
(11.1 )
—
(3.1 )
53.6
(1) Included in the $58.8 million of gross unrecognized tax benefits at December 31, 2021 are $46.5 million of unrecognized tax benefits that, if
recognized, would favorably impact the effective tax rate.
The Company or one of its subsidiaries files income tax returns at the U.S. federal level, in most U.S. states, and
various foreign jurisdictions. All periods prior to 2018 are closed for federal examinations purposes. Various
combinations of subsidiaries, tax years, and jurisdictions remain open for review, subject to statute of limitations
periods (typically 3 to 4 prior years). We do not expect the resolution of open audits to have a material impact on our
unrecognized tax benefits.
14. Revenue from Contracts with Customers Accounted for in Accordance with ASC 606
The following tables illustrate the disaggregation of revenue from contracts accounted for under ASC 606 with
customers according to service type and client type by reportable operating segment.
Revenue by Service Type
(Dollars in millions)
Federal Education Loan
asset recovery services
Government services
Healthcare services
Total
Revenue by Client Type
(Dollars in millions)
Federal government
Guarantor agencies
Other institutions
State and local government
Tolling authorities
Hospitals and other
healthcare providers
Total
Years Ended December 31,
2021
2020
Federal
Education
Loans
Business
Processing
Total
Revenue
Federal
Education
Loans
Business
Processing
Total
Revenue
$
$
19 $
—
—
19 $
— $
257
231
488 $
19
257
231
507
$
$
84 $
—
—
84 $
— $
191
113
304 $
84
191
113
388
Years Ended December 31,
Federal
Education
Loans
2021
Business
Processing
$
1 $
18
—
—
—
Total
Revenue
21
18
—
183
54
20 $
—
—
183
54
$
—
19 $
231
488 $
231
507
$
Federal
Education
Loans
2020
Business
Processing
$
44 $
38
2
—
—
—
84 $
Total
Revenue
62
38
2
122
51
18 $
—
—
122
51
113
304 $
113
388
As of December 31, 2021 and 2020, there was $82 million and $90 million, respectively, of net accounts receivable
related to these contracts. Navient had no material contract assets or contract liabilities.
F-59
15. Segment Reporting
We monitor and assess our ongoing operations and results based on the following four reportable operating
segments: Federal Education Loans, Consumer Lending, Business Processing and Other.
These segments meet the quantitative thresholds for reportable operating segments. Accordingly, the results of
operations of these reportable operating segments are presented separately. The underlying operating segments are
used by the Company’s chief operating decision maker to manage the business, review operating performance and
allocate resources, and qualify to be aggregated as part of the primary reportable operating segments. As discussed
further below, we measure the profitability of our operating segments based on Core Earnings net income.
Accordingly, information regarding our reportable operating segments net income is provided on a Core Earnings
basis.
Federal Education Loans Segment
In this segment, Navient owns FFELP Loans and performs servicing and asset recovery services on this portfolio. We
also service and perform asset recovery services on FFELP Loans owned by other institutions. Our servicing quality,
data-driven strategies and omnichannel education about federal repayment options translate into positive results for
the millions of borrowers we serve.
We generate revenue primarily through net interest income on the FFELP Loan portfolio as well as servicing and
asset recovery services revenue. This segment is expected to generate significant earnings and cash flow over the
remaining life of the portfolio.
The following table includes asset information for our Federal Education Loans segment.
(Dollars in millions)
FFELP Loans, net
Cash and investments(1)
Other
Total assets
(1)
Includes restricted cash and investments.
December 31,
2021
2020
$
$
52,641 $
2,071
2,183
56,895 $
58,284
1,685
2,241
62,210
Consumer Lending Segment
In this segment, Navient owns, originates, acquires and services high-quality refinance and in-school Private
Education Loans. We believe our more than 45 years of experience, product design, digital marketing strategies, and
origination and servicing platform provide a unique competitive advantage. We see meaningful growth opportunities
in originating Private Education Loans to financially responsible consumers, generating attractive long-term, risk-
adjusted returns. We generate revenue primarily through net interest income on our Private Education Loan portfolio.
The following table includes asset information for our Consumer Lending segment.
Dollars in millions)
Private Education Loans, net
Cash and investments(1)
Other
Total assets
(1)
Includes restricted cash and investments.
December 31,
2021
2020
$
$
20,171 $
824
815
21,810 $
21,079
828
964
22,871
F-60
15. Segment Reporting (Continued)
Business Processing Segment
In this segment, Navient performs business processing services for over 600 government and healthcare clients.
• Government services: We provide state governments, agencies, court systems, municipalities, and parking
and tolling authorities with leveraging our scale, integrated technology solutions, decades of differentiated
customer experience expertise and evidence-based approach. Our support enables our clients to better
serve their constituents, meet rapidly changing needs, improve technology, reduce operating expenses,
manage risk and optimize revenue opportunities.
• Healthcare services: We perform revenue cycle outsourcing, accounts receivable management, extended
business office support, consulting engagements and public health programs. We offer customizable
solutions for our clients that include hospitals, hospital systems, medical centers, large physician groups,
other healthcare providers and public health departments.
At December 31, 2021 and 2020, the Business Processing segment had total assets of $397 million and $425 million,
respectively.
Other Segment
This segment consists of our corporate liquidity portfolio, gains and losses incurred on the repurchase of debt,
unallocated expenses of shared services (which includes regulatory expenses) and restructuring/other reorganization
expenses.
Unallocated shared services expenses are comprised of costs primarily related to information technology costs
related to infrastructure and operations, stock-based compensation expense, accounting, finance, legal, compliance
and risk management, regulatory-related expenses, human resources, certain executive management and the board
of directors. Regulatory-related expenses include actual settlement amounts as well as third-party professional fees
we incur in connection with such regulatory matters and are presented net of any insurance reimbursements for
covered costs related to such matters.
At December 31, 2021 and 2020, the Other segment had total assets of $1.5 billion and $1.9 billion, respectively.
F-61
15. Segment Reporting (Continued)
Measure of Profitability
We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate
our business segments and present financial results on a basis that differs from GAAP. We refer to this different basis
of presentation as Core Earnings. We provide this Core Earnings basis of presentation on a consolidated basis and
for each business segment because this is what we review internally when making management decisions regarding
our performance and how we allocate resources. We also refer to this information in our presentations with credit
rating agencies, lenders and investors. Because our Core Earnings basis of presentation corresponds to our segment
financial presentations, we are required by GAAP to provide Core Earnings disclosure in the notes to our
consolidated financial statements for our business segments.
Core Earnings are not a substitute for reported results under GAAP. We use Core Earnings to manage our business
segments because Core Earnings reflect adjustments to GAAP financial results for two items, discussed below, that
can create significant volatility mostly due to timing factors generally beyond the control of management. Accordingly,
we believe that Core Earnings provide management with a useful basis from which to better evaluate results from
ongoing operations against the business plan or against results from prior periods. Consequently, we disclose this
information because we believe it provides investors with additional information regarding the operational and
performance indicators that are most closely assessed by management. When compared to GAAP results, the two
items we remove to result in our Core Earnings presentations are:
1. Mark-to-market gains/losses resulting from our use of derivative instruments to hedge our economic risks
that do not qualify for hedge accounting treatment or do qualify for hedge accounting treatment but result in
ineffectiveness; and
2. The accounting for goodwill and acquired intangible assets.
While GAAP provides a uniform, comprehensive basis of accounting, for the reasons described above, our Core
Earnings basis of presentation does not. Core Earnings are subject to certain general and specific limitations that
investors should carefully consider. For example, there is no comprehensive, authoritative guidance for management
reporting. Our Core Earnings are not defined terms within GAAP and may not be comparable to similarly titled
measures reported by other companies. Accordingly, our Core Earnings presentation does not represent a
comprehensive basis of accounting. Investors, therefore, may not be able to compare our performance with that of
other financial services companies based upon Core Earnings. Core Earnings results are only meant to supplement
GAAP results by providing additional information regarding the operational and performance indicators that are most
closely used by management, our board of directors, credit rating agencies, lenders and investors to assess
performance.
F-62
15. Segment Reporting (Continued)
Segment Results and Reconciliations to GAAP
Year Ended December 31, 2021
Adjustments
(Dollars in millions)
Interest income:
Education loans
Cash and investments
Total interest income
Total interest expense
Net interest income (loss)
Less: provisions for loan losses
Net interest income (loss) after
provisions for loan losses
Other income (loss):
Servicing revenue
Asset recovery and business
processing revenue
Other income (loss)
Gains on sales of loans
Losses on debt repurchases
Total other income (loss)
Expenses:
Direct operating expenses
Unallocated shared services expenses
Operating expenses
Goodwill and acquired intangible asset
impairment and amortization
Restructuring/other reorganization
expenses
Total expenses
Income (loss) before income tax
expense (benefit)
Income tax expense (benefit)(2)
Net income (loss)
$
(1)
Core Earnings adjustments to GAAP:
Federal
Education
Loans
Consumer
Lending
Business
Processing Other
Reclassi-
fications
Additions/
(Subtractions)
Total
Adjustments(1)
Total
GAAP
Total
Core
Earnings
$
1,405 $
—
1,405
830
575
—
1,181 $
2
1,183
541
642
(61 )
— $ — $ 2,586 $
—
1
3
—
1 2,589
—
70 1,441
—
(69 ) 1,148
— —
(61 )
575
703
—
(69 ) 1,209
162
6
— —
168
51
25
—
—
238
223
—
223
—
—
91
—
97
162
—
162
488 —
—
5
— —
—
(73 )
(68 )
488
539
30
91
(73 )
755
360 —
— 462
745
462
360 462 1,207
98 $
—
98
(8 )
106
—
106
—
—
—
(93 )
(13 )
—
(106 )
—
—
—
—
—
—
— —
—
—
—
223
590
136
454 $
—
162
638
146
492 $
—
26
26
360 488 1,233
128 (625 )
29 (131 )
99 $ (494 ) $
731
180
551 $
—
—
—
—
— $
(39 ) $
—
(39 )
(117 )
78
—
59 $ 2,645
—
3
59 2,648
(125 ) 1,316
184 1,332
(61 )
—
78
184 1,393
—
—
157
—
—
157
—
—
—
30
—
30
205
39
166 $
— 168
— 539
94
64
78
(13 )
—
(73 )
51 806
— 745
— 462
— 1,207
30
30
—
26
30 1,263
205 936
39 219
166 $ 717
(Dollars in millions)
Net interest income (loss) after provisions for loan losses
Total other income (loss)
Goodwill and acquired intangible asset impairment and amortization
Total Core Earnings adjustments to GAAP
Income tax expense (benefit)
Net income (loss)
Net Impact of
Derivative
Accounting
Year Ended December 31, 2021
Net Impact of
Acquired
Intangibles
Total
$
$
184 $
51
—
235 $
— $
—
30
(30 )
$
184
51
30
205
39
166
(2)
Income taxes are based on a percentage of net income before tax for the individual reportable segment.
F-63
15. Segment Reporting (Continued)
Year Ended December 31, 2020
Adjustments
(Dollars in millions)
Interest income:
Education loans
Cash and investments
Total interest income
Total interest expense
Net interest income (loss)
Less: provisions for loan losses
Net interest income (loss) after
provisions for loan losses
Other income (loss):
Servicing revenue
Asset recovery and business
processing revenue
Other income (loss)
Losses on debt repurchases
Total other income (loss)
Expenses:
Direct operating expenses
Unallocated shared services expenses
Operating expenses
Goodwill and acquired intangible asset
impairment and amortization
Restructuring/other reorganization
expenses
Total expenses
Income (loss) before income tax
expense (benefit)
Income tax expense (benefit)(2)
Net income (loss)
$
(1)
Core Earnings adjustments to GAAP:
Federal
Education
Loans
Consumer
Lending
Business
Processing Other
Reclassi-
fications
Additions/
(Subtractions)
Total
Adjustments(1)
Total
GAAP
Total
Core
Earnings
$
1,813 $
7
1,820
1,194
626
13
1,445 $
3
1,448
699
749
142
— $ — $ 3,258 $
—
6
16
—
6 3,274
— 120 2,013
— (114 ) 1,261
— —
155
79 $
—
79
39
40
—
(55 ) $
—
(55 )
(6 )
(49 )
—
24 $ 3,282
—
16
24 3,298
33 2,046
(9 ) 1,252
— 155
613
607
— (114 ) 1,106
40
(49 )
(9 ) 1,097
— —
214
—
—
— 214
208
154
9
—
371
287
—
287
6
—
—
—
6
146
—
146
304 —
11
(6 )
5
—
—
304
254 —
— 277
254 277
458
20
(6 )
686
687
277
964
—
(40 )
—
(40 )
—
—
—
—
—
— —
—
—
—
287
697
160
537 $
—
146
467
107
360 $
—
9
254 286
9
973
50 (395 )
(90 )
11
39 $ (305 ) $
819
188
631 $
—
—
—
—
— $
—
(216 )
—
(216 )
—
—
—
22
—
22
— 458
(256 ) (236 )
(6 )
(256 ) 430
—
— 687
— 277
— 964
22
22
—
9
22 995
(287 )
(68 )
(219 ) $
(287 ) 532
(68 ) 120
(219 ) $ 412
(Dollars in millions)
Net interest income after provisions for loan losses
Total other income (loss)
Goodwill and acquired intangible asset impairment and amortization
Total Core Earnings adjustments to GAAP
Income tax expense (benefit)
Net income (loss)
Net Impact of
Derivative
Accounting
Year Ended December 31, 2020
Net Impact of
Acquired
Intangibles
Total
$
$
(9 ) $
(256 )
—
(265 ) $
— $
—
22
(22 )
$
(9 )
(256 )
22
(287 )
(68 )
(219 )
(2)
Income taxes are based on a percentage of net income before tax for the individual reportable segment.
F-64
15. Segment Reporting (Continued)
Year Ended December 31, 2019
Adjustments
(Dollars in millions)
Interest income:
Education loans
Other loans
Cash and investments
Total interest income
Total interest expense
Net interest income (loss)
Less: provisions for loan losses
Net interest income (loss) after
provisions for loan losses
Other income (loss):
Servicing revenue
Asset recovery and business
processing revenue
Other income (loss)
Gains on sales of loans
Gains on debt repurchases
Total other income (loss)
Expenses:
Direct operating expenses
Unallocated shared services expenses
Operating expenses
Goodwill and acquired intangible asset
impairment and amortization
Restructuring/other reorganization
expenses
Total expenses
Income (loss) before income tax
expense (benefit)
Income tax expense (benefit)(2)
Net income (loss)
$
(1)
Core Earnings adjustments to GAAP:
Federal
Education
Loans
Consumer
Lending
Business
Processing Other
Reclassi-
fications
Additions/
(Subtractions)
Total
Adjustments(1)
Total
GAAP
Total
Core
Earnings
$
2,907 $
1
50
2,958
2,376
582
30
1,731 $
1
16
1,748
980
768
228
— $ — $ 4,638 $
— —
2
—
27
93
—
27 4,733
— 161 3,517
— (134 ) 1,216
— —
258
8 $
—
—
8
6
2
—
(68 ) $
—
—
(68 )
(35 )
(33 )
—
—
—
(60 ) $ 4,578
2
93
(60 ) 4,673
(29 ) 3,488
(31 ) 1,185
— 258
552
540
— (134 )
958
2
(33 )
(31 ) 927
229
11
— —
240
—
230
28
—
—
487
359
—
359
—
1
16
—
28
156
—
156
258 —
—
14
— —
—
33
47
258
215 —
— 254
215 254
488
43
16
33
820
730
254
984
—
(41 )
—
39
(2 )
—
—
—
—
—
— —
—
—
—
359
680
155
525 $
—
156
412
96
316 $
—
6
215 260
6
990
43 (347 )
10
(80 )
33 $ (267 ) $
788
181
607 $
—
—
—
—
— $
—
—
65
—
(27 )
38
—
—
—
30
—
30
(25 )
(15 )
(10 ) $
— 240
— 488
67
24
—
16
45
12
36 856
— 730
— 254
— 984
30
30
—
6
30 1,020
(25 ) 763
(15 ) 166
(10 ) $ 597
(Dollars in millions)
Net interest income after provisions for loan losses
Total other income (loss)
Goodwill and acquired intangible asset impairment and amortization
Total Core Earnings adjustments to GAAP
Income tax expense (benefit)
Net income (loss)
Net Impact of
Derivative
Accounting
Year Ended December 31, 2019
Net Impact of
Acquired
Intangibles
Total
$
$
(31 ) $
36
—
5 $
— $
—
30
(30 )
$
(31 )
36
30
(25 )
(15 )
(10 )
(2)
Income taxes are based on a percentage of net income before tax for the individual reportable segment.
F-65
15. Segment Reporting (Continued)
Summary of Core Earnings Adjustments to GAAP
(Dollars in millions)
Core Earnings net income
Core Earnings adjustments to GAAP:
Net impact of derivative accounting(1)
Net impact of goodwill and acquired intangible assets(2)
Net income tax effect(3)
Total Core Earnings adjustments to GAAP
GAAP net income
$
$
Years Ended December 31,
2019
2020
2021
551 $
631 $
607
235
(30 )
(39 )
166
717 $
(265 )
(22 )
68
(219 )
412 $
5
(30 )
15
(10 )
597
(1)
(2)
(3)
Derivative accounting: Core Earnings exclude periodic gains and losses that are caused by the mark-to-market valuations on
derivatives that do not qualify for hedge accounting treatment under GAAP as well as the periodic mark-to-market gains and
losses that are a result of ineffectiveness recognized related to effective hedges under GAAP. Under GAAP, for our derivatives
that are held to maturity, the mark-to-market gain or loss over the life of the contract will equal $0 except for Floor Income
Contracts where the mark-to-market gain will equal the amount for which we sold the contract. In our Core Earnings
presentation, we recognize the economic effect of these hedges, which generally results in any net settlement cash paid or
received being recognized ratably as an interest expense or revenue over the hedged item’s life.
Goodwill and acquired intangible assets: Our Core Earnings exclude goodwill and intangible asset impairment and
amortization of acquired intangible assets.
Net tax effect: Such tax effect is based upon our Core Earnings effective tax rate for the year.
F-66
DESCRIPTION OF FEDERAL FAMILY EDUCATION LOAN PROGRAM
APPENDIX A
The Federal Family Education Loan Program (FFELP) was authorized under Title IV of the Higher Education Act
(HEA). No new FFELP loans were authorized to be made after July 1, 2010.1 The terms and conditions of existing
FFELP loans continue to be governed by the HEA statute, implementing regulations, and guidance from the
Department of Education (ED).
This appendix describes or summarizes the material provisions of HEA’s Title IV, the FFELP and related statutes and
regulations, in place as of December 31, 2021. It, however, is not complete and is qualified in its entirety by reference
to each actual statute and regulation. Both the HEA and the related regulations have been the subject of extensive
amendments over the years. We cannot predict whether future amendments or modifications might materially change
any of the programs described in this appendix or the statutes and regulations that implement them.
General
The FFELP provided for loans to students who were enrolled in eligible institutions, or to parents of dependent
students who were enrolled in eligible institutions, to finance their educational costs. As further described below,
payment of principal and interest on the education loans is insured by a state or not-for-profit guaranty agency
against:
• default of the borrower;
• the death, bankruptcy or permanent, total disability of the borrower;
• closing of the borrower’s school prior to the end of the academic period;
• false certification of the borrower’s eligibility for the loan by the school; and
• an unpaid school refund.
Claims are paid from federal assets, known as “federal student loan reserve funds,” which are federal assets but are
maintained and administered by state and not-for-profit guaranty agencies. In addition, the holders of education loans
are entitled to receive interest subsidy payments and special allowance payments from ED on eligible education
loans.
Special allowance payments raise the yield to education loan lenders when the statutory borrower interest rate is
below an indexed market value.
Four types of education loans were authorized under the HEA:
• Subsidized Stafford Loans to students who demonstrated requisite financial need;
• Unsubsidized Stafford Loans to students who either did not demonstrate financial need or required
additional loans to supplement their Subsidized Stafford Loans;
• Federal PLUS Loans to graduate or professional students (effective July 1, 2006) or parents of dependent
students whose estimated costs of attending school exceed other available financial aid; and
• Consolidation Loans, which consolidated into a single loan a borrower’s obligations under various federally
authorized education loan programs.
Before July 1, 1994, the HEA also authorized loans called “Supplemental Loans to Students” or “SLS Loans” to
independent students and, under some circumstances, dependent undergraduate students, to supplement their
Subsidized Stafford Loans. The Unsubsidized Stafford Loan program replaced the SLS program.
1 On March 30, 2010, the President of the United States signed into law the Health Care and Education Reconciliation Act of 2010
(HCERA) which terminated as of July 1, 2010 the Federal Family Education Loan Program (FFELP) under Title IV of the Higher
Education Act.
A-1
Special Allowance Payments
HEA provides for quarterly special allowance payments to be made by ED to holders of education loans to the extent
necessary to ensure that they receive at least specified market interest rates of return. The rates for special
allowance payments depend on statutory formulas that vary according to the type of loan, the date the loan was
made and the type of funds, tax-exempt or taxable, used to finance the loan. ED makes a special allowance payment
for each calendar quarter, generally within 45 to 60 days after the receipt of a bill from the lender.
The special allowance payment equals the average unpaid principal balance, including interest which has been
capitalized, of all eligible loans held by a holder during the quarterly period multiplied by the special allowance
percentage.
For education loans disbursed prior to April 1, 2006, if the special allowance formula is below the borrower rate, the
special allowance payment is zero. For education loans disbursed on or after April 1, 2006, lenders are required to
pay ED any interest paid by borrowers on education loans that exceeds the special allowance support levels
applicable to such loans.
Consolidation Loan Fees
Loan Rebate Fee. A loan rebate fee of 1.05% is paid annually on the unpaid principal and interest of each
Consolidation Loan disbursed on or after October 1, 1993.
Stafford Loan Program
For Stafford Loans, the HEA provided for:
federal reimbursement of Stafford Loans made by eligible lenders to qualified students;
federal interest subsidy payments on Subsidized Stafford Loans paid by ED to holders of the loans in lieu of the
borrowers’ making interest payments during in-school, grace and deferment periods or, in certain cases, during
enrollment in an income-based repayment plan; and
special allowance payments representing an additional subsidy paid by ED to the holders of eligible Stafford Loans.
We refer to all three types of assistance as “federal assistance.”
Interest. The borrower’s interest rate on a Stafford Loan can be fixed or variable, depending on the academic year in
which the loan was disbursed.2
Interest Subsidy Payments. ED is responsible for paying interest on Subsidized Stafford Loans:
• while the borrower is a qualified student,
• during the grace period,
• during prescribed deferment periods, and
• in certain cases, during a borrower’s enrollment in an income-based repayment plan.
ED makes quarterly interest subsidy payments to the owner of a Subsidized Stafford Loan in an amount equal to the
interest that accrues on the unpaid balance of that loan before repayment begins or during any deferment periods.
ED also makes quarterly interest subsidy payments to the owner of a Subsidized Stafford Loan in an amount equal to
the unpaid interest payable during up to three consecutive calendar years of a period of financial hardship during
enrollment in an income-based repayment plan. The HEA provides that the owner of an eligible Subsidized Stafford
Loan has a contractual right against the United States to receive interest subsidy and special allowance payments.
However, receipt of interest subsidy and special allowance payments is conditioned on compliance with the
requirements of the HEA, including the following:
• satisfaction of need criteria, and
• continued eligibility of the loan for federal insurance or reinsurance.
If the loan is not held by an eligible lender in accordance with the requirements of the HEA and the applicable
guarantee agreement, the loan may lose its eligibility for federal assistance.
2 Detail on Stafford borrower rates can be found in Appendix A of Navient’s 2019 Form 10-K filed with the SEC (Navient’s 2019 10-
K).
A-2
Lenders generally receive interest subsidy payments within 45 days to 60 days after the submission of the applicable
data for any given calendar quarter to ED. However, there can be no assurance that payments will, in fact, be
received from ED within that period.
Repayment. Repayment of principal on a Stafford Loan does not begin while the borrower remains a qualified
student, but only after a 6-month grace period. In general, each loan must be scheduled for repayment over a period
of not more than 10 years after repayment begins. New borrowers on or after October 7, 1998 who accumulated
FFELP loans totaling more than $30,000 in principal and unpaid interest are entitled to extend repayment for up to 25
years, subject to minimum repayment amounts. Consolidation Loan borrowers may be scheduled for repayment up to
30 years depending on the borrower’s indebtedness. Outlined in the table below are the maximum repayment periods
available based on the outstanding FFELP indebtedness.
Outstanding FFELP Indebtedness
$7,500-$9,999
$10,000-$19,999
$20,000-$39,999
$40,000-$59,999
$60,000 or more
Maximum Consolidation Loan Repayment
Period
12 Years
15 Years
20 Years
25 Years
30 Years
Note: Maximum repayment period excludes authorized periods of deferment and forbearance.
In addition to the outstanding FFELP indebtedness requirements described above, the HEA currently requires
minimum annual payments of $600, unless the borrower and the lender agree to lower payments, except that
negative amortization is not allowed, except for loans paid under an income-based repayment plan. The HEA and
related regulations require lenders to offer a choice among standard, graduated, income-sensitive, income-based,
and extended repayment schedules, if applicable, to all borrowers entering repayment. For borrowers in income-
based repayment, ED repays or cancels any outstanding principal and interest under certain criteria after 25 years of
qualified payments.
Grace Periods, Deferment Periods and Forbearance Periods. After the borrower stops pursuing at least a half-time
course of study, the borrower generally must begin to repay principal of a Stafford Loan following the grace period.
However, no principal repayments need be made, subject to some conditions, during deferment and forbearance
periods.
For borrowers whose first loans are disbursed on or after July 1, 1993, repayment of principal may be deferred while
the borrower returns to school at least half-time. Additional deferments are available, when the borrower is:
• enrolled in an approved graduate fellowship program or rehabilitation program;
• seeking, but unable to find, full-time employment, subject to a maximum deferment of three years; or
• having an economic hardship, as defined in the HEA, subject to a maximum deferment of three years; or
• serving on active duty during a war or other military operation or national emergency, or performing
qualifying National Guard duty during a war or other military operation or national emergency.
• receiving cancer treatment (for loans that entered repayment on or before September 28, 2018 for periods
of treatment that occur on or after September 28, 2018).
The HEA also permits, and in some cases requires, “forbearance” periods from loan collection in some
circumstances. Interest that accrues during a forbearance period is never subsidized. When a borrower ends
forbearance and enters repayment, the account is considered current. When a borrower exits grace, deferment or
forbearance, any interest that has not been subsidized is generally capitalized and added to the outstanding principal
amount.
PLUS and SLS Loan Programs
The HEA authorized PLUS Loans to be made to parents of eligible dependent students and graduate and
professional students and originally authorized SLS Loans to be made to the categories of students later served by
the Unsubsidized Stafford Loan program. Borrowers who had no adverse credit history or who were able to secure an
endorser without an adverse credit history were eligible for PLUS Loans, as well as some borrowers with extenuating
circumstances. The basic provisions applicable to PLUS and SLS Loans are similar to those of Stafford Loans for
federal insurance and reinsurance. However, interest subsidy payments are not available under the PLUS and SLS
programs and, in some instances, special allowance payments are more restricted.
A-3
Interest. The interest rates for PLUS Loans and SLS Loans depend on the year in which the loans were disbursed.3
Repayment; Deferments. Borrowers begin to repay principal on their PLUS and SLS Loans no later than 60 days
after the final disbursement, unless they use deferment available for the in-school period and the six-month post
enrollment period. Deferment and forbearance provisions, maximum loan repayment periods, repayment plans and
minimum payment amounts for PLUS and SLS loans are generally the same as those for Stafford Loans, although
income-based repayment is not available for parents borrowing under the PLUS program.
Consolidation Loan Program
Prior to July 1, 2010, HEA authorized a program under which borrowers could consolidate one or more of their
education loans into a single Consolidation Loan that is insured and reinsured on a basis similar to Stafford and
PLUS Loans. Consolidation Loans were made in an amount sufficient to pay outstanding principal, unpaid interest,
late charges and collection costs on all federally reinsured education loans incurred under the FFELP that the
borrower selects for consolidation, as well as loans made under various other federal education loan programs and
loans made by different lenders. In general, a borrower’s eligibility to consolidate federal education loans ends upon
receipt of a Consolidation Loan. With the end of new FFELP originations, borrowers with multiple loans, including
FFELP loans, may only consolidate their loans under the FDLP.
Consolidation Loans generally bear interest at a fixed rate equal to the weighted average of the interest rates on the
unpaid principal balances of the consolidated loans rounded up to the nearest 1/8th of a %, subject to interest rate
caps depending on the year in which the consolidation loan was disbursed. Between November 13, 1997 and
September 30, 1998 interest rates were variable.
Guaranty Agencies under the FFELP
Under the FFELP, guaranty agencies guarantee loans made by eligible lending institutions, paying claims from
“federal student loan reserve funds.” The rate of reimbursement depends on the type of claim (death, disability, or
default) and can range from 97% to 100%.4
These loans are guaranteed as to 100% of principal and accrued interest against death or discharge.
To be eligible for federal reinsurance, FFELP loans must meet HEA requirements and its regulations. Generally,
these regulations require that holders must establish repayment terms with the borrower, properly administer
deferments and forbearances, credit the borrower for payments made, and report the loan’s status to credit reporting
agencies. If a borrower becomes delinquent in repaying a loan, a lender must perform collection procedures that vary
depending upon the length of time a loan is delinquent. The collection procedures consist of telephone calls, demand
letters, skip tracing procedures and requesting assistance from the guaranty agency.
A lender may submit a default claim to the guaranty agency after the related education loan has been delinquent for
at least 270 days. The guaranty agency must review and pay the claim within 90 days after the lender filed it. The
guaranty agency will pay the lender interest accrued on the loan for up to 450 days after delinquency. The guaranty
agency must file a reimbursement claim with ED within 30 days after the guaranty agency paid the lender for the
default claim. Following payment of claims, the guaranty agency endeavors to collect the loan. Guaranty agencies
also must meet statutory and regulatory requirements for collecting loans.
Education Loan Discharges
FFELP loans are not generally dischargeable in bankruptcy. Under the United States Bankruptcy Code, before an
education loan may be discharged, the borrower must demonstrate that repaying it would cause the borrower or his
family undue hardship. When a FFELP borrower files for bankruptcy, collection of the loan is suspended during the
time of the proceeding. If the borrower files under the “wage earner” provisions of the United States Bankruptcy Code
or files a petition for discharge on the grounds of undue hardship, then the lender transfers the loan to the guaranty
agency which guaranteed that loan and that agency then participates in the bankruptcy proceeding. When the
proceeding is complete, unless there was a finding of undue hardship, the loan is transferred back to the lender and
collection resumes.
3 Detail on borrower rates for PLUS and SLS loans can be found in Appendix A of Navient’s 2019 10-K.
4 Details on guaranty agency reimbursement rates and other details regarding guaranty agency requirements can be found in
Appendix A of Navient’s 2019 10-K.
A-4
Education loans are discharged if the borrower dies or becomes totally and permanently disabled. If a school closes
while a student is enrolled, or within 120 days after the student withdrew, loans made for that enrollment period are
discharged. If a school falsely certifies that a borrower is eligible for the loan, the loan may be discharged, and if a
school fails to make a refund to which a student is entitled, the loan is discharged to the extent of the unpaid refund.
Effective July 1, 2006, a loan is also eligible for discharge if it is determined that the borrower’s eligibility for the loan
was falsely certified as a result of a crime of identity theft.
Rehabilitation of Defaulted Loans
ED is authorized to enter into agreements with a guaranty agency under which such guaranty agency may sell
defaulted loans that are eligible for rehabilitation to an eligible lender. For a loan to be eligible for rehabilitation the
related guaranty agency must have received reasonable and affordable payments originally for 12 months which was
reduced to 9 payments in 10 months effective July 1, 2006, and then the borrower may request that the loan be
rehabilitated. Because monthly payments may be greater after rehabilitation, not all borrowers opt for rehabilitation.
Upon rehabilitation, a borrower is again eligible for all the benefits under the HEA for which the borrower is not
eligible as a borrower on a defaulted loan, such as new federal aid, and the negative credit record of default is
expunged. No education loan may be rehabilitated more than once.
Department of Education Oversight
If ED determines that a guaranty agency is unable to meet its insurance obligations, the holders of loans insured by
that guaranty agency may submit claims directly to ED and ED is required to pay the full reimbursement amounts
due, in accordance with claim processing standards no more stringent than those applied by the affected guaranty
agency. However, ED’s obligation to pay guarantee claims directly in this fashion is contingent upon ED determining
a guaranty agency is unable to meet its obligations. While there have been situations where ED has made such
determinations regarding affected guaranty agencies, there can be no assurances as to whether ED must make such
determinations in the future or whether payments of reimbursement amounts would be made in a timely manner.
A-5
APPENDIX B
FORM 10-K CROSS-REFERENCE INDEX
Forward-Looking and Cautionary Statements ...................................................................................
Available Information .........................................................................................................................
PART I
Page
Number
1
2
Item 1.
Business ....................................................................................................................
3-9,49-51
Item 1A.
Risk Factors ..............................................................................................................
52-64
Item 1B.
Unresolved Staff Comments ...................................................................................... Not Applicable
Item 2.
Properties ..................................................................................................................
70
Item 3.
Legal Proceedings ..................................................................................................... 51, F-54-F-56
Item 4.
Mine Safety Disclosures ............................................................................................ Not Applicable
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities .............................................................................
71-72
Item 6.
Selected Financial Data ............................................................................................. Reserved and
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations .................................................................................................................
Removed
10-48
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk .....................................
65-69
Item 8.
Financial Statements and Supplementary Data ........................................................
(a)
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ..................................................................................................................
Not Applicable
Item 9A.
Controls and Procedures ...........................................................................................
73
Item 9B.
Other Information ...................................................................................................... Not Applicable
PART III
Item 10.
Directors, Executive Officers and Corporate Governance .........................................
Item 11.
Executive Compensation ...........................................................................................
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters .............................................................................................
Item 13.
Certain Relationships and Related Transactions, and Director Independence ..........
Item 14.
Principal Accountant Fees and Services ...................................................................
PART IV
Item 15.
Exhibits and Financial Statement Schedules ............................................................
74
74
74
74
74
75-78,
F-1-F-66
Item 16.
Form 10-K Summary ................................................................................................. Not applicable
Signatures .........................................................................................................................................
79
(a) Reference is made to the financial statements listed under the heading “(a) 1. Financial
Statements” of Item 15 hereof, which financial statements are incorporated by reference in
response to this Item 8.
B-1
GLOSSARY
Listed below are definitions of key terms that are used throughout this document. See also Appendix A “Description
of Federal Family Education Loan Program” for a further discussion of the FFELP.
Constant Prepayment Rate (CPR) — A variable in life-of-loan estimates that measures the rate at which loans in
the portfolio prepay before their stated maturity. The CPR is directly correlated to the average life of the portfolio.
CPR equals the percentage of loans that prepay annually as a percentage of the beginning of period balance.
ED — The U.S. Department of Education.
FFELP — The Federal Family Education Loan Program, formerly the Guaranteed Education Loan Program, a
program that was discontinued in 2010.
FFELP Consolidation Loans — Under the FFELP, borrowers with multiple eligible education loans may have
consolidated them into a single education loan with one lender at a fixed rate for the life of the loan. The new loan is
considered a FFELP Consolidation Loan. The borrower rate on a FFELP Consolidation Loan is generally fixed for the
term of the loan and was set by the weighted average interest rate of the loans being consolidated, rounded up to the
nearest 1/8th of a%, not to exceed 8.25%. Before October 1, 1998, maximum loan rates could have exceeded 8.25%.
Between November 13, 1997 and September 30, 1998, interest rates were variable. Holders of FFELP Consolidation
Loans are eligible to earn interest under the Special Allowance Payment (SAP) formula. In April 2008, we suspended
originating new FFELP Consolidation Loans.
FFELP Stafford Loans — Education loans to students or parents of students that are guaranteed or reinsured under
the FFELP. The loans are primarily Stafford loans but also include PLUS, SLS, Consolidation and HEAL loans. The
FFELP was discontinued in 2010.
Fixed Rate Floor Income — Fixed Rate Floor Income is Floor Income associated with education loans with borrower
rates that are fixed to term (primarily FFELP Consolidation Loans).
Floor Income — For loans disbursed before April 1, 2006, FFELP Loans generally earn interest at the higher of
either the borrower rate, which is fixed over a period of time, or a floating rate based on the SAP formula. We
generally finance our education loan portfolio with floating rate debt whose interest is matched closely to the floating
nature of the applicable SAP formula. If interest rates decline to a level at which the borrower rate exceeds the SAP
formula rate, we continue to earn interest on the loan at the fixed borrower rate while the floating rate interest on our
debt continues to decline. In these interest rate environments, we refer to the additional spread it earns between the
fixed borrower rate and the SAP formula rate as Floor Income. Depending on the type of education loan and when it
was originated, the borrower rate is either fixed to term or is reset to a market rate each July 1. As a result, for loans
where the borrower rate is fixed to term, we may earn Floor Income for an extended period of time, and for those
loans where the borrower interest rate is reset annually on July 1, we may earn Floor Income to the next reset date.
In accordance with legislation enacted in 2006, lenders are required to rebate Floor Income to ED for all FFELP
Loans disbursed on or after April 1, 2006.
The following example shows the mechanics of Floor Income for a typical fixed rate FFELP Consolidation Loan (with
a LIBOR-based SAP spread of 2.64%):
Fixed Borrower Rate
SAP Spread over LIBOR
Floor Strike Rate(1)
4.25 %
(2.64 )
1.61 %
(1)
The interest rate at which the underlying index (LIBOR, Treasury bill or commercial
paper) plus the fixed SAP spread equals the fixed borrower rate. Floor Income is
earned anytime the interest rate of the underlying index declines below this rate.
Based on this example, if the quarterly average LIBOR rate is over 1.61%, the holder of the education loan will earn
at a floating rate based on the SAP formula, which in this example is a fixed spread to LIBOR of 2.64%. On the other
hand, if the quarterly average LIBOR rate is below 1.61%, the SAP formula will produce a rate below the fixed
borrower rate of 4.25% and the loan holder earns at the borrower rate of 4.25%.
G-1
Graphic Depiction of Floor Income:
Floor Income Contracts — We enter into contracts with counterparties under which, in exchange for an upfront
contractual payment representing the present value of the Floor Income that we expect to earn on a notional amount
of underlying education loans being economically hedged, we will pay the counterparties the Floor Income earned on
that notional amount over the life of the Floor Income Contract. Specifically, we agree to pay the counterparty the
difference, if positive, between the fixed borrower rate less the SAP spread and the average of the applicable interest
rate index on that notional amount, regardless of the actual balance of underlying education loans, over the life of the
contract. The contracts generally do not extend over the life of the underlying education loans. This contract
effectively locks in the amount of Floor Income we will earn over the period of the contract. Floor Income Contracts
are not considered effective hedges under ASC 815, “Derivatives and Hedging,” and each quarter we must record the
change in fair value of these contracts through income.
Guarantor(s) — State agencies or non-profit companies that guarantee (or insure) FFELP Loans made by eligible
lenders under The Higher Education Act of 1965 (HEA), as amended.
HCERA — The Health Care and Education Reconciliation Act of 2010.
Private Education Loans — Education loans to students or their families that bear the full credit risk of the customer
and any cosigner. Private Education Loans are made primarily to bridge the gap between the cost of higher education
and the amount funded through financial aid, federal loans or students’ and families’ resources. Private Education
Loans include loans for higher education (undergraduate and graduate degrees) and for alternative education, such
as career training, private kindergarten through secondary education schools and tutorial schools. Certain higher
education loans have repayment terms similar to FFELP Loans, whereby repayments begin after the borrower leaves
school while others require repayment of interest or a fixed pay amount while the borrower is still in school. Our
higher education Private Education Loans are not dischargeable in bankruptcy, except in certain limited
circumstances.
In the context of our Private Education Loan business, we use the term “Private Education Refinance Loans” to
describe education loans made to certain customers that have simplified their payments by consolidating private
and/or federal education loans into a single Private Education Loan. These loans are expected to have low default
rates as a result of a number of factors including high FICO scores, employment record and educational history.
G-2
Repayment Borrower Benefits — Financial incentives offered to borrowers based on pre-determined qualifying
factors, which are generally tied directly to making on-time monthly payments. The impact of Repayment Borrower
Benefits is dependent on the estimate of the number of borrowers who will eventually qualify for these benefits and
the amount of the financial benefit offered to the borrower.
Residual Interest — When we securitize education loans, we retain the right to receive cash flows from the
education loans sold to trusts that we sponsor in excess of amounts needed to pay derivative costs (if any), other
fees, and the principal and interest on the bonds backed by the education loans.
Risk Sharing — When a FFELP Loan first disbursed on and after July 1, 2006 defaults, the federal government
guarantees 97% of the principal balance plus accrued interest (98% on loans disbursed on and after October 1, 1993
and before July 1, 2006) and the holder of the loan is at risk for the remaining amount not guaranteed as a Risk
Sharing loss on the loan. FFELP Loans originated after October 1, 1993 are subject to Risk Sharing on loan default
claim payments unless the default results from the borrower’s death, disability, bankruptcy, closed school or false
certification.
Variable Rate Floor Income — Variable Rate Floor Income is Floor Income that is earned only through the next date
at which the borrower interest rate is reset to a market rate. For FFELP Stafford Loans whose borrower interest rate
resets annually on July 1, we may earn Floor Income based on a calculation of the difference between the borrower
rate and the then current interest rate.
G-3