SLM Annual Report 2016 | Quarterlytics

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FY2016 Annual Report · SLM

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

(Mark One)

ACT OF 1934

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

For the fiscal year ended December 31, 2016

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 numbers 001-13251

SLM Corporation

(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State of Other Jurisdiction of
Incorporation or Organization)

300 Continental Drive, Newark, Delaware
(Address of Principal Executive Offices)

52-2013874
(I.R.S. Employer
Identification No.)

19713
(Zip Code)

(302) 451-0200
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act
Common Stock, par value $.20 per share.
Name of Exchange on which Listed:
The NASDAQ Global Select Market
6.97% Cumulative Redeemable Preferred Stock, Series A, par value $.20 per share
Name of Exchange on which Listed:
The NASDAQ Global Select Market
Floating Rate Non-Cumulative Preferred Stock, Series B, par value $.20 per share
Name of Exchange on which Listed:
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 and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes  No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the

definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer 
Non-accelerated filer 

(Do not check if a smaller reporting company)

Accelerated filer 
Smaller reporting company 

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 common stock held by non-affiliates of the registrant as of June 30, 2016 was $2.6 billion (based on closing sale price of $6.18 per

share as reported for the NASDAQ Global Select Market).

As of January 31, 2017, there were 429,101,108 shares of common stock outstanding.

Portions of the proxy statement relating to the Registrant’s 2017 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on

DOCUMENTS INCORPORATED BY REFERENCE

Form 10-K.

SLM CORPORATION

TABLE OF CONTENTS

Forward-Looking and Cautionary Statements ................................................................................

Available Information .....................................................................................................................

PART I

Item 1. Business ..........................................................................................................................................

Item 1A. Risk Factors ....................................................................................................................................

Item 1B. Unresolved Staff Comments ...........................................................................................................

Item 2.

Properties ........................................................................................................................................

Item 3. Legal Proceedings ...........................................................................................................................

Item 4. Mine Safety Disclosures .................................................................................................................

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Item 6.

Equity Securities .............................................................................................................................
Selected Financial Data ..................................................................................................................

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ..........

Item 7A. Quantitative and Qualitative Disclosures about Market Risk .........................................................

Item 8.

Financial Statements and Supplementary Data ...............................................................................

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..........

Item 9A. Controls and Procedures .................................................................................................................

Item 9B. Other Information ...........................................................................................................................

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 Accounting Fees and Services .........................................................................................

PART IV

Item 15. Exhibits, Financial Statement Schedules ........................................................................................

Page
Number

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

References in this Annual Report on Form 10-K to “we,” “us,” “our,” “Sallie Mae,” “SLM” and the “Company” refer

to SLM Corporation and its subsidiaries, except as otherwise indicated or unless the context otherwise requires.

This Annual Report on Form 10-K contains “forward-looking” statements and information based on management’s

current expectations as of the date of this report. Statements that are not historical facts, including statements about the
Company’s beliefs, opinions or expectations and statements that assume or are dependent upon future events, are forward-
looking statements. Forward-looking statements are subject to risks, uncertainties, assumptions and other factors that may cause
actual results to be materially different from those reflected in such forward-looking statements. These factors include, among
others, the risks and uncertainties set forth in Item 1A “Risk Factors” and elsewhere in this Annual Report on Form 10-K and
subsequent filings with the Securities and Exchange Commission (“SEC”); increases in financing costs; limits on liquidity;
increases in costs associated with compliance with laws and regulations; failure to comply with consumer protection, banking
and other laws; changes in accounting standards and the impact of related changes in significant accounting estimates; any
adverse outcomes in any significant litigation to which the Company is a party; credit risk associated with the Company’s
exposure to third-parties, including counterparties to the Company’s derivative transactions; and changes in the terms of
education loans and the educational credit marketplace (including changes resulting from new laws and the implementation of
existing laws). The Company could also be affected by, among other things: changes in its funding costs and availability;
reductions to its credit ratings; failures or breaches of its operating systems or infrastructure, including those of third-party
vendors; damage to its reputation; risks associated with restructuring initiatives, including failures to successfully implement
cost-cutting programs and the adverse effects of such initiatives on the Company’s business; changes in the demand for
educational financing or in financing preferences of lenders, educational institutions, students and their families; changes in law
and regulations with respect to the student lending business and financial institutions generally; changes in banking rules and
regulations, including increased capital requirements; increased competition from banks and other consumer lenders; the
creditworthiness of the Company’s customers; changes in the general interest rate environment, including the rate relationships
among relevant money-market instruments and those of the Company’s earning assets versus the Company’s funding
arrangements; rates of prepayment on the loans that the Company makes; changes in general economic conditions and the
Company’s ability to successfully effectuate any acquisitions; and other strategic initiatives. The preparation of the Company’s
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. All forward-looking statements
contained in this Annual Report on Form 10-K are qualified by these cautionary statements and are made only as of the date of
this report. The Company does not undertake any obligation to update or revise these forward-looking statements to conform
such statements to actual results or changes in its expectations.

The financial information contained herein and in the accompanying consolidated balance sheets, statements of

income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2016, presents
information on our business as configured after the Spin-Off, as hereafter defined. For more information regarding the basis of
presentation of these statements, see Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies —
Basis of Presentation.”

AVAILABLE INFORMATION

Our website address is www.salliemae.com. Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K, as well as any amendments to those reports, and any significant investor presentations,
are available free of charge through our website 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, as well as in
print to any stockholder 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, Principal Financial Officer or Principal Accounting Officer) by
posting such information on our website. Information contained or referenced on our website is not incorporated by reference
into and does not form a part of this Annual Report on Form 10-K.

Item 1. Business

Company History

PART I.

SLM Corporation, more commonly known as Sallie Mae, is the nation’s leading saving, planning and paying for college
company. For 44 years, we have made a difference in students’ and families’ lives, helping more than 34 million Americans pay
for college. We recognize there is no single way to achieve this task, so we provide a range of products to help families,
whether college is a long way off or right around the corner. We promote responsible financial habits that help our customers
make college happen.

Our primary business is to originate and service Private Education Loans we make to students and their families. We use
“Private Education Loans” to mean education loans to students or their families that are not made, insured or guaranteed by any
state or federal government. Private Education Loans do not include loans insured or guaranteed under the previously existing
Federal Family Education Loan program (“FFELP Loans”). We also offer a range of deposit products insured by the Federal
Deposit Insurance Corporation (the “FDIC”) and operate a consumer savings network that provides financial rewards on
everyday purchases to help families save for college.

We were formed in 1972 as the Student Loan Marketing Association, a federally chartered government-sponsored
enterprise (“GSE”), with the goal of furthering access to higher education by providing a national secondary market and
warehousing facilities for FFELP Loans. The GSE’s federal charter prohibited it from originating student loans in the primary
market.

In 1996, the United States Congress passed the Student Loan Marketing Association Reorganization Act, which set the
stage for the “privatization” of the GSE. As part of the privatization process, we incorporated SLM Corporation in 1997 as a
Delaware corporation, the GSE became a subsidiary of SLM Corporation, and by mid-2004 the GSE stopped purchasing
FFELP Loans in the secondary market and was dissolved by the end of 2004.

On November 3, 2005, SLM Corporation formed Sallie Mae Bank, a Utah industrial bank subsidiary (the “Bank”), to

fund and originate Private Education Loans on behalf of SLM Corporation. While the Bank first originated Private Education
Loans in February 2006, SLM Corporation continued to purchase a portion of its Private Education Loans from its third-party
lending partners through mid-2009. With some minor exceptions, the Bank became the sole originator of Private Education
Loans for SLM Corporation beginning with the 2009-2010 academic year, the first academic year following the launch of the
Bank’s Smart Option Student Loan program in mid-2009.

On March 30, 2010, President Obama signed into law the Federal Direct Student Loan Program (the “DSLP”), effective

July 1, 2010. At that time, the guaranteed student loan program (under which FFELP Loans were made) was eliminated,
although the terms and conditions of existing guaranteed student loans were not altered or affected.

On April 30, 2014, we completed our plan to legally separate (the “Spin-Off”) into two distinct publicly traded entities: an
education loan management, servicing and asset recovery business, named Navient Corporation (“Navient”), which retained all
assets and liabilities generated prior to the Spin-Off other than those explicitly retained by SLM Corporation; and a consumer
banking business, named SLM Corporation. We sometimes refer to the SLM Corporation that existed prior to the Spin-Off as
“pre-Spin-Off SLM.”

Our principal executive offices are located at 300 Continental Drive, Newark, Delaware 19713, and our telephone number

is (302) 451-0200.

Our Business

Our primary business is to originate and service high quality Private Education Loans. In 2016, we originated $4.7 billion

of Private Education Loans, an increase of 8 percent from the year ended December 31, 2015. As of December 31, 2016, we
had $14.1 billion of Private Education Loans outstanding.

Private Education Loans

The Private Education Loans we make to students and families serve primarily to bridge the gap between the cost of

higher education and the amount funded through financial aid, federal loans and customers’ resources. We also extend Private
Education Loans as an alternative to similar federal education loan products where we believe our rates are competitive. We
earn interest income on our Private Education Loan portfolio, net of provisions for loan losses.

In 2009, we introduced the Smart Option Student Loan, our Private Education Loan product emphasizing in-school
payment features that can produce shorter terms and minimize customers’ total finance charges. Customers elect one of three
Smart Option repayment types at the time of loan origination. The first two, Interest Only and Fixed Payment options, require
monthly payments while the student is in school and during the six-month grace period thereafter, and accounted for
approximately 55 percent of the Private Education Loans Sallie Mae Bank originated during 2016. The third repayment option
is the more traditional deferred Private Education Loan product where customers are not required to make payments while the
student is in school and for a six-month grace period after separation. Lower interest rates on the Interest Only and Fixed
Payment options encourage customers to elect those options. Making payments while in school helps customers reduce their
total loan cost compared with the traditional deferred loan, and also helps them become accustomed to making on-time regular
loan payments. We offer both variable rate and fixed rate loans.

We regularly review and update the terms of our Private Education Loan products. Our Private Education Loans include

important protections for the family, including loan forgiveness in case of death or permanent disability of the student borrower
and a free, quarterly FICO Score benefit to students and cosigners with a Smart Option Student Loan.

Private Education Loans bear the full credit risk of the customers. We manage this risk by underwriting and pricing based

on customized credit scoring criteria and the addition of qualified cosigners. For the year ended December 31, 2016, our
average FICO scores were 748 at the time of original approval and approximately 89 percent of our loans were cosigned. In
addition, we voluntarily require school certification of both the need for, and the amount of, every Private Education Loan we
originate, and we disburse the loan proceeds directly to the higher education institutions.

The core of our marketing strategy is to promote our products on campuses through financial aid offices as well as

through online and direct marketing to students and their families. Our on-campus efforts with 2,400 higher education
institutions are led by our sales force, the largest in the industry, which has become a trusted resource for financial aid offices.

Our loans are high credit quality and the overwhelming majority of our customers manage their payments with great

success. At December 31, 2016, 2.1 percent of loans in repayment were greater than 30 days delinquent, and loans in
forbearance were 3.5 percent of loans in repayment and forbearance. In 2016, net charge-offs as a percentage of average loans
in repayment was 0.96 percent. Loans in repayment include loans on which customers are making interest only and fixed
payments, as well as loans that have entered full principal and interest repayment status.

Sallie Mae Bank

Since 2006, the Bank, which is regulated by the Utah Department of Financial Institutions (the “UDFI”), the FDIC, and

the Consumer Financial Protection Bureau (the “CFPB”), has originated Private Education Loans and accepted deposits. At
December 31, 2016, the Bank had total assets of $18.3 billion, including $14.1 billion of Private Education Loans and
$1.0 billion of FFELP Loans, and total deposits of $14.0 billion.

Our ability to obtain deposit funding and offer competitive interest rates on deposits will be necessary to sustain the
growth of our Private Education Loan originations. Our ability to obtain such funding is dependent, in part, on the capital level
of the Bank and its compliance with other applicable regulatory requirements. At the time of this filing, there are no restrictions
on our ability to obtain deposit funding or the interest rates we charge other than those restrictions generally applicable to all
FDIC-insured banks of similar charter and size. In 2016, we added $1.5 billion in deposits from Educational 529 and Health

Savings Accounts as a way to diversify our funding sources. We further diversified our funding base by raising $1.8 billion in
term funding collateralized by pools of Private Education Loans in the long-term asset-backed securities (“ABS”) market. We
plan to continue to do so, market conditions permitting. This helps us better match-fund our assets and reduce our reliance on
deposits to fund our growth.

We expect the Bank or affiliates of the Bank to retain servicing of all Private Education Loans the Bank originates,
regardless of whether the loans are held, sold or securitized. When Private Education Loans are sold and servicing is retained,
the Bank receives ongoing servicing revenue for those loans in addition to the gain on sale recognized on the sale of those
assets. The Bank did not sell loans in 2016 and does not expect to sell loans in 2017.

See the subsection titled “Regulation of Sallie Mae Bank” under “Supervision and Regulation” for additional details

about the Bank.

Operational Infrastructure

In April 2014, we began to perform collection activity on our portfolio of Private Education Loans. In October 2014, we

launched our stand-alone servicing platform and began servicing our portfolio of Private Education Loans. Since early 2015, all
servicing and collections activities have been conducted in the United States.

Our servicing operation includes resources dedicated to assist customers with specialized needs and escalated inquiries.

We also have a group of customer service representatives dedicated to assisting military personnel with available military
benefits.

In 2015, we completed the build-out of our new loan originations platform to independently originate Private Education

Loans.

In 2016, we transitioned all loan servicing call center functions from a third-party to our in-house servicing area in our

Newark, Delaware and Indianapolis, Indiana offices. We also implemented several improvements in our ability to interact with
our customers, including:

•

an integrated platform that allows customers and servicing agents to simultaneously access the same systems in real
time interaction;

an on-line chat function for customer service; and

a mobile application accessible through smart phones and the Apple watch.

These and other enhancements have contributed to streamlined originations and servicing processes, increased customer

self-services rates, and improved customer satisfaction in all channels.

Upromise by Sallie Mae

Upromise by Sallie Mae is a save-for-college rewards program helping Americans save for higher education. The

program is free to join, and in 2016, approximately 200,000 consumers enrolled. Members can earn money for college by
receiving cash back rewards when shopping at participating on-line or brick-and-mortar retailers, booking travel, dining out at
participating restaurants, and by using their Upromise MasterCard. Since inception, Upromise members have earned
approximately $1 billion through the program, and more than 380,000 members are using their Upromise credit card to save.

Our Approach to Advising Students and Families How to Pay for College

Our annual research on How America Pays for College1 confirms students and their families cover the cost of college

using multiple sources. According to this research, just 40 percent of families have a plan to pay for college. Sallie Mae offers
free online financial literacy resources, including interactive tools and content, on SallieMae.com, to help families construct a
comprehensive financial strategy to save and pay for college. Our College Planning Calculator helps families set college
savings goals, project the full cost of a college degree, and estimate future student loan payments and the annual starting salary
level needed to keep payments manageable. In addition, Sallie Mae offers a free mobile application, College Ahead, that
engages high school juniors and seniors in a step-by-step journey to college.

To encourage responsible borrowing, Sallie Mae advises students and families to follow a three-step approach to paying

for college:

Step 1: Use scholarships, grants, savings and income.

We provide access to an extensive, free, online scholarship database, which includes information about more than

5 million scholarships with an aggregate value in excess of $24 billion.

Through the Bank, we offer traditional savings products, such as high-yield savings accounts, money market accounts,

and certificates of deposit (“CDs”).

In addition, our Upromise by Sallie Mae save-for-college rewards program helps families jumpstart their save-for-college

plans by providing financial rewards on everyday purchases made at participating merchants.

Step 2: Explore federal government loan options.

We encourage students to explore federal government loan options, including Perkins loans, Direct loans, and PLUS

loans. Students apply for federal student aid, including federal student loans, by completing the Free Application for Federal
Student Aid.

Step 3: Consider affordable Private Education Loans to fill the gap.

We offer competitively priced Private Education Loan products to bridge the gap between family resources, federal loans,

grants, student aid and scholarships, and the cost of a college education.

____________________

1 Sallie Mae’s How America Pays for College 2016, conducted by Ipsos, www.salliemae.com/howamericapays.

Our Approach to Assisting Students and Families Borrowing and Repaying Private Education Loans

To ensure applicants borrow only what they need to cover their school’s cost of attendance, we actively engage with
schools and require school certification before we disburse a Private Education Loan. To help applicants understand their loan
and its terms, we provide multiple, customized disclosures explaining the applicant’s starting interest rate, the interest rate
during the life of the loan, and the loan’s total cost under the available repayment options. Our Smart Option Student Loan
features no origination fees and no prepayment penalties, provides rewards for paying on time, and offers a choice of repayment
options and a choice of either variable or fixed interest rates.

The majority of our Smart Option Student Loan customers elect an in-school repayment option. By making in-school

payments, customers learn to establish good repayment patterns, reduce their total loan cost, and graduate with less debt. We
send monthly communications to customers while they are in school, even if they have no monthly payments scheduled, to
keep them informed and encourage them to reduce the amount they will owe when they leave school.

Some customers transitioning from school to the work force may require more time before they are financially capable of

making full payments of principal and interest. Sallie Mae created a Graduated Repayment Program to assist new graduates
with additional payment flexibility, allowing customers to elect to make interest-only payments instead of full principal and
interest payments during the first year after their six-month grace period.

Our experience has taught us the successful transition from school to full principal and interest repayment status involves

making and carrying out a financial plan. As customers approach the principal and interest repayment period on their loans,
Sallie Mae engages with them and communicates what to expect during the transition. In addition, an informational section of
SallieMae.com, Manage Your Student Loans, provides educational content for customers on how to organize loans, set up a
monthly budget, and understand repayment obligations. Examples are provided that help explain how payments are applied and
allocated, and help site visitors estimate payments and see how the accrued interest on alternative repayment programs could
affect the cost of their loans. The site also provides important information on special benefits available to service men and
women under the Servicemembers Civil Relief Act (the “SCRA”).

After graduation, a customer may apply for the cosigner to be released from the loan. This option is available once there

have been 12 consecutive, on-time principal and interest payments and the student borrower adequately meets our credit
requirements. In the event of a cosigner’s death, the student borrower automatically continues as the sole individual on the loan
with the same terms.

During repayment, customers may struggle to meet their financial obligations. If a customer’s account becomes
delinquent, we will work with the customer and/or the cosigner to understand their ability to make ongoing payments. If the
customer is in financial hardship, we work with the customer and/or cosigner to understand their financial circumstances and
identify any available alternative arrangements designed to reduce monthly payment obligations. These can include extended
repayment schedules, temporary interest rate reductions and, if appropriate, short-term hardship forbearance, suited to their
individual circumstances and ability to make payments. We grant forbearance in our servicing centers if a borrower who is
current requests it for increments of three months at a time, for up to twelve months.

In some cases, loan modifications and other efforts may be insufficient for those experiencing extreme long-term
hardship. Sallie Mae has long supported bankruptcy reform that (i) would permit the discharge of education loans, both private
and federal, after a required period of good faith attempts to repay and (ii) is prospective in application, so as not to rewrite
existing contracts. Any reform should recognize education loans have unique characteristics and benefits as compared to other
consumer loan classes.

Key Drivers of Private Education Loan Market Growth

The size of the Private Education Loan market is based primarily on three factors: college enrollment levels, the costs of

attending college, and the availability of funds from the federal government to pay for a college education. The amounts
students and their families can contribute toward college costs and the availability of scholarships and institutional grants are
also important. If the cost of education increases at a pace exceeding the sum of family income, savings, federal lending, and
scholarships, more students and families can be expected to rely on Private Education Loans. If enrollment levels or college

costs decline or the availability of federal education loans, grants or subsidies and scholarships significantly increases, Private
Education Loan demand could decrease.

We focus primarily on students attending public and private not-for-profit four-year degree granting institutions. We lend

to some students attending two-year and for-profit schools. Due to the low cost of two-year programs, federal grant and loan
programs are typically sufficient for the funding needs of these students. The for-profit industry has been the subject of
increased scrutiny and regulation over the last several years. Since 2007, we have reduced the number of for-profit institutions
included in our lending program. Approximately 9 percent or $419 million of our 2016 Private Education Loan originations
were for students attending for-profit schools. The for-profit schools where we continue to do business are focused on career
training. We expect students who attend and complete programs at for-profit schools to support the same repayment
performance as students who attend and graduate from public and private not-for-profit four-year degree granting institutions.

Our competitors1 in the Private Education Loan market include large banks such as Wells Fargo Bank, N.A., Discover

Bank, Citizens Financial Group, Inc. and PNC Bank NA, as well as a number of smaller specialty finance companies. We
compete based on our products, originations capability, and customer service.

Enrollment

We expect modest enrollment growth over the next several years.

• Enrollments at public and private not-for-profit four-year institutions increased by approximately 9 percent from

academic years (“AYs”) 2004-2005 through 2007-2008. Enrollment increased especially during the recession of 2007-
2009, which created high unemployment. Enrollment has been stable post-recession.

Enrollment at Four-Year Degree Granting Institutions2

(in millions)

• According to the U.S. Department of Education’s projections released in February 2014, the high school graduate

population is projected to remain relatively flat from 2015 to 2022.2

_________________________

1Source: MeasureOne Q3 2015 Private Student Loan Report, December 2015. www.measureone.com.
2Source: U.S. Department of Education, National Center for Education Statistics, Projections of Education Statistics to 2022 (NCES, February
2014), Enrollment in Postsecondary Institutions (NCES, December 2013), Enrollment in Postsecondary Institutions (NCES, October 2014)
and Enrollment and Employees in Postsecondary Institutions (NCES, November 2015). These are the most recent sources available to us for
this information.

Tuition Rates

• Average published tuition and fees (exclusive of room and board) at four-year public and private not-for-profit

institutions increased at compound annual growth rates of 5.2 percent and 4.1 percent, respectively, from AYs 2006-
2007 through 2016-2017. Growth rates have been more modest the last two AYs, with average published tuition and
fees at public and private four-year not-for-profit institutions increasing 3.0 percent and 3.3 percent, respectively,
between AYs 2014-2015 and 2015-2016 and 2.4 percent and 3.6 percent, respectively, between AYs 2015-2016 and
2016-2017.3 Tuition and fees are likely to continue to grow at the more modest rates of recent years.

Published Tuition and Fees3
(Dollars in actuals)

______
3 Source: The College Board-Trends in College Pricing 2016. © 2016 The College Board.
www.collegeboard.org. The College Board restates its data annually, which may cause
previously reported results to vary.

Sources of Funding

• Borrowing through federal education loan programs increased at a compound annual growth rate of 10 percent
between AYs 2004-2005 and 2011-2012.6 Federal borrowing increased considerably during the recession, with
borrowing increasing 26 percent between AYs 2007-2008 and 2008-2009 alone. A major driver of this activity was the
Higher Education Reconciliation Act of 2005, which in AY 2007-2008 raised annual Stafford loan limits for the first
time since 1992 and expanded federal lending with the introduction of the Graduate PLUS loan. In response to the
financial crisis in AY 2008-2009, The Ensuring Continued Access to Student Loans Act of 2008 raised unsubsidized
Stafford loan limits for undergraduate students again by $2,000.4 Federal education loan program borrowing peaked in
AY 2011-2012. Since then it declined by 4 percent in AY 2012-2013, 1 percent in AY 2013-2014, 4 percent in AY
2014-2015, and another 2 percent in AY 2015-2016. We believe these declines are principally driven by enrollment
declines in the for-profit schools sector.4 Between AYs 2005-2006 and 2015-2016, federal grants for college students
increased 151 percent to $43.3 billion.5

_________________________

4 Source: FinAid, History of Student Financial Aid and Historical Loan Limits. © 2014 by FinAid. www.FinAid.org.
5 Source: The College Board-Trends in Student Aid 2016. © 2016 The College Board. www.collegeboard.org.

• These increases in federal lending for higher education had a significant impact on the market for Private Education

Loans. Annual originations of Private Education Loans peaked at $21.1 billion in AY 2007-2008 and declined to $6.0
billion in AY 2010-2011. Contributing to the decline in Private Education Loan originations was a significant
tightening of underwriting standards by Private Education Loan providers, including Sallie Mae. Private Education
Loan originations increased to an estimated $9.9 billion in AY 2015-2016, up 8.0 percent over the previous year.6

_______

6 Source: The College Board-Trends in Student Aid 2016. © 2016 The College Board. www.collegeboard.org. Funding
sources in current dollars and includes Federal Grants, Federal Loans, Education Tax Benefits, Work Study, State,
Institutional and Private Grants and Non-Federal Loans. Other sources for the size of the Private Education Loan
market exist and may cite the size of the market differently. We believe the College Board source includes Private
Education Loans made by major financial institutions in the Private Education Loan market, with an unknown
adjustment for Private Education Loans made by smaller lenders such as credit unions. The College Board restates its
data annually, which may cause previously reported results to vary.

• We estimate total spending on higher education was $417 billion in the AY 2015-2016, up from $360 billion in the AY
2010-2011. Private Education Loans represent just 2 percent of total spending on higher education. Modest growth in
total spending can lead to meaningful increases in Private Education Loans in the absence of growth in other sources
of funding.7

• Over the AY 2009-2016 period, increases in total spending have been absorbed primarily through increased family

contributions. If household finances continue to improve, we would expect this trend to continue.

_________________________

7 Source: Total post-secondary education spending is estimated by Sallie Mae determining the full-time equivalents for both graduates and
undergraduates and multiplying by the estimated total per person cost of attendance for each school type. In doing so, we utilize information from the
U.S. Department of Education, National Center for Education Statistics, Projections of Education Statistics to 2022 (NCES 2014, February 2014), The
Integrated Postsecondary Education Data System (IPEDS), College Board -Trends in Student Aid 2016. © 2016 The College Board.
www.collegeboard.org, College Board -Trends in Student Pricing 2016. © 2016 The College Board. www.collegeboard.org, National Student
Clearinghouse - Term Enrollment Estimates, and Company analysis. Other sources for these data points also exist publicly and may vary from our
computed estimates. NCES, IPEDS, and College Board restate their data annually, which may cause previously reported results to vary. We have also
recalculated figures in our Company analysis to standardize all costs of attendance to dollars not adjusted for inflation. This has a minimal impact on
historically-stated numbers.

Supervision and Regulation

Overview

We are subject to extensive regulation, examination and supervision by various federal, state and local authorities. The

more significant aspects of the laws and regulations that apply to us and our subsidiaries are described below. These
descriptions are qualified in their entirety by reference to the full text of the applicable statutes, legislation, regulations and
policies, as they may be amended, and as interpreted and applied, by federal, state and local agencies.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) was adopted to
reform and strengthen regulation and supervision of the U.S. financial services industry. It contains comprehensive provisions
to govern the practices and oversight of financial institutions and other participants in the financial markets. It mandates
significant regulations, additional 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. It requires the
issuance of many regulations, which will take effect over several years.

Consumer Protection Laws and Regulations

Our origination, servicing, first-party collection and deposit taking activities subject us to federal and state consumer

protection, privacy and related laws and regulations. Some of the more significant laws and regulations that are applicable to
our business include:

• various state and federal laws governing unfair, deceptive or abusive acts or practices;

•

the federal 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 creditor practices that discriminate on the basis of
race, religion and other prohibited factors in extending credit;

the SCRA, which applies to all debts incurred prior to commencement of active military service (including education
loans) and limits the amount of interest, including fees, that may be charged;

the Truth in Savings Act and Regulation DD, which mandate certain disclosures related to consumer deposit accounts;

the Expedited Funds Availability Act, Check Clearing for the 21st Century Act and Regulation CC issued by the
Federal Reserve Bank (“FRB”), which relate to the availability of deposit funds to consumers;

the Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records
and prescribes procedures for complying with federal government requests for and subpoenas of financial records;

the Electronic Funds Transfer Act and Regulation E, which govern automated transfers of funds and consumers’ rights
related thereto;

the Telephone Consumer Protection Act, which governs communication methods that may be used to contact
customers; and

the Gramm-Leach-Bliley Act, which governs the ability of financial institutions to disclose nonpublic information
about consumers to non-affiliated third-parties.

Consumer Financial Protection Bureau

The Consumer Financial Protection Act, a part of the Dodd-Frank Act, established the CFPB, which has broad authority

to promulgate regulations under federal consumer financial protection laws and to directly or indirectly enforce those laws,
including regulatory oversight of the Private Education Loan industry, and to examine financial institutions for compliance. It is
authorized to collect fines and order 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 has authority to prevent unfair, deceptive or abusive acts and practices by issuing regulations that define the
same or by using its enforcement authority without first issuing regulations. The CFPB has been active in its supervision,
examination and enforcement of financial services companies, notably bringing enforcement actions, imposing fines and
mandating large refunds to customers of several large banking institutions. On January 1, 2015, the CFPB became the Bank’s
primary consumer compliance supervisor with compliance examination authority and primary consumer protection
enforcement authority. The CFPB began its formal examination of us in 2016. The UDFI and FDIC remain the prudential
regulatory authorities with respect to the Bank’s financial strength.

The Dodd-Frank Act created the Private Education Loan Ombudsman within the CFPB to receive and attempt to

informally resolve inquiries about Private Education Loans. The Private Education Loan Ombudsman reports to Congress
annually on the trends and issues identified through this process. The CFPB continues to take an active interest in the student
loan industry, undertaking a number of initiatives related to the Private Education Loan market and student loan servicing. On
October 20, 2016, the Private Education Loan Ombudsman submitted its fifth report based on Private Education Loan inquiries,
federal education loan inquiries, and debt collection inquiries related to both federal education loans and Private Education
Loans. The report was based on inquiries received by the CFPB from September 1, 2015 through August 31, 2016. During that
period of time, the Bank received 276 complaints related to its Private Education Loan portfolio through the CFPB complaint
portal. As it did in the fall 2015 and spring 2016 agendas, the CFPB’s fall 2016 rulemaking agenda lists rules related to student
loan servicing as a “long-term action” item with no estimated date for further action.

Regulation of Sallie Mae Bank

The Bank was chartered in 2005 and is a Utah industrial bank regulated by the FDIC, the UDFI and the CFPB. We are not

a bank holding company and therefore are not subject to the federal regulations applicable to bank holding companies.
However, we and our non-bank subsidiaries are subject to regulation and oversight as institution-affiliated parties. The
following discussion sets forth some of the elements of the bank regulatory framework applicable to us, the Bank and our other
non-bank subsidiaries.

General

The Bank is currently subject to prudential regulation and examination by the FDIC and the UDFI, and consumer
compliance regulation and examination by the CFPB. Numerous other federal and state laws and regulations govern almost all
aspects of the operations of the Bank and, to some degree, our operations and those of our non-bank subsidiaries as institution-
affiliated parties.

Actions by Federal and State Regulators

Under federal and state laws and regulations pertaining to the safety and soundness of insured depository institutions, the

UDFI and the FDIC have the authority to compel or restrict certain actions of the Bank if it is determined to lack sufficient
capital or other resources, or is otherwise operating in a manner deemed to be inconsistent with safe and sound banking
practices. Under this authority, the Bank’s regulators can require it to enter into informal or formal supervisory agreements,
including board resolutions, memoranda of understanding, written agreements and consent or cease and desist orders, pursuant
to which the Bank would be required to take identified corrective actions to address cited concerns and refrain from taking
certain actions.

Enforcement Powers

As “institution-affiliated parties” of the Bank, we, our non-bank subsidiaries and our management, employees, agents,

independent contractors and consultants are subject to potential civil and criminal penalties for violations of law, regulations or
written orders of a government agency. Violations can include failure to timely file required reports, filing false or misleading
information or submitting inaccurate reports. Civil penalties may be as high as $1,000,000 a day for such violations and
criminal penalties for some financial institution crimes may include imprisonment for 20 years. Regulators have flexibility to
commence enforcement actions against institutions and institution-affiliated parties, and the FDIC has the authority to terminate
deposit insurance. When issued by a banking agency, cease and desist and similar orders may, among other things, require
affirmative action to correct any harm resulting from a violation or practice, including by compelling restitution,
reimbursement, indemnifications or guarantees against loss. A financial institution may also be ordered to restrict its growth,
dispose of certain assets, rescind agreements or contracts, or take other actions determined to be appropriate by the ordering
agency. The federal banking regulators also may remove a director or officer from an insured depository institution (or bar them
from the industry) if a violation is willful or reckless.

At the time of this filing, the Bank remains subject to a Consent Order, Order to Pay Restitution and Order to Pay Civil
Money Penalty dated May 13, 2014 issued by the FDIC (the “FDIC Consent Order”) and a Consent Order (the “DOJ Consent
Order”) issued by the Department of Justice (the “DOJ”). On May 13, 2014, the Bank reached a settlement with the DOJ, and
agreed to the DOJ Consent Order, regarding compliance issues with the SCRA. At the same time, the Bank reached a settlement
with the FDIC regarding disclosures and assessments of certain late fees, as well as compliance with the SCRA. Under the
FDIC Consent Order, the Bank agreed to pay $3.3 million in fines and oversee the refund of up to $30 million in late fees
assessed on loans owned or originated by the Bank since its inception in November 2005. The DOJ Consent Order was
approved by the U.S. District Court for the District of Delaware on September 29, 2014. Under the terms of the Separation and
Distribution Agreement executed in connection with the Spin-Off (the “Separation and Distribution Agreement”), Navient is
responsible for funding all liabilities under the regulatory orders and, as of the date hereof, has funded all liabilities other than
fines directly levied against the Bank in connection with these matters which the Bank is required to pay.

We believe the Bank has complied with all the requirements of the FDIC Consent Order and the DOJ Consent Order. This

includes implementing new SCRA policies, procedures and training, updated billing statement disclosures, steps to ensure its
third-party service providers are also fully compliant in these regards, and overseeing Navient’s restitution responsibilities.
Notwithstanding the assumption by the CFPB of the role of the Bank’s primary consumer compliance regulator in January
2015, the FDIC will continue to monitor the Bank’s improved compliance management system, policies and procedures until it
is satisfied the Bank has demonstrated its ability to sustain the enhancements and additions implemented in response to the
FDIC Consent Order. Pursuant to the terms of the DOJ Consent Order, the Bank will remain subject to certain DOJ reporting
and record-keeping requirements until September 29, 2018.

In May 2014, the Bank received a Civil Investigative Demand (a “CID”) from the CFPB as part of the CFPB’s separate
investigation relating to customer complaints, fees and charges assessed in connection with the servicing of student loans and
related collection practices of pre-Spin-Off SLM by entities now subsidiaries of Navient during a time period prior to the Spin-
Off. Two state attorneys general provided the Bank identical CIDs and other state attorneys general have become involved in
the inquiry over time. To the extent requested, the Bank has been cooperating fully with the CFPB and the attorneys general but
is not in a position at this time to predict the duration or outcome of these matters. Given the timeframe covered by the CIDs
and the focus on practices and procedures previously conducted by Navient and its servicing subsidiaries prior to the Spin-Off,
as contemplated by the Separation and Distribution Agreement relating to, and the structure of, the Spin-Off, Navient is leading
the response to these investigations, is legally responsible for, and has accepted responsibility to indemnify the Company
against all costs, expenses, losses and remediation that may arise from these matters. Additionally, on January 18, 2017, the
Illinois Attorney General filed a separate lawsuit against Navient - its subsidiaries Navient Solutions, Inc., Pioneer Credit
Recovery, Inc., and General Revenue Corporation - and the Bank arising out of the aforementioned multi-state investigation of
various lending, servicing, and collection practices. As contemplated by the Separation and Distribution Agreement relating to,
and the structure of, the Spin-Off, Navient is legally responsible for, and has accepted responsibility to indemnify the Company
against, all costs, expenses, losses and remediation that may arise from these matters.

other things, engaged in deceptive practices with respect to its historic servicing and debt collection practices. Neither SLM, the
Bank, nor any of their current subsidiaries are named in, or otherwise a party to, the lawsuit and are not alleged to have engaged
in any wrongdoing.

Standards for Safety and Soundness

The Federal Deposit Insurance Act requires the federal bank regulatory agencies such as the FDIC to prescribe, by
regulation or guidance, operational and managerial standards for all insured depository institutions, such as the Bank, relating to
internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure,
and asset quality. The agencies also must prescribe standards for asset quality, earnings, and stock valuation, as well as
standards for compensation, fees and benefits. The federal banking regulators have implemented these required standards
through regulations and interagency guidance designed to identify and address problems at insured depository institutions
before capital becomes impaired. Under the regulations, if a regulator determines a bank fails to meet any prescribed standards,
the regulator may require the bank to submit an acceptable plan to achieve compliance, consistent with deadlines for the
submission and review of such safety and soundness compliance plans.

Dividends

The Bank is chartered under the laws of the State of Utah and its deposits are insured by the FDIC. The Bank’s ability to
pay dividends is subject to the laws of Utah and the regulations of the FDIC. Generally, under Utah’s industrial bank laws and
regulations as well as FDIC regulations, the Bank may pay dividends to the Company from its net profits without regulatory
approval if, following the payment of the dividend, the Bank’s capital and surplus would not be impaired. The Bank paid no
dividends on its common stock for the years ended December 31, 2016, 2015 and 2014. For the foreseeable future, we expect
the Bank to only pay dividends to the Company as may be necessary to provide for regularly scheduled dividends payable on
the Company’s Series A and Series B Preferred Stock.

Regulatory Capital Requirements

The Bank is subject to various regulatory capital requirements administered by the FDIC and the UDFI. Failure to meet

minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a material adverse effect on our business, results of operations and financial position. Under the FDIC’s
regulations implementing the Basel III capital framework (“U.S. Basel III”) and the regulatory framework for prompt corrective
action, the Bank must meet specific capital standards that involve quantitative measures of its assets, liabilities and certain off-
balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and its classification under
the prompt corrective action framework are also subject to qualitative judgments by the regulators about components of capital,
risk weightings and other factors.

U.S. Basel III, which is aimed at increasing both the quantity and quality of regulatory capital, established Common

Equity Tier 1 as a new tier of capital and modified methods for calculating risk-weighted assets, among other things. Certain
aspects of U.S. Basel III, including new deductions from and adjustments to regulatory capital and a new capital conservation
buffer, are being phased in over several years.

The Bank is subject to the following minimum capital ratios under U.S. Basel III: a Common Equity Tier 1 risk-based

capital ratio of 4.5 percent, a Tier 1 risk-based capital ratio of 6.0 percent, a Total risk-based capital ratio of 8.0 percent, and a
Tier 1 leverage ratio of 4.0 percent. In addition, the Bank is subject to a Common Equity Tier 1 capital conservation buffer,
which is being phased in over three years beginning January 1, 2016: 0.625 percent of risk-weighted assets for 2016, 1.25
percent for 2017, and 1.875 percent for 2018, with the fully phased-in level of greater than 2.5 percent effective as of January 1,
2019. Failure to maintain the buffer will result in restrictions on the Bank’s ability to make capital distributions, including the
payment of dividends, and to pay discretionary bonuses to executive officers. Including the buffer, by January 1, 2019, the Bank
will be required to maintain the following minimum capital ratios: a Common Equity Tier 1 risk-based capital ratio of greater
than 7.0 percent, a Tier 1 risk-based capital ratio of greater than 8.5 percent and a Total risk-based capital ratio of greater than
10.5 percent.

6.5 percent, a Tier 1 risk-based capital ratio of at least 8.0 percent, a Total risk-based capital ratio of at least 10.0 percent, and a
Tier 1 leverage ratio of at least 5.0 percent.

Stress Testing Requirements

The Dodd-Frank Act imposes stress testing requirements on banking organizations with total consolidated assets,
averaged over the four most recent consecutive quarters, of more than $10 billion. As of September 30, 2014, the Bank met this
asset threshold. Under the FDIC’s implementing regulations, the Bank is required to conduct annual company-run stress tests
utilizing scenarios provided by the FDIC and publish a summary of those results. The Bank conducted its first annual stress test
under the rules in the January 1, 2016 stress testing cycle, submitted the results of that stress test to the FDIC on July 16, 2016
and published the results on October 31, 2016. In all scenarios, including the severely adverse scenario, the Bank’s capital
levels exceed regulatory expectations for “well capitalized”.

Deposit Insurance and Assessments

Deposits at the Bank are insured up to the applicable legal limits by the FDIC - administered Deposit Insurance Fund (the

“DIF”), which is funded primarily by quarterly assessments on insured banks. An insured bank’s assessment is calculated by
multiplying its assessment rate by its assessment base. A bank’s assessment base and assessment rate are determined each
quarter.

The Bank’s insurance assessment base currently is its average consolidated total assets minus its average tangible equity
during the assessment period. The Bank’s assessment rate is determined by the FDIC using a number of factors, including the
results of supervisory evaluations, the Bank’s capital ratios and its financial condition, as well as the risk posed by the Bank to
the DIF. Assessment rates for insured banks also are subject to adjustment depending on a number of factors, including
significant holdings of brokered deposits in certain instances and the issuance or holding of certain types of debt.

Deposits

With respect to brokered deposits, an insured depository institution must be well capitalized to accept, renew or roll over
such deposits without FDIC clearance. An adequately capitalized insured depository institution must obtain a waiver from the
FDIC to accept, renew or roll over brokered deposits. Undercapitalized insured depository institutions generally may not
accept, renew or roll over brokered deposits. For more information on the Bank’s deposits, see Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Key Financial Measures — Funding Sources.”

Regulatory Examinations

The Bank currently undergoes regular on-site examinations by the Bank’s regulators, who examine for adherence to a
range of legal and regulatory compliance responsibilities. A regulator conducting an examination has complete access to the
books and records of the examined institution. The results of the examination are confidential. The cost of examinations may be
assessed against the examined institution as the agency deems necessary or appropriate. The CFPB conducted its first review of
the Bank’s compliance management system in 2016 with no follow up actions required.

Source of Strength

Under the Dodd-Frank Act, we are required to serve as a source of financial strength to the Bank and to commit resources

to support the Bank in circumstances when we might not do so absent the statutory requirement. Any loan by us to the Bank
would be subordinate in right of payment to depositors and to certain other indebtedness of the Bank.

Community Reinvestment Act

The Community Reinvestment Act (the “CRA”) requires the FDIC to evaluate the record of the Bank in meeting the

credit needs of its local community, including low- and moderate-income neighborhoods. These evaluations are considered in
evaluating mergers, acquisitions and applications to open a branch or facility. Failure to adequately meet these criteria could
result in additional requirements and limitations on the Bank. The Bank has received a CRA rating of Outstanding.

Privacy Laws

The federal banking regulators, as required by the Gramm-Leach-Bliley Act, have adopted regulations that limit the
ability of banks and other financial institutions to disclose nonpublic information about consumers to nonaffiliated third-parties.
Financial institutions are required to disclose to consumers their policies for collecting and protecting confidential customer
information. Customers generally may prevent financial institutions from sharing nonpublic personal financial information with
nonaffiliated third-parties, with some exceptions, such as the processing of transactions requested by the consumer. Financial
institutions generally may not disclose certain consumer or account information to any nonaffiliated third-party for use in
telemarketing, direct mail marketing or other marketing. The privacy regulations also restrict information sharing among
affiliates for marketing purposes and govern the use and provision of information to consumer reporting agencies. Federal and
state banking agencies have prescribed standards for maintaining the security and confidentiality of consumer information, and
the Bank is subject to such standards, as well as certain federal and state laws or standards for notifying consumers in the event
of a security breach.

Other Sources of Regulation

Many other aspects of our businesses are subject to federal and state regulation and administrative oversight. Some of the

most significant of these are described below.

Oversight of Derivatives

Title VII of the Dodd-Frank Act requires all standardized derivatives, including most interest rate swaps, to be submitted

for clearing to central intermediaries to reduce counterparty risk. As of December 31, 2016, $4.8 billion notional of our
derivative contracts were cleared on the Chicago Mercantile Exchange and the London Clearing House. This represents
92.1 percent of our total notional derivative contracts of $5.2 billion. All derivative contracts cleared through an exchange
require collateral to be exchanged based on the fair value of the derivative. Our exposure is limited to the value of the derivative
contracts in a gain position less any collateral held by us and plus collateral posted with the counterparty.

Credit Risk Retention

In October 2014, the Department of the Treasury, the Federal Reserve, the Office of the Comptroller of the Currency, the

FDIC, the SEC, the Federal Housing Finance Agency and the Department of Housing and Urban Development issued final
rules to implement the credit risk retention requirements of Section 941 of the Dodd-Frank Act for ABS, including those backed
by residential and commercial mortgages and automobile, commercial, credit card, and student loans, except for certain
transactions with limited connections to the United States and U.S. investors. The regulations generally require securitizers of
assets backing ABS, such as Sallie Mae, to retain an economic interest in an ABS transaction that represents at least five percent
of the credit risk of the assets being securitized. The final rules provide reduced risk retention requirements for securitization
transactions collateralized solely (excluding servicing assets) by FFELP Loans. The regulations took effect in December 2015
for securitization transactions backed by residential mortgages and took effect in December 2016 for other securitization
transactions, including those collateralized by Private Education Loans. Prior to December 2016, the Bank’s on-balance sheet
securitizations were subject to the credit risk retention requirements of the FDIC “safe harbor” rule, which generally reduced
the risk to securitization investors in the event of an insolvency of the Bank.

Anti-Money Laundering, the USA PATRIOT Act, and U.S. Economic Sanctions

The USA PATRIOT Act of 2001 (the “USA Patriot Act”), which amended the Bank Secrecy Act, substantially broadened

the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due
diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States.
The U.S. Treasury Department has issued and, in some cases proposed, a number of regulations that apply various requirements
of the USA Patriot Act to financial institutions such as the Bank. These regulations impose obligations on financial institutions
to maintain appropriate internal policies, procedures and controls to detect, prevent and report money laundering and terrorist
financing and to verify the identity of their customers. In addition, U.S. law generally prohibits or substantially restricts U.S.
persons from doing business with countries designated by the U.S. Department of State as state sponsors of terrorism, which
currently are Iran, Sudan and Syria. Under U.S. law, there are similar prohibitions or restrictions with countries subject to other
U.S. economic sanctions administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control or other

agencies. We maintain policies and procedures designed to ensure compliance with relevant U.S. laws and regulations
applicable to U.S. persons.

Volcker Rule

In December 2013, the U.S. banking agencies, the SEC and U.S. Commodity Futures Trading Commission issued final

rules to implement the “Volcker Rule” provisions of the Dodd-Frank Act. The rules prohibit insured depository institutions and
their affiliates (collectively, “banking entities”) from engaging in proprietary trading and from investing in, sponsoring or
having certain financial relationships with certain private funds. These prohibitions are subject to a number of important
exclusions and exemptions that, for example, permit banking entities to trade for risk mitigating hedging and liquidity
management, subject to certain conditions and restrictions. A conformance period ended on July 21, 2015. We do not expect the
Volcker Rule to have a meaningful effect on our current operations or those of our subsidiaries, as we do not materially engage
in the businesses prohibited by the Volcker Rule.

Employees

At December 31, 2016, we had approximately 1,300 employees, none of whom is covered by collective bargaining

agreements.

Item 1A. Risk Factors

Economic Environment

Economic conditions could have a material adverse effect on our business, results of operations, financial condition and
liquidity.

Our business is significantly influenced by economic conditions. Economic growth in the United States remains uneven.

Employment levels in the United States are often sensitive not only to domestic economic growth but to the performance of
major foreign economies and commodity prices. High unemployment rates and the failure of our in-school borrowers to
graduate are two of the most significant macroeconomic factors that could increase loan delinquencies, defaults and
forbearance, or otherwise negatively affect performance of our existing education loan portfolios. Since 2009, the
unemployment rate of 20-24 year old college graduates has been higher than in the years immediately prior to 2009. It reached
a high of 13.3 percent in 2011 and declined to 5.6 percent in December 2016. Likewise, high unemployment and decreased
savings rates may impede Private Education Loan originations growth as loan applicants and their cosigners may experience
trouble repaying credit obligations or may not meet our credit standards. Additionally, if interest rates rise, borrowers and
cosigners of variable-rate loans in our portfolio could experience trouble repaying loans we have made to them. Consequently,
for a number of reasons, our borrowers may experience more trouble in repaying loans we have made to them, which could
increase our loan delinquencies, defaults and forbearance. In addition, some consumers may find that higher education is an
unnecessary investment during uncertain economic times and defer enrollment in educational institutions until the economy
grows at a stronger pace, or they may turn to less costly forms of secondary education, thus decreasing our education loan
application and funding volumes. Higher credit-related losses and weaker credit quality negatively affect our business, financial
condition and results of operations and limit funding options, which could also adversely impact our liquidity position.

Competition

We operate in a competitive environment. Our product offerings are primarily concentrated in loan products for higher
education and deposit products for online depositors. Such concentrations and the competitive environment subject us to
risks that could adversely affect our financial position.

The principal assets on our balance sheet are Private Education Loans. At December 31, 2016, approximately 76 percent
of our assets were comprised of Private Education Loans, and this concentration will likely increase. We compete in the Private
Education Loan market with banks and other consumer lending institutions, many with strong consumer brand name
recognition and greater financial resources. We compete based on our products, origination capability and customer service. To
the extent our competitors compete more aggressively or effectively, we could lose market share to them or subject our existing
loans to refinancing risk.

Competition plays a significant role in our online deposit gathering activities. The market for online deposits is highly
competitive, based primarily on a combination of reputation and rate. Increased competition for deposits could cause our cost of
funds to increase, with negative impacts on our financial returns.

In addition to competition with banks and other consumer lending institutions, the federal government, through the DSLP,

poses significant competition to our Private Education Loan products. The availability and terms of loans the government
originates or guarantees affect the demand for Private Education Loans because students and their families often rely on Private
Education Loans to bridge a gap between available funds, including family savings, scholarships, grants, and federal and state
loans, and the costs of post-secondary education. The federal government currently places both annual and aggregate limitations
on the amount of federal loans any student can receive and determines the criteria for student eligibility. Parents and graduate
students may obtain additional federal education loans through other programs. These federal education lending programs are
generally adjusted in connection with funding authorizations from the U.S. Congress for programs under the Higher Education
Act of 1965 (the “HEA”). The HEA’s reauthorization is currently pending in the U.S. Congress and a vote may occur in 2017.
Increased funding authorizations or federal education loan limits contained in any reauthorization could decrease demand for
Private Education Loans.

Access to alternative means of financing the costs of education and other factors may reduce demand for Private Education
Loans, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The demand for Private Education Loans could weaken if families and student borrowers use other vehicles to bridge the

gap between available funds and costs of post-secondary education. These vehicles include, among others:

• Home equity loans or other borrowings available to families to finance their education costs;

• Pre-paid tuition plans, which allow students to pay tuition at today’s rates to cover tuition costs in the future;

• Section 529 plans, which include both pre-paid tuition plans and college savings plans that allow a family to save

funds on a tax-advantaged basis;

• Education IRAs, now known as Coverdell Education Savings Accounts, under which a holder can make annual

contributions for education savings;

• Government education loan programs such as the DSLP; and

• Direct loans from colleges and universities.

In addition, our ability to grow Private Education Loan originations could be negatively affected if

• demographic trends in the United States result in a decrease in college-age individuals,

• demand for higher education decreases,

•

the cost of attendance of higher education decreases, or

• public resistance to increasing higher education costs strengthens.

Consolidation or refinancing of existing Private Education Loans could have a material adverse effect on our business,
financial condition, results of operations and cash flows.

To date, we have experienced no significant increase in consolidation or refinancing of our existing Private Education
Loans. We believe the design of our products, with emphasis on rigorous underwriting, credit-worthy cosigners and variable
interest rates, creates sustainable, competitive loan products. However, 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 (including financial technology (“FinTech”) companies) - could increase the prepayment rates of our existing Private
Education Loans and have a material adverse effect on our business, financial condition, results of operations and cash flows.

Since 2010, both the number of bills introduced in the United States Congress to promote federal financing for

consolidation or refinancing of existing student loans, as well as the number of lenders offering similar products, have
increased. Also, on December 2, 2016, the Comptroller of the Currency announced that the Office of the Comptroller of the
Currency (the “OCC”) would move forward with considering applications from FinTech companies to become special purpose
national banks. Concurrent with the announcement, the OCC published a white paper discussing the issues and conditions that
agency will consider in granting special purpose national bank charters. We are still evaluating the potential competitive impact
if the OCC begins to charter FinTech companies that offer bank products and services, including loans to consolidate or
refinance existing student loans.

We are dependent on key personnel and the loss of one or more of those key personnel could harm our business.

Our future success depends significantly on the continued services and performance of our management team. We believe
our management team’s depth and breadth of experience in our industry is integral to executing our business plan. We also will
need to continue to attract, motivate and retain other key personnel. The loss of the services of members of our management

team or other key personnel to our competitors or other companies or the inability to attract additional qualified personnel as
needed could have a material adverse effect on our business, financial position, results of operations and cash flows.

Regulatory

Failure to comply with consumer protection laws could subject us to civil and criminal penalties or litigation, including
class actions, and have a material adverse effect on our business.

We are subject to a broad range of federal and state consumer protection laws applicable to our Private Education Loan
lending and retail banking activities, including laws governing fair lending, unfair, deceptive and abusive acts and practices,
service member protections, interest rates and loan fees, disclosures of loan terms, marketing, servicing and collections.

Violations of, or changes in, federal or state consumer protection laws or related regulations, or in the prevailing
interpretations thereof, may expose us to litigation, administrative fines, penalties and restitution, result in greater compliance
costs, constrain the marketing of Private Education Loans, adversely affect the collection of balances due on the loan assets
held by us or by securitization trusts or otherwise adversely affect our business. We could incur substantial additional expense
complying with these requirements and may be required to create new processes and information systems. Moreover, changes
in federal or state consumer protection laws and related regulations, or in the prevailing interpretations thereof, could invalidate
or call into question the legality of certain of our services and business practices.

For example, the Bank is currently subject to the FDIC Consent Order and the DOJ Consent Order. Specifically, on May
13, 2014, the Bank reached settlements with the FDIC and the DOJ regarding disclosures and assessments of certain late fees,
as well as compliance with the SCRA.

Effective January 1, 2015, the CFPB became the Bank’s primary consumer compliance supervisor, with consumer
compliance examination authority and primary consumer compliance enforcement authority. CFPB jurisdiction could result in
additional regulation and supervision, which could increase our costs and limit our ability to pursue business opportunities.
Consent orders, decrees or settlements entered into with governmental agencies may also increase our compliance costs or
restrict certain of our activities.

Finally, we operate in an environment of heightened political and regulatory scrutiny of education loan lending, servicing
and originations. The rising cost of higher education, questions regarding the quality of education provided, particularly among
for-profit institutions, and the increasing level of student loan debt in the United States have prompted this heightened and
ongoing scrutiny. This environment could lead to further laws and regulations applicable to, or limiting, our business. As an
example of potential further laws and regulations applicable to our business, in late 2015 the CFPB expressed some concerns
with education loan servicers and indicated it may begin to consider possible rulemaking efforts for the industry at some point.
As an example of potential further laws and regulations limiting our business, increasing numbers of allegations or findings
levied against for-profit institutions could lead us to further curtail the loans we make to students of these institutions or
increase the risk of enforceability of our existing loans to graduates of particular institutions found to have fraudulently
misrepresented or to have not provided reasonably expected training or educational benefits.

We operate in a highly regulated environment and the laws and regulations that govern our operations, or changes in these
laws and regulations, or our failure to comply with them, may adversely affect us.

In addition to consumer protection laws, we are also subject to extensive regulation and supervision that govern almost all

aspects of our operations. Intended to protect clients, depositors, the DIF, and the overall financial system, these laws and
regulations may, among other matters:

• prescribe minimum capital requirements,

•

limit the rates of growth of our business,

impose limitations on the business activities in which we can engage,

limit the dividends or distributions the Bank can pay to us,

restrict the ability of institutions to guarantee our debt,

•

limit proprietary trading and investments in certain private funds,

impose certain specific accounting requirements on us that may be more restrictive, and

result in greater or earlier charges to earnings or reductions in our capital than would result under generally accepted
accounting principles.

The FDIC has the authority to limit the Bank’s annual total balance sheet growth, but no such limitations were imposed in
2016. Accordingly, we did not sell any Private Education Loans in 2016, through off-balance sheet securitization transactions or
otherwise, to meet previously imposed limitations, although there can be no assurance that limitations will not be imposed in
the future.

As our business, capital and balance sheet continue to grow, we expect to be able to achieve our annual Private Education
Loan origination targets for 2017 without the need to sell loans to third-parties. We may reconsider loan sales from time to time,
however, based on a number of factors, including our risk-based capital levels and input from our regulators.

Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations, as well as
increased intensity in supervision, often impose additional compliance costs. We, like the rest of the banking sector, are facing
increased regulation and supervision of our industry by bank regulatory agencies and expect there will be additional and
changing requirements and conditions imposed on us. Our failure to comply with these laws and regulations, even if the failure
is inadvertent or reflects a difference in interpretation, could subject us to fines, other penalties and restrictions on our business
activities, any of which could adversely affect our business, financial condition, cash flows, results of operations, capital base
and the price of our securities.

Significant increases in our FDIC insurance premiums could have an adverse impact on our financial position, results of
operations and cash flows.

Deposits at the Bank are insured up to the applicable legal limits by the DIF, which is funded primarily by quarterly
assessments on insured banks. An insured bank’s assessment is calculated by multiplying its assessment rate by its assessment
base. A bank’s assessment base and assessment rate are determined each quarter. See Item 1. “Business - Supervision and
Regulation - Regulation of Sallie Mae Bank - Deposit Insurance and Assessments.”

On July 1, 2016, the FDIC began imposing a 4.5 basis point premium surcharge on banks, such as ours, with $10 billion
or more in assets. The FDIC may further redefine how assessments are calculated, impose special assessments or surcharges on
us or increase our deposit insurance premiums.

Regulatory agencies have increased their expectations with respect to how regulated institutions oversee their relationships
with third-party vendors and service providers.

The CFPB and the FDIC have issued guidance to supervised banks with respect to increased responsibilities to vet and

supervise the activities of service providers to ensure compliance with federal consumer protection laws. In addition, the FDIC
Consent Order, among other things, imposes strict requirements on the Bank with respect to oversight of third-party agreements
and services. The issuance of regulatory guidance, the FDIC Consent Order, and the enforcement of the enhanced vendor
management standards via examination and investigation of us or any third-party with whom we do business, may increase our
costs, require increased management attention and adversely impact our operations. In the event we should fail to meet the
heightened standards for management of service providers, we could be subject to further supervisory orders to cease and
desist, civil monetary penalties or other actions due to claimed noncompliance, which could have an adverse effect on our
business, financial condition, operating results and cash flows.

Capital and Liquidity

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 business operations and our overall
financial condition.

We must effectively manage the liquidity risk to which we are exposed. We require liquidity to meet cash requirements

for such things as day-to-day operating expenses, extensions of credit on our Private Education Loans, deposit withdrawals and
payment of required dividends on our preferred stock. Our primary sources of liquidity and funding are from customer deposits,
payments received on Private Education Loans and FFELP Loans that we hold, and proceeds from securitization transactions
we undertake. We may maintain too much liquidity, which can be costly, or we may be too illiquid, which could result in
financial distress during times of economic stress or capital market disruptions.

For at least the next several years, our ability to grow our business to its fullest potential will be heavily reliant on our ability
to obtain deposits and obtain financing through asset-backed securitizations. Should growth opportunities exceed the pace
at which we can increase deposits or generate asset-backed financing, business growth could be less than optimal unless we
can generate or raise sufficient additional capital to support this growth.

If we are unable to obtain funding sufficient to fund new Private Education Loan originations, our business, financial
condition, results of operations and cash flows could be materially adversely affected. We must also maintain appropriate levels
of risk-based capital to support increased levels of funding.

We fund Private Education Loan originations through term and liquid brokered and retail deposits, as well as Educational
529 and Health Savings Account deposits, raised by the Bank and financing raised through asset-backed securitizations. Assets
funded through deposits result in refinancing risk because the average term of the deposits is shorter than the expected term of
the Private Education Loan assets we create. Also, our ability to maintain our current level of deposits or grow our deposit base
could be affected by regulatory restrictions, including the possible imposition by our regulators of prior approval requirements
or restrictions on deposit growth through brokered deposits. As a supervisory matter, reliance on brokered deposits as a
significant source of funding is discouraged. As a result, to grow our deposit base, we will need to continue to expand our non-
brokered channels for deposit generation, including through new marketing and advertising efforts, which may require
significant time, capital, and effort to implement. Further, the significant competition for deposits from other banking
organizations that are also seeking stable deposits to support their funding needs may affect deposit renewal rates, costs or
availability. If we are unable to expand existing channels or develop new sources of deposit generation on favorable terms, it
could have a material adverse effect on our business, results of operations, financial position and cash flows. In addition, our
ability to maintain existing balances or obtain additional deposits may be affected by factors, including those beyond our
control, such as perceptions about our financial strength, quality of deposit servicing or online banking generally, which could
reduce the number of consumers choosing to make deposits with us.

Our short-term success depends on our ability to structure Private Education Loan securitizations or execute other secured
funding transactions. Several factors may have a material adverse effect on both our ability to obtain such funding and the time
it takes us to structure and execute these transactions, including the following:

• Persistent and prolonged disruption or volatility in the capital markets or in the education loan ABS sector specifically;

• Our inability to generate sufficient Private Education Loan volume;

• Degradation of the credit quality or performance of the Private Education Loans we sell or finance through

securitization trusts, or adverse rating agency assumptions, ratings or conclusions with respect to those trusts or the
education loan-backed securitization trusts sponsored by other issuers;

• A material breach of our obligations to purchasers of our Private Education Loans, including securitization trusts;

• The timing, pricing and size of education loan asset-backed securitizations other parties issue, or the adverse

performance of, or other problems with, such securitizations;

• Challenges to the enforceability of Private Education Loans based on violations of, or changes to, federal or state

consumer protection or licensing laws and related regulations, or imposition of penalties or liabilities on assignees of
Private Education Loans for violation of such laws and regulations; and

• Our inability to structure and gain market acceptance for new products or services to meet new demands of ABS

investors, rating agencies or credit facility providers.

If rates of growth require funding beyond that which we may be able to obtain through deposits and proceeds from asset-
backed securitization transactions, we may need to raise liquidity through other forms of secured and unsecured debt financing
which, in turn, could increase our funding costs and reduce our net interest margin. Several factors, some of which may be
beyond our control, may have a material adverse effect on our ability to raise this additional funding in the amounts, at the
rates, or within the timeframes we desire. If we are unable raise this additional funding in the amounts, at the rates, or within the
timeframes we desire, our business, results of operations, financial position and cash flow could be materially and adversely
impacted.

We currently maintain sufficient risk-based capital through retention and reinvestment of all earnings from operations. If
growth rates require capital above and beyond what we generate through retained earnings, we may need to raise capital for our
business by issuing additional equity to investors. Several factors, some of which may be beyond our control, may have a
material adverse effect on our ability to issue additional equity in the amounts, at the prices, or within the timeframes we desire.
If we are unable to issue equity in the amounts, at the prices, or within the timeframes we desire, our business, results of
operations, financial position and cash flow could be materially and adversely impacted.

In structuring and facilitating securitizations of Private Education Loans, administering securitization trusts or providing
portfolio management, we may incur liabilities to transaction parties.

Under applicable state and federal securities laws, if investors incur losses as a result of purchasing ABS issued in
connection with our securitization transactions, we could be deemed responsible and could be liable to investors for damages.
We could also be liable to investors or other parties for certain updated information that we may provide subsequent to the
original issuances. If we fail to cause the securitization trusts or other transaction parties to disclose adequately all material
information regarding an investment in any securities, if we or the trusts make statements that are misleading in any material
respect in information delivered to investors in any securities, if we breach any representations or warranties made in
connection with securitization of the loans, or if we breach any other duties as the administrator or servicer of the securitization
trusts, it is possible we could be sued and ultimately held liable to an investor or other transaction party. This risk includes
failure to properly administer or oversee servicing or collections and may increase if the performance of the securitization
trusts’ loan portfolios degrades. In addition, under various agreements, we may be contractually bound to indemnify transaction
parties if an investor is successful in seeking to recover any loss from those parties and the securitization trusts are found to
have made a materially misleading statement or to have omitted material information.

If we are liable to an investor or other transaction party for a loss incurred in any securitization we facilitate or structured

and any insurance that we may have does not cover this liability or proves to be insufficient, our business, financial position,
results of operations and cash flows could be materially adversely affected.

The interest rate and maturity characteristics of our earning assets do not always match the interest rate and maturity
characteristics of our funding arrangements, which may increase the price of, or decrease our ability to obtain, necessary
liquidity. We are also subject to repayment and prepayment risks, which can adversely affect our financial condition.

Net interest income is the primary source of cash flow generated by our portfolios of Private Education Loans and FFELP

Loans. Interest earned on Private Education Loans and FFELP Loans is primarily indexed to one-month LIBOR rates, but our
cost of funds is primarily related to deposit rates. Certain of our Private Education Loans bear fixed interest rates. These loans
are not specifically match funded with fixed-rate deposits or fixed-rate funding obtained through asset-backed securitization.
Likewise, the average term of our deposits is shorter than the expected term of our Private Education Loans and FFELP Loans.

The different interest rate and maturity characteristics of our loan portfolio and the liabilities funding that portfolio result

in interest rate risk, basis risk and re-pricing risk. In certain interest rate environments, this mismatch may compress our net
interest margin (the net interest yield earned on our portfolio less the rate paid on our interest bearing liabilities). It is not
possible to hedge all of our exposure to such risks. While the assets, liabilities and related hedging derivative contract repricing

indices 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 outside our control. In these circumstances, our earnings could be materially
adversely affected.

We are also subject to risks associated with changes in repayment and prepayment rates on Private Education Loans. For

example, most of our Smart Option Student Loan products promote accelerated repayment. In addition, increases in
employment levels, wages, family income or alternative sources of financing may also contribute to higher than expected
prepayment rates, which can adversely affect our financial condition.

Our use of derivatives to manage interest rate sensitivity exposes us to credit and market risk that could have a material
adverse effect on our earnings.

We maintain an overall interest rate strategy that uses derivatives to reduce the economic effect of interest rate changes.

Developing an effective hedging strategy for dealing with movements in interest rates is complex, and no strategy can
completely avoid the risks associated with these fluctuations. For example, our education loan portfolios remain subject to
prepayment risk that could cause them to be under- or over-hedged, which could result in material losses. In addition, our
interest rate risk management activities expose us to mark-to-market losses if interest rates move in a materially different way
than was expected when we entered into the related derivative contracts. As a result, there can be no assurance hedging
activities using derivatives will effectively manage our interest rate sensitivity, have the desired beneficial impact on our results
of operations or financial condition or not adversely impact our liquidity and earnings.

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 and market liquidity. Some of the swaps we use to economically hedge interest rate risk between
our assets and liabilities do not qualify for hedge accounting treatment. Therefore, the change in fair value, called the “mark-to-
market,” of the swaps that do not so qualify is included in our statement of income. A decline in the fair value of those
derivatives could have an adverse effect on our reported earnings.

We are also subject to the creditworthiness of third-parties, including counterparties to derivative transactions. For
example, we have exposure to the financial conditions of various lending, investment and derivative counterparties. If a
counterparty 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, if a derivative counterparty fails to perform, we might not be able to cost effectively
replace the derivative position, depending on the type of derivative and the current economic environment, and thus could be
exposed to a greater level of interest rate risk, potentially leading to additional losses. Our counterparty exposure is more fully
discussed in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources - Counterparty Exposure.” If our counterparties are unable to perform their obligations, such
inability could have a material adverse impact on our business, financial condition, results of operations and cash flows.

Defaults on education loans, particularly Private Education Loans, could adversely affect our business, financial position,
results of operations and cash flows.

We bear the full credit exposure on Private Education Loans. Delinquencies are an important indicator of the potential

future credit performance for Private Education Loans. Our delinquencies (loans greater than 30 days past due), as a percentage
of Private Education Loans in repayment, were 2.1 percent at December 31, 2016.

In connection with the Spin-Off, we conformed our policy with the Bank’s policy to charge off loans after 120 days of

delinquency. We also changed our loss emergence period - management’s estimate of the expected period of time between the
first occurrence of an event likely to cause a loss on a loan (e.g., a borrower’s loss of job, divorce, death, etc.) and the date the
loan is expected to be charged off - from two years to one year to reflect both the shorter charge-off policy and related servicing
practices. Prior to the Spin-Off, the Bank sold all loans past 90 days delinquent to an entity that is now a subsidiary of Navient.
Post-Spin-Off, sales of delinquent loans to Navient have been significantly curtailed. Similarly, pre-Spin-Off SLM’s Private
Education Loan default aversion strategies were focused on the final stages of delinquency, from 150 days to 212 days. As a
result of changing our corporate charge-off policy to charging off at 120 days delinquent and greatly reducing the number of
potentially delinquent loans we sell to Navient, our default aversion strategies now focus more on loans 30 to 120 days
delinquent. We only have two and one half years of experience in executing our default aversion strategies on such compressed
collection timeframes. If we are unable to maintain or improve on our existing default aversion levels during these shortened
collection timeframes, default rates on our Private Education Loans could increase.

Our allowance for loan losses may not be adequate to cover actual losses, and we may be required to materially increase our
allowance, which may adversely affect our capital, financial condition, and results of operations.

The evaluation of our allowance for loan losses is inherently subjective, as it requires material estimates that may be

subject to significant changes. As of December 31, 2016, our allowance for Private Education Loan losses was approximately
$182 million. During the year ended December 31, 2016, we recognized provisions for Private Education Loan losses of
$159 million. The provision for loan losses reflects the Private Education Loan performance for the applicable period and
establishes the allowance at a level that management believes is appropriate to cover probable losses inherent in the loan
portfolio. However, future defaults can be higher than anticipated due to a variety of factors outside of our control, such as
downturns in the economy, rising interest rates, regulatory or operational changes and other unforeseen future trends. Losses on
Private Education Loans are also determined by risk characteristics such as school type, loan status (in-school, grace,
forbearance, repayment and delinquency), loan seasoning (number of months in active repayment), underwriting criteria (e.g.,
credit scores), presence of a cosigner and the current economic environment. General economic and employment conditions,
including employment rates for recent college graduates during the recent recession, led to higher rates of education loan
defaults. In addition, our product offerings may prove to be unprofitable and may result in higher than expected losses. If actual
loan performance is worse than currently estimated, it could materially increase our estimate of the allowance for loan losses in
our balance sheet and the related provision for loan losses in our statements of income and, as a result, adversely affect our
capital, financial condition and results of operations.

Changes in accounting standards could adversely affect our capital levels, results of operation and financial condition.

We are subject to the requirements of entities that set and interpret the accounting standards governing the preparation of

our financial statements and other financial reports. These entities, which include the Financial Accounting Standards Board
(“FASB”), the SEC, banking regulators and our independent registered public accounting firm, may add new requirements or
change their interpretations of how those standards should be applied.

For example, the FASB approved a final accounting standard in 2016 related to the calculation of loan loss reserves that
will require us to apply a current expected credit loss (“CECL”) model when recording impairment of loans and other financial
instruments. The CECL model, which will become effective on January 1, 2020, will require us to record an allowance for
estimated life of loan losses at each balance sheet date. Currently, for those Private Education Loans that are not TDRs (as
defined below), we apply an inherent loss model and only record an allowance for losses expected to be realized in the 12
months following the balance sheet date. Adoption of the CECL life of loan model will significantly increase our allowance for
loan losses and thereby materially affect our financial condition, results of operations and capital levels. See Notes to
Consolidated Financial Statements, Note 2, “Significant Accounting Policies — Recently Issued but Not Yet Adopted
Accounting Pronouncements” for further details.

The Bank is subject to various regulatory capital requirements administered by the FDIC and the UDFI. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have a material adverse effect on our business, results of operations and financial condition.

Under U.S. Basel III and the regulatory framework for prompt corrective action, the Bank must meet specific capital
standards that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank’s capital amounts and its classification under the prompt corrective action framework
are also subject to qualitative judgments by the regulators about components of capital, risk weightings and other factors.

The Bank is required to maintain the following minimum regulatory capital ratios under U.S. Basel III: a Common Equity

Tier 1 risk-based capital ratio of 4.5 percent, a Tier 1 risk-based capital ratio of 6.0 percent, a Total risk-based capital ratio of
8.0 percent, and a Tier 1 leverage ratio of 4.0 percent. In addition, on a fully phased-in basis by January 1, 2019, banks will be
subject to a greater than 2.5 percent Common Equity Tier 1 capital conservation buffer; in 2017, the phase-in amount of the
buffer is 50 percent of the fully phased-in requirement. Institutions that do not maintain the buffer will face restrictions on
dividend payments, share repurchases and the payment of discretionary bonuses to executive officers.

U.S. Basel III also revised the capital thresholds for the prompt corrective action framework for insured depository

institutions. To qualify as “well capitalized,” an insured depository institution must maintain a Common Equity Tier 1 risk-
based capital ratio of at least 6.5 percent, a Tier 1 risk-based capital ratio of at least 8.0 percent, a Total risk-based capital ratio
of at least 10.0 percent, and a Tier 1 leverage ratio of at least 5.0 percent. As of December 31, 2016, the Bank had a Common

Equity Tier 1 risk-based capital ratio of 12.6 percent, a Tier 1 risk-based capital ratio of 12.6 percent, a Total risk-based capital
ratio of 13.8 percent and a Tier 1 leverage ratio of 11.1 percent.

If the Bank fails to satisfy regulatory risk-based or leverage capital requirements, it may be subject to serious regulatory

sanctions that could prevent us from successfully executing our business plan and may have a material adverse effect on our
business, results of operations, financial position and cash flows. See Item 1. “Business - Supervision and Regulation -
Regulation of Sallie Mae Bank - Regulatory Capital Requirements.”

Unfavorable results from required annual stress tests conducted by us may adversely affect our capital position.

The Dodd-Frank Act imposes stress test requirements on banking organizations with total consolidated assets, averaged
over the four most recent consecutive quarters, of more than $10 billion, an asset threshold which the Bank meets. Under the
FDIC’s implementing regulations, the Bank is required to conduct annual stress tests utilizing scenarios provided by the FDIC
and publish a summary of those results. The Bank conducted its first annual stress test under the rules in the 2016 stress testing
cycle and submitted the results of that stress test to the FDIC on July 31, 2016. In October 2016, we published summary stress
test results, including certain measures that evaluate the Bank’s ability to absorb losses in severely adverse economic and
financial conditions. From time to time, our regulators may require the Bank to raise additional capital or take other actions, or
may impose restrictions on our business, based on the results of the stress tests. We may not be able to raise additional capital if
required to do so, or may not be able to do so on terms which are advantageous to us or our current shareholders. Any such
capital raises, if required, may also be dilutive to our existing stockholders.

Operations

Failure of our operating systems or infrastructure or the inability to adapt to changes could disrupt our business, cause
significant losses, result in regulatory action or damage our reputation.

Our business is dependent on our ability to process and monitor large numbers of transactions in compliance with legal
and regulatory standards and our product specifications. As processing demands change and our loan portfolios grow in both
volume and differing terms and conditions, developing and maintaining our operating systems and infrastructure become
increasingly challenging. There is no assurance we can adequately or efficiently develop, maintain or acquire access to such
systems and infrastructure.

Our loan originations and the servicing, financial, accounting, data processing or other operating systems and facilities

that support them may fail to operate properly, become disabled as a result of events beyond our control or be unable to be
rapidly configured to timely address regulatory changes, in each case potentially adversely affecting our ability to process these
transactions. Any such failure could adversely affect our ability to service our clients, result in financial loss or liability to our
clients, disrupt our business, result in regulatory action or cause reputational damage. Despite the plans and facilities we have in
place, our ability to conduct business may be adversely affected by a disruption in the infrastructure that supports our
businesses. This may include a disruption involving electrical, communications, Internet, information technology, transportation
or other services used by us or third-parties with which we conduct business. Notwithstanding our efforts to maintain business
continuity, a disruptive event impacting our processing locations could adversely affect our business, financial condition, results
of operations and cash flows.

Our business processes are becoming increasingly dependent upon technological advancement, and we could lose market
share if we are not able to keep pace with rapid changes in technology.

Our future success depends, in part, on our ability to underwrite and approve loans, and process loan applications and

payments and provide other customer services in a safe, automated manner with high-quality service standards. The volume of
loan originations we are able to process is based, in large part, on the systems and processes we have implemented and
developed. These systems and processes are becoming increasingly dependent upon technological advancement, such as the
ability to process loans and payments over the Internet via personal computers or mobile devices, accept electronic signatures
and provide initial decisions instantly. Our future success also depends, in part, on our ability to develop and implement
technology solutions that anticipate and keep pace with continuing changes in technology, industry standards and client
preferences. We may not be successful in anticipating or responding to these developments on a timely basis. We have made,
and need to continue to make, investments in our technology platform to provide competitive products and services. If
competitors introduce products, services, systems and processes that are better than ours or that gain greater market acceptance,

those we offer or use may become obsolete or noncompetitive. Any one of these circumstances could have a material adverse
effect on our business reputation and ability to obtain and retain clients.

We may be required to expend significant funds to develop or acquire new technologies. If we cannot offer new
technologies as quickly as our competitors, we could lose market share. We also could lose market share if our competitors
develop more cost effective technologies than those we offer or develop.

We depend on secure information technology and a breach of those systems or those of third-party vendors could result in
significant losses, unauthorized disclosure of confidential customer information and reputational damage, which could
materially adversely affect our business, financial condition or results of operations.

Our operations rely on the secure processing, storage and transmission of personal, confidential and other information in
a significant number of customer transactions on a continuous basis through our computer systems and networks and those of
our third-party service providers. To access our products and services, our customers may use smart phones, tablets and other
mobile devices that are beyond our security systems and those of our third-party service providers. Information security risks
for financial institutions and third-party service providers have increased in recent years and continue to evolve 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, including foreign state-sponsored actors. These parties also may fraudulently induce employees, customers and other
users of our systems to gain access to our and our customers’ data. As a result, we continue to evolve our security controls to
effectively prevent, detect and respond to the continually changing threats and we may be required to expend significant
additional resources in the future to modify and enhance our security controls in response to new or more sophisticated threats,
new regulations related to cybersecurity and other developments.

Despite the measures we and our third-party service providers implement to protect our systems and data, we may not be
able to anticipate, prevent or detect cyber-attacks given the unknown and evolving nature of cyber criminals and techniques. As
a result, our computer systems, software and networks, as well as those of third-party vendors we utilize, may be vulnerable to
unauthorized access, computer viruses, malicious attacks and other events that could have a security impact beyond our control.
Our staff, technologies, systems, networks and those of third-parties we utilize also may become the target of cyber-attacks,
unauthorized access, malicious code, computer viruses, denial of service attacks and physical attacks that could result in
information security breaches, the unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our
customers’ confidential, proprietary and other information, or otherwise disrupt our or our customers’ or other third-parties’
business operations. We also routinely transmit and receive personal, confidential and proprietary information, some through
third-parties, which may be vulnerable to interception, misuse or mishandling.

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, or those of third-party vendors, could be compromised or could cause
interruptions or malfunctions in our or our customers’ operations that could result in significant losses, loss of confidence by
and business from customers, customer dissatisfaction, significant litigation, regulatory exposures and harm to our reputation
and brand.

In the event personal, confidential or other information is threatened, intercepted, misused, mishandled or compromised,

we may be required to expend significant additional resources to modify our protective measures, to investigate the
circumstances surrounding the event and implement mitigation and remediation measures. We also may be subject to fines,
penalties, litigation and regulatory investigation costs and settlements and financial losses that are either not insured against or
not fully covered through any insurance maintained by us. If one or more of such events occur, our business, financial condition
or results of operations could be significantly and adversely affected.

We depend significantly on third-parties for a wide array of our operations and customer services and key components of
our information technology infrastructure, and a breach of security or service levels, 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 significantly on third-parties for a wide array of our operations and customer services and key components of

our information technology and security infrastructures. Third-party vendors are significantly involved in aspects of our
servicing for Private Education Loans and FFELP Loans, Bank deposit-taking activities, software and systems development,

data center and operations, including the timely and secure transmission of information across our data communication
network, and for other telecommunications, email, processing, storage, remittance and technology-related services in
connection with our business. If a service provider fails to provide the services we require or expect, or fails to meet applicable
regulatory or contractual requirements, such as service levels, protection of our customers’ personal and confidential
information, or compliance with applicable laws, that 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 and investors, or subjecting us to litigation and regulatory risk for matters as diverse as poor vendor oversight,
improper release or protection of personal information, or release of incorrect information. Such a failure could adversely affect
the perception of the reliability of our networks and services, and the quality of our brands, and could materially adversely
affect our business, financial condition or results of operations.

We may face risks from our operations related to litigation or regulatory actions that could result in significant legal
expenses and settlement or damage awards.

Navient has agreed to be responsible, and indemnify us, for all claims, actions, damages, losses or expenses that may

arise from the conduct of all activities of pre-Spin-Off SLM occurring prior to the Spin-Off other than those specifically
excluded in the Separation and Distribution Agreement. One such exclusion is that Navient’s obligation to indemnify us for any
liabilities, costs or expenses we may incur arising from any action or threatened action related to the servicing, operations and
collections activities Navient provided to the Bank pre-Spin-Off extends only to claims or potential claims for which Navient
has received notice from us on or before April 30, 2017. Consequently, due to Navient’s indemnification obligations and the
smaller, relatively younger vintages of our Private Education Loans, over the near term our dispute-related expenses may be
lower than might otherwise be expected. As our business grows, we will likely be subject to additional claims and litigation,
which could seriously harm our business and require us to incur significant costs. Defending against litigation may require
significant attention and resources of management and, regardless of the outcome, such actions could result in significant
expenses. If we are a party to material litigation and if the defenses we assert are ultimately unsuccessful, or if we are unable to
achieve a favorable settlement, we could be liable for large damages and that could have a material adverse effect on our
business, results of operations and financial condition. Likewise, similar material adverse effects could occur if Navient is
unwilling or unable to honor its indemnification or other obligations under the Separation and Distribution Agreement.

New products and services may subject us to additional risks.

In 2017, we intend to continue to focus more attention on expanding the suite of products and services that we provide to

our customers. While we do not expect significant financial contributions from these products in the near term, there may be
substantial regulatory, operational and credit challenges, risks and uncertainties associated with these efforts and we may invest
significant time and resources in developing and launching any new products or services. In addition, our initial timetables for
the introduction and development of new products or services may not be met, market acceptance may fall short of our
expectations, and price and profitability targets may not prove achievable, which could in turn unnecessarily divert
management’s attention and focus and have a material negative effect on our perception in the marketplace and our operating
results.

Incorrect estimates and assumptions by management in connection with the preparation of our consolidated financial
statements could adversely affect our reported assets, liabilities, income and 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 and expenses during the reporting periods. Incorrect
estimates and assumptions by management in connection with the preparation of our consolidated financial statements could
adversely affect the reported amounts of assets, liabilities, income and expenses. A description of our critical accounting
estimates and assumptions may be found in Part I, Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations - Critical Accounting Policies and Estimates” and Notes to Consolidated Financial Statements, Note 2,
“Significant Accounting Policies” to the consolidated financial statements included in this Form 10-K. If we make incorrect
assumptions or estimates, we may under- or overstate reported financial results, which could materially and adversely affect our
business, financial condition and results of operations.

Our framework for managing risks may not be effective in mitigating our risk of loss.

Our risk management framework seeks to mitigate risk and appropriately balance risk and return. 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 our 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/or forecasting models. If the models
that we use to mitigate these risks are inadequate, we may incur increased losses. In addition, there may be existing or
developing risks that we have not appropriately anticipated, identified or mitigated. If our risk management framework does not
effectively identify or mitigate our risks, we could suffer unexpected losses and our financial condition and results of operations
could be materially adversely affected.

Our internal controls over financial reporting and disclosure controls may be ineffective.

Our management is responsible for maintaining, regularly assessing and, as necessary, making changes to our internal
controls over financial reporting and our disclosure controls. Nevertheless, our internal controls over financial reporting and our
disclosure controls can provide only reasonable assurances regarding the reliability of our financial reporting and the
preparation of our financial statements for external purposes in accordance with generally accepted accounting principles in the
United States (“GAAP”) and may not prevent or detect misstatements. Any failure or circumvention of our internal controls
over financial reporting or our disclosure controls, failure to comply with rules and regulations related to such controls or
failure to make sound and appropriate application of the criteria established in the framework set forth in Internal Control-
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission could have a
material adverse effect on our financial condition and results of operations.

We are subject to reputational and other risks related to customer or employee fraud.

Employee and customer misconduct could subject us to financial losses, lawsuits or regulatory sanctions and severely
harm our reputation. Misconduct by our customers could include such activities as providing fraudulent credentials, information
or authorization on behalf of a family member or other cosigner through identification theft or by other means in order to secure
loan approval. Customers also may attempt to fraudulently secure Private Education Loan proceeds. Misconduct by our
employees could include, among other things, theft of our or our customers’ confidential information, or making unauthorized
payments on behalf of a collection client in order to meet certain incentive thresholds.

If our internal controls fail to prevent or detect an occurrence of customer or employee fraud, or if any resulting loss is not

insured, exceeds applicable insurance limits or if insurance is denied, such occurrence could have a material adverse effect on
our reputation, financial condition and results of operations.

Risks Related to the Spin-Off

We continue to rely on Navient’s Private Education Loan data and, because of Navient’s indemnification obligations, have
significant exposures to risks related to its creditworthiness. If we are unable to rely on these data or to obtain
indemnification payments from Navient, we could experience higher than expected costs and operating expenses and our
results of operations, cash flows and financial condition could be materially and adversely affected.

Navient regularly provides us with a significant amount of current and historical data on their portfolios of private
education loans, including data that supports, among other things, the tracking of loan performance metrics such as default and
recovery rates on those loans, including loans classified as troubled debt restructurings, and, in connection with our ABS
financing transactions, to provide investors with historical information about Private Education Loan performance. We also use
these metrics in the development of certain critical accounting assumptions.

Navient is legally responsible for, and has agreed to indemnify us against, all claims, actions, damages, losses or expenses

that may arise from the conduct of all activities of pre-Spin-Off SLM occurring prior to the Spin-Off other than those
specifically excluded in the Separation and Distribution Agreement. Some significant examples of the types of indemnification
obligations Navient has include:

• Navient will indemnify the Company and the Bank for any liabilities, costs or expenses they may incur arising from

any action or threatened action related to the servicing, operations and collections activities of pre-Spin-Off SLM and
its subsidiaries with respect to Private Education Loans and FFELP Loans that were assets of the Bank or Navient at
the time of the Spin-Off; provided that written notice is provided to Navient on or prior to April 30, 2017, the third
anniversary date of the Spin-Off. Navient will not indemnify for changes in law or changes in prior existing
interpretations of law that occur on or after April 30, 2014.

• At the time of this filing, the Bank remains subject to the FDIC Consent Order and the DOJ Consent Order. Under the

terms of the Separation and Distribution Agreement, Navient is responsible for funding all liabilities under the
regulatory orders and, as of the date hereof, has funded all liabilities other than fines directly levied against the Bank in
connection with these matters which the Bank is required to pay.

• Pursuant to a tax sharing agreement, Navient has agreed to indemnify us for $283 million in deferred taxes that the
Company will be legally responsible for but that relate to gains recognized by the Company’s predecessor on debt
repurchases made prior to the Spin-Off. The remaining amount of this indemnification at December 31, 2016 was
$116 million. In connection with the Spin-Off, we also recorded a liability related to uncertain tax positions of
$27 million for which we are indemnified by Navient. As of December 31, 2016, the remaining balance of the
indemnification receivable related to those uncertain tax positions was $28 million. In addition, we believe we are
indemnified by Navient for uncertain tax positions relating to historical transactions among entities that are now
subsidiaries of Navient that should have been recorded at the time of the Spin-Off. The remaining balance of the
indemnification receivable related to these uncertain tax positions also was $116 million at December 31, 2016. See
Notes to the Consolidated Financial Statements, Note 2, “Significant Accounting Policies — Correction Recorded in
the Current Period” and “—Income Taxes,” for additional details.

The Separation and Distribution Agreement provides specific processes and procedures pursuant to which we may submit

claims for indemnification to Navient and, to date, Navient has acknowledged and accepted substantially all claims that we
have submitted. Nonetheless, if for any reason Navient is unable or unwilling to pay claims made against it, our costs,
operating expenses, cash flows and financial condition could be materially and adversely affected over time.

Sallie Mae and Navient are each subject to restrictions under a tax sharing agreement between them, and a violation of the
tax sharing agreement may result in tax liability to Sallie Mae and to its stockholders.

In connection with the Spin-Off, we entered into a tax sharing agreement with Navient to preserve the tax-free treatment

of the separation and distribution of Navient. Under this tax sharing agreement, both we and Navient are restricted from
engaging in certain transactions that could prevent the Spin-Off from being tax-free to us and our stockholders at the time of the
Spin-Off for U.S. federal income tax purposes. If Navient fails to comply with the restrictions in the tax sharing agreement and
as a result the Spin-Off is determined to have been taxable for U.S. federal income tax purposes, we and our stockholders at the
time of the Spin-Off that are subject to U.S. federal income tax could incur significant U.S. federal income tax liabilities.
Although the tax sharing agreement provides that Navient is required to indemnify the Company for taxes incurred that may
arise were Navient to fail to comply with its obligations under the tax sharing agreement, there is no assurance that Navient will
have the funds to satisfy that liability. Also, Navient will not be required to indemnify our stockholders for any tax liabilities
they may incur for Navient’s violation of the tax sharing agreement.

Risks Related to Our Securities

Our common and preferred stock prices may fluctuate significantly.

The market price of shares of our common stock may fluctuate significantly due to a number of factors, some of which

may be beyond our control, including:

• Actual or anticipated fluctuations in our operating results;

• Our smaller market capitalization as compared to pre-Spin-Off SLM;

• Changes in earnings estimated by securities analysts or our ability to meet those estimates;

• Our policy of paying no common stock dividends;

• The operating and stock price performance of comparable companies;

• News reports relating to trends, concerns and other issues in the student loan industry or other parts of the financial

services industry, including regulatory actions against other financial institutions;

• Perceptions in the marketplace regarding us and/or our competitors;

• New technology used, or services offered, by competitors;

• Significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or

involving us or our competitors;

• Changes to the regulatory and legal environment under which we and our subsidiaries operate;

• Our ability to securitize our Private Education Loans; and

• Domestic and worldwide economic conditions.

The market price of shares of our preferred stock may fluctuate significantly due to a number of factors, some of which

may be beyond our control, including:

• Significant sales of our preferred stock, or the expectation of significant sales;

• Lack of credit agency ratings;

• Movements in interest rates and spreads that negatively affect return; and

• Call and redemption features.

In addition, when the market price of a company’s common stock drops significantly, stockholders often institute
securities class action lawsuits against the company. A securities class action lawsuit against the Company could cause it to
incur substantial costs and could divert the time and attention of its management and other resources, which could materially
adversely affect our business, financial condition and results of operations.

An investment in our securities is not an insured deposit.

Our common stock, preferred stock and indebtedness are not bank deposits and, therefore, are not insured against loss by

the FDIC, any other deposit insurance fund or by any other public or private entity. Investment in our common stock is
inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this report and is subject to the same
market forces that affect the price of securities of any company. As a result, if you acquire our common stock, preferred stock or
indebtedness, you may lose some or all of your investment.

The holders of our preferred stock have rights that are senior to those of our common shareholders.

At December 31, 2016, we had issued and outstanding 3.3 million shares of our 6.97 percent Cumulative Redeemable

Preferred Stock, Series A and 4.0 million shares of our Floating-Rate Non-Cumulative Preferred Stock, Series B.

Our preferred stock is senior to our shares of common stock in right of payment of dividends and other distributions. We
must be current on dividends payable to holders of preferred stock before any dividends can be paid on our common stock. In
the event of our bankruptcy, dissolution or liquidation, the holders of our preferred stock must be satisfied before any
distributions can be made to our common shareholders.

Our ability to pay dividends on our common stock can be subject to regulatory restrictions.

We have not paid dividends on our common stock since the Spin-Off, and we do not expect to do so for the foreseeable
future. However, should we choose to do so, we are dependent on funds obtained from the Bank to fund dividend payments.
Regulatory and other legal restrictions may limit our ability to transfer funds freely, either to or from our subsidiaries. In

particular, the Bank is subject to laws and regulations that authorize regulatory bodies to block or reduce the flow of funds to
us, or that prohibit such transfers altogether in certain circumstances. These laws, regulations and rules may hinder our ability
to access funds that we may need to make payments on our obligations. The FDIC has the authority to prohibit or limit the
payment of dividends by the banking organizations it supervises, including us and our bank subsidiaries.

Restrictions on Ownership

The ability of a third-party to acquire us is limited under applicable U.S. and state banking laws and regulations.

Under the Change in Bank Control Act of 1978, as amended (“CIBC Act”), the FDIC’s regulations thereunder, and
similar Utah banking laws, any person, either individually or acting through or in concert with one or more other persons, must
provide notice to, and effectively receive prior approval from, the FDIC and UDFI before acquiring “control” of us. In
practice, the process for obtaining such approval is complicated and time-consuming, often taking longer than six months, and a
proposed acquisition may be disapproved for a variety of factors, including, but not limited to, antitrust concerns, financial
condition and managerial competence of the applicant, and failure of the applicant to furnish all required information. Under
the FDIC’s CIBC Act regulations, control is rebuttably presumed to exist, and notice is required, where a person owns, controls
or holds with the power to vote 10 percent or more of any class of our voting shares and no other person owns, controls or holds
with the power to vote a greater percentage of that class of voting shares.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The following table lists the principal facility owned by us as of December 31, 2016:

Location

Function

Approximate
Square Feet

Newark, DE ............. Headquarters

160,000

The following table lists the principal facilities leased by us as of December 31, 2016:

Location

Function

Indianapolis, IN........ Loan Servicing Center
Newton, MA ............ Administrative Offices
Reston, VA .............. Administrative Offices
Salt Lake City, UT .... Sallie Mae Bank

Approximate
Square Feet

76,000
24,000
20,000
11,400

The facility that we own is not encumbered by a mortgage. We believe that our headquarters, loan servicing centers, data
center, back-up facility and data management and collection centers are generally adequate to meet our long-term lending and
business goals. Our headquarters are currently located in owned space at 300 Continental Drive, Newark, Delaware, 19713.

Item 3.

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. It is common for the Company, our subsidiaries and affiliates to receive information and document requests
and investigative demands from state attorneys general, legislative committees and administrative agencies. These requests may
be for informational or regulatory purposes and may relate to our business practices, the industries in which we operate, or
other companies with whom we conduct business. Our practice has been and continues to be to cooperate with these bodies and
be responsive to any such requests.

Pursuant to the terms of the Spin-Off and applicable law, Navient assumed responsibility for all liabilities (whether
accrued, contingent or otherwise and whether known or unknown) arising out of or resulting from the conduct of pre-Spin-Off
SLM and its subsidiaries’ businesses prior to the Spin-Off, other than certain specifically identified liabilities relating to the
conduct of our consumer banking business. Nonetheless, given the prior usage of the Sallie Mae and SLM names by entities
now owned by Navient, we and our subsidiaries may from time to time be improperly named as defendants in legal proceedings
where the allegations at issue are the legal responsibility of Navient. Most of these legal proceedings involve matters that arose
in whole or in part in the ordinary course of business of pre-Spin-Off SLM. Likewise, as the period of time since the Spin-Off
increases, so does the likelihood any allegations that may be made may be in part for our own actions in a post-Spin-Off time
period and in part for Navient’s conduct in a pre-Spin-Off time period. We will not be providing information on these
proceedings unless there are material issues of fact or disagreement with Navient as to the bases of the proceedings or
responsibility therefor that we believe could have a material, adverse impact on our business, assets, financial condition,
liquidity or outlook if not resolved in our favor.

Regulatory Update

At the time of this filing, the Bank remains subject to the FDIC Consent Order and the DOJ Consent Order. On May 13,
2014, the Bank reached a settlement with the DOJ, and agreed to the DOJ Consent Order, regarding compliance issues with the
SCRA. At the same time, the Bank reached a settlement with the FDIC regarding disclosures and assessments of certain late
fees, as well as compliance with the SCRA. Under the FDIC Consent Order, the Bank agreed to pay $3.3 million in fines and
oversee the refund of up to $30 million in late fees assessed on loans owned or originated by the Bank since its inception in
November 2005. The DOJ Consent Order was approved by the U.S. District Court for the District of Delaware on September
29, 2014. Under the terms of the Separation and Distribution Agreement, Navient is responsible for funding all liabilities under
the regulatory orders and, as of the date hereof, has funded all liabilities other than fines directly levied against the Bank in
connection with these matters which the Bank is required to pay.

We believe the Bank has complied with all the requirements of the FDIC Consent Order and the DOJ Consent Order. This

In May 2014, the Bank received a CID from the CFPB as part of the CFPB’s separate investigation relating to customer
complaints, fees and charges assessed in connection with the servicing of student loans and related collection practices of pre-
Spin-Off SLM by entities now subsidiaries of Navient during a time period prior to the Spin-Off. Two state attorneys general
provided the Bank identical CIDs and other state attorneys general have become involved in the inquiry over time. To the extent
requested, the Bank has been cooperating fully with the CFPB and the attorneys general but is not in a position at this time to
predict the duration or outcome of these matters. Given the timeframe covered by the CIDs and the focus on practices and
procedures previously conducted by Navient and its servicing subsidiaries prior to the Spin-Off, as contemplated by the
Separation and Distribution Agreement relating to, and the structure of, the Spin-Off, Navient is leading the response to these
investigations, is legally responsible for, and has accepted responsibility to indemnify the Company against all costs, expenses,
losses and remediation that may arise from these matters. Additionally, on January 18, 2017, the Illinois Attorney General filed
a separate lawsuit against Navient - its subsidiaries Navient Solutions, Inc., Pioneer Credit Recovery, Inc., and General Revenue

Corporation - and the Bank arising out of the aforementioned multi-state investigation of various lending, servicing, and
collection practices. As contemplated by the Separation and Distribution Agreement relating to, and the structure of, the Spin-
Off, Navient is legally responsible for, and has accepted responsibility to indemnify the Company against, all costs, expenses,
losses and remediation that may arise from these matters.

On January 18, 2017, the CFPB filed a complaint in federal court in Pennsylvania against Navient, along with its
subsidiaries, Navient Solutions, Inc., and Pioneer Credit Recovery, Inc. The complaint alleges these Navient entities, among
other things, engaged in deceptive practices with respect to its historic servicing and debt collection practices. Neither SLM, the
Bank, nor any of their current subsidiaries are named in, or otherwise a party to, the lawsuit and are not alleged to have engaged
in any wrongdoing.

Item 4. Mine Safety Disclosures

N/A

PART II.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Securities

Our common stock is listed and has traded on the Nasdaq Global Select Market (“Nasdaq”) under the symbol SLM since
December 12, 2011. Previously, our common stock was listed and traded on the New York Stock Exchange. As of January 31,
2017, there were 429,101,108 shares of our common stock outstanding and 384 holders of record. The following table sets forth
the high and low sales prices for our common stock for each full quarterly period within the two most recent fiscal years.

Common Stock Prices

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

2016

2015

High ..........
Low ...........

$6.61
5.38

$10.32
8.97

$7.19
5.58

$10.70
9.38

$7.58
6.11

$10.02
7.40

$11.52
6.98

$7.32
6.31

For the years ended December 31, 2016 and 2015, we have not paid dividends on our common stock and we do not

currently anticipate paying dividends on our common stock.

Issuer Purchases of Equity Securities

The following table provides information relating to our purchase of shares of our common stock in the three months

ended December 31, 2016.

We do not intend to initiate share repurchase programs as a means to return capital to shareholders. We only expect to

repurchase common stock acquired as a result of taxes withheld in connection with award exercises and vesting under our
employee stock-based compensation plans.

(In thousands, except per share data)

Total Number
of Shares
Purchased(1)

Average Price
Paid per
Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

Period:
October 1 - October 31, 2016 ..........................
November 1 - November 30, 2016...................
December 1 - December 31, 2016 ...................

Total fourth-quarter 2016................................

46 $
1,103 $
443 $

1,592 $

7.02
9.02
10.84

9.47

—
—
—

—

Approximate Dollar
Value
of Shares That
May Yet Be
Purchased Under
Publicly Announced
Plans or
Programs

—
—
—

_
(1) All shares purchased are shares of our common stock tendered to us to satisfy the exercise price in connection with cashless exercises of stock options, and tax

withholding obligations in connection with exercise of stock options and vesting of restricted stock and restricted stock units.

The closing price of our common stock on Nasdaq on December 30, 2016 was $11.02.

Stock Performance

The following graph compares the five-year cumulative total returns of SLM Corporation, the S&P Midcap 400 Index

and the KBW Bank Index.

This graph assumes $100 was invested in the stock or the relevant index on December 31, 2011, and also assumes the
reinvestment of dividends through December 31, 2016, including the Company’s distribution to its shareholders of one share of
Navient Corporation common stock for every share of SLM Corporation on April 30, 2014. For the purpose of this graph, the
Navient Corporation distribution is treated as a non-taxable cash dividend of $16.56 that would have been reinvested in SLM
Corporation common stock at the close of business on April 30, 2014.

Five-Year Cumulative Total Stockholder Return

Company/Index
SLM Corporation ...................
S&P Midcap 400 Index ..........
KBW Bank Index ..................

12/31/11
$100.0
100.0
100.0

12/31/12
$131.9
116.1
130.2

12/31/13
$207.6
152.7
175.9

12/31/14
$229.6
165.2
188.6

12/31/15
$146.9
159.1
185.6

12/31/16
$248.3
188.9
233.1

_________
Source: Bloomberg Total Return Analysis

Item 6.

Selected Financial Data.

Selected Financial Data 2012-2016
(Dollars in millions, except per share amounts)

The following table sets forth our selected financial and other operating information. The selected financial data in the

table is derived from our consolidated financial statements. The data should be read in conjunction with the consolidated
financial statements, related notes, and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”

Operating Data:

Net interest income ......................................... $
Non-interest income ....................................... $
$
Total revenue ...............................................
Net income attributable to SLM Corporation ..... $

Basic earnings per common share attributable
to SLM Corporation ....................................... $
Diluted earnings per common share attributable
to SLM Corporation ....................................... $

Dividends per common share attributable to
SLM Corporation common shareholders(1) ........ $
Return on common stockholders’ equity ...........
Net interest margin .........................................
Return on assets .............................................
Average equity/average assets ..........................
Non-GAAP operating efficiency ratio(2) ............
Balance Sheet Data:
Total education loan portfolio, net .................... $
Total assets ....................................................
Total deposits .................................................
Total borrowings ............................................
Total SLM Corporation stockholders’ equity .....
Book value per common share .........................
_________

2016

2015

2014

2013

2012

891
69
960
250

$
$

702
183
885
274

$
$

578
157
735
194

$
$

462
298
760
259

$
$

408
267
675
218

0.54

0.60

0.43

0.59

0.46

0.53

0.59

0.42

0.58

0.45

—
14 %

—
18 %

—
15 %

0.60

0.50

22 %

18 %

5.68
1.52
13.40

5.49
2.04
14.49

5.26
1.68
13.92

5.06
2.70
12.50

5.54
2.84
15.49

40 %

47 %

45 %

49 %

61 %

15,125
18,533
13,436
2,168
2,347
4.15

11,631
15,214
11,488
1,079
2,096
3.59

9,510
12,972
10,541
—
1,830
2.99

7,931
10,707
9,002
—
1,161
2.71

6,487
9,084
7,497
—
1,089
2.41

(1) Following completion of the Spin-Off, SLM has not paid dividends on its common stock and it does not anticipate paying dividends on
its common stock in 2017.

(2) Our operating efficiency ratio is a non-GAAP measure because we adjust (a) the total non-interest expense numerator by deducting
restructuring and other reorganization expenses, and (b) the net revenue denominator (which otherwise would consist of net interest income,
before provisions for credit losses, plus non-interest income) by deducting gains on sales of loans, net. We believe doing so provides useful
information to investors because it is a measure used by our management team to monitor our effectiveness in managing operating
expenses. Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate
our ratio. Accordingly, our non-GAAP operating efficiency ratio may not be comparable to similar measures used by other companies.

Item 7. 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 also be read in conjunction with the disclosures and information contained in “Forward-
Looking and Cautionary Statements” and Item 1A. “Risk Factors” in this Annual Report on Form 10-K.

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.

Overview

The following discussion and analysis presents a review of our business and operations as of and for the year ended

December 31, 2016.

On April 30, 2014, we completed the Spin-Off and separated pre-Spin-Off SLM into two distinct publicly traded entities:

Navient and SLM.

For periods before the Spin-Off, the financial information contained in this report and in the accompanying consolidated

balance sheets, statements of income, changes in equity, and cash flows is presented on a basis of accounting that reflects a
change in reporting entity and has been adjusted for the effects of the Spin-Off. These carved-out financial statements and
selected financial information represent only those operations, assets, liabilities and equity that form SLM on a stand-alone
basis. Because the Spin-Off occurred on April 30, 2014, these financial statements include the carved-out financial results for
the first four months of 2014. All prior period amounts represent comparably determined carved-out amounts. The year ended
December 31, 2015 was the first full year where the financial results did not include the effect of carved-out amounts.

For more information regarding the basis of presentation of these statements, see Notes to Consolidated Financial
Statements, Note 2, “Significant Accounting Policies — Basis of Presentation.” Since the Spin-Off, we have completed the
operational separation of our servicing platforms and personnel from Navient, established our own new loan originations
platform, and made changes to policies to further conform to the applicable regulations and procedures of our prudential and
consumer protection regulators. While we still have certain ongoing business arrangements with Navient, we now consider our
operational separation from Navient to be complete. The following discussion and analysis provides more detail regarding the
steps taken and costs incurred to complete this operational separation in 2015. For a more detailed description of ongoing
arrangements among the Company and Navient, see Notes to Consolidated Financial Statements, Note 16, “Arrangements with
Navient Corporation.”

Key Financial Measures

Set forth below are brief summaries of our key financial measures. Our operating results are primarily driven by net
interest income from our Private Education Loan portfolio, gains and losses on loan sales, provision expense for credit losses,
and operating expenses. The growth of our business and the strength of our financial condition are primarily driven by our
ability to achieve our annual Private Education Loan origination goals while sustaining credit quality and maintaining cost-
efficient funding sources to support our originations.

Net Interest Income

Most of our earnings are generated from the interest income earned on assets in our education loan portfolios, net of the
interest expense we pay on the funding for these loans. We report these earnings as net interest income. We also often refer to
the net interest margin, which is the net interest yield earned on a portfolio less the rate paid on our related interest bearing
liabilities. The majority of our interest income comes from our Private Education Loan portfolio. FFELP Loans have a lower
net interest yield and carry lower risk than Private Education Loans, as a result of the federal government guarantee supporting
FFELP Loans. We do not expect to acquire more FFELP Loans, and the balance of our FFELP Loan portfolio is expected to
decline due to normal amortization.

Loan Sales and Secured Financings

We may sell Private Education Loans to third-parties through securitizations and an auction process. We retain servicing
of these Private Education Loans subsequent to their sale and earn revenue for this servicing at prevailing market rates for such
services. Selling Private Education Loans removes the loan assets from our balance sheet and helps us manage our asset
growth, capital and liquidity needs. Alternatively, we may use Private Education Loans as collateral in connection with the
creation of asset-backed securitizations or securitized commercial paper facilities structured as financings. These types of
transactions may provide us long-term financing, but they do not remove Private Education Loan assets from our balance sheet,
nor do they generate gains on sales of loans, net. Consequently, our operating results may be significantly affected by whether
we choose to sell loans and recognize current gains on sale or continue to hold or finance loans, thereby retaining some or all of
the net interest income from those loans. See Notes to Consolidated Financial Statements, Note 10, “Private Education Loan
Term Securitizations,” for further discussion regarding these transactions. We did not sell loans in 2016 and currently do not
expect to sell loans in 2017.

Allowance for Loan Losses

Management estimates and maintains an allowance for loan losses for Private Education Loans at a level sufficient to

cover charge-offs expected over the next year, plus an additional allowance to cover life-of-loan expected losses for loans
classified as a troubled debt restructuring (“TDR”). See Item 7. “Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Critical Accounting Policies and Estimates — Allowance for Loan Losses.” Allowances for loan
losses are an important indicator of management’s perspective on the future performance of a loan portfolio. Each quarter,
management makes an adjustment to the allowance for loan losses for Private Education Loans to reflect its most up-to-date
estimate of future losses by recording a charge against quarterly revenues known as provision expense. As they occur, actual
loan charge-offs and recoveries are then charged or credited, respectively, against the allowance for loan losses for Private
Education Loans rather than against earnings.

The allowance for loan losses and provision expense rise when future charge-offs are expected to increase and fall when

future charge-offs are expected to decline. We bear the full credit exposure on our Private Education Loans. Losses on our
Private Education Loans are affected by risk characteristics such as loan status (in-school, grace, forbearance, repayment and
delinquency), loan seasoning (number of months in active repayment), underwriting criteria (e.g., credit scores), presence of a
cosigner and the current economic environment. Losses typically emerge once a borrower separates from school and enters full
principal and interest repayment after the borrower’s six month grace period ends. Our experience indicates that approximately
50 percent of expected losses on loans occur in the first two years after a loan enters full principal and interest repayment.
Therefore, changes in our allowance for loan losses will be driven in large measure by the amount and age of our loans in full
principal and interest repayment. As a larger proportion of our portfolio enters full principal and interest repayment in the
coming years, we would expect the amount of TDRs, as well as our allowance for loan losses and charge-offs, to increase.

Our allowance for loan losses for FFELP Loans and related periodic provision expense are small because we generally
bear a maximum of three percent loss exposure due to the federal guarantee. We maintain an allowance for loan losses for our
FFELP Loans at a level sufficient to cover charge-offs expected over the next two years.

Charge-Offs and Delinquencies

Delinquencies are another important indicator of potential future credit performance. When a Private Education Loan

reaches 120 days delinquent, it is charged against the allowance for loan losses. Charge-off data provides relevant information
with respect to the actual performance of a loan portfolio over time. Management focuses on delinquencies as well as the
progression of loans from early to late stage delinquency as a key metric in estimating the allowance for loan losses and
tailoring its future collections strategies. Prior to the Spin-Off, the Bank would sell delinquent loans to an entity that is now a
subsidiary of Navient when the loans became 90 days delinquent. As a result, there were no charge-offs recorded against our
allowance for loan losses prior to April 1, 2014. In addition, because loans were sold earlier in their delinquency status prior to
the Spin-Off, delinquency statistics for those periods are not comparable to those post-Spin-Off and are not indicative of
expected future performance. Since the Spin-Off, the Bank has been responsible for collecting all delinquent loans and, until
late 2015, all charged-off loans were sold to a third-party. In November 2015, we began to retain and collect on a portion of our
charged-off loans using our own collection personnel. The levels of delinquencies since the Spin-Off have been additionally
affected somewhat by these changes in collection approach. In the future, we expect to manage our charged-off loans through a
mix of in-house collectors, third-party collectors and third-party sales.

Operating Expenses

The cost of operating our business directly affects our profitability. Since the Spin-Off, our operating expenses include

those that are directly attributable to running our business, as well as the costs of building out our servicing and origination
platforms and establishing the Company as a stand-alone entity. We separately disclose “restructuring and other reorganization
expenses,” which represent costs we believe are one-time in nature and directly attributable to completing the Spin-Off.

We continue to measure our effectiveness in managing operating expenses by monitoring our non-GAAP operating

efficiency ratio. Our operating efficiency ratio is a non-GAAP measure because we adjust (a) the total non-interest expense
numerator by deducting restructuring and other reorganization expenses, and (b) the net revenue denominator (which otherwise
would consist of net interest income, before provisions for credit losses, plus non-interest income) by deducting gains on sales
of loans, net. We believe doing so provides useful information to investors because it is a measure used by our management
team to monitor our effectiveness in managing operating expenses. Other companies may use similarly titled non-GAAP
financial measures that are calculated differently from the way we calculate our ratio. Accordingly, our non-GAAP operating
efficiency ratio may not be comparable to similar measures used by other companies. Our long-term objective is to achieve
steady declines in this ratio over the next several years.

Core Earnings

We prepare financial statements in accordance with GAAP. However, we also produce and report our after-tax earnings
on a separate basis which we refer to as “Core Earnings.” While pre-Spin-Off SLM also reported a metric by that name, what
we now report and what we describe below is significantly different and should not be compared to any Core Earnings reported
by pre-Spin-Off SLM. The difference between our “Core Earnings” and GAAP results for periods presented generally is driven
by the unrealized, mark-to-market gains (losses) on derivatives contracts recognized in GAAP, but not in “Core Earnings.”

“Core Earnings” recognizes the difference in accounting treatment based upon whether a derivative qualifies for hedge

accounting treatment and eliminates the earnings impact associated with hedge ineffectiveness and derivatives we use as an
economic hedge but which do not qualify for hedge accounting treatment. We enter into derivatives instruments to
economically hedge interest rate and cash flow risk associated with our portfolio. We believe that our derivatives are effective
economic hedges, and as such, are a critical element of our interest rate risk management strategy. Those derivative instruments
that qualify for hedge accounting treatment have their related cash flows recorded in interest income or interest expense along
with the hedged item. Hedge ineffectiveness related to these derivatives is recorded in “(Losses) gains on derivatives and
hedging activities, net.” Some of our derivatives do not qualify for hedge accounting treatment and the stand-alone derivative
must be marked-to-fair value in the income statement with no consideration for the corresponding change in fair value of the
hedged item. These gains and losses, recorded in “(Losses) gains on derivative and hedging activities, net,” are primarily
caused by interest rate volatility and changing credit spreads during the period as well as the volume and term of derivatives not
receiving hedge accounting treatment. Cash flows on derivative instruments that do not qualify for hedge accounting are not
recorded in interest income and interest expense; they are recorded in non-interest income: “(Losses) gains on derivative and
hedging activities, net.”

The adjustments required to reconcile from our “Core Earnings” results to our GAAP results of operations, net of tax,

relate to differing treatments for our derivative instruments used to hedge our economic risks that do not qualify for hedge
accounting treatment or that do qualify for hedge accounting treatment but result in ineffectiveness, net of tax. The amount
recorded in “(Losses) gains on derivative and hedging activities, net” includes (a) the accrual of the current payment on the
interest rate swaps that do not qualify for hedge accounting treatment, (b) the change in fair values related to future expected
cash flows for derivatives that do not qualify for hedge accounting treatment and (c) ineffectiveness on derivatives that receive
hedge accounting treatment. For purposes of “Core Earnings”, we are including in GAAP earnings the current period accrual
amounts (interest reclassification) on the swaps and excluding the remaining ineffectiveness (and change in fair values for those
derivatives not qualifying for hedge accounting treatment). “Core Earnings” is meant to represent what earnings would have
been had these derivatives qualified for hedge accounting and there was no ineffectiveness.

“Core Earnings” are not a substitute for reported results under GAAP. We provide a “Core Earnings” basis of presentation

because (i) earnings per share computed on a “Core Earnings” basis is one of several measures we utilize in establishing
management incentive compensation and (ii) we believe it better reflects the financial results for derivatives that are economic
hedges of interest rate risk but which do not qualify for hedge accounting treatment.

GAAP provides a uniform, comprehensive basis of accounting. Our “Core Earnings” basis of presentation differs from

GAAP in the way it treats derivatives as described above.

The following table shows the amount in “(Losses) gains on derivative and hedging activities, net” that relates to the

interest reclassification on the derivative contracts.

Years Ended December 31,

(Dollars in thousands)

2016

2015

2014

Hedge ineffectiveness (losses) gains ...................... $
Unrealized (losses) gains on instruments not in a
hedging relationship ............................................
Interest reclassification ........................................
(Losses) gains on derivatives and hedging
activities, net ....................................................... $

(2,615 ) $

1,268 $

1,198

(513 )
2,170

581
3,451

(2,944 )

(2,250 )

(958 ) $

5,300

(3,996 )

The following table reflects adjustments associated with our derivative activities.

(Dollars in thousands, except per share amounts)

2016

2015

2014

Years Ended December 31,

“Core Earnings” adjustments to GAAP:

GAAP net income attributable to SLM Corporation .......................... $
Preferred stock dividends ...............................................................
GAAP net income attributable to SLM Corporation common stock .... $

250,327
21,204
229,123 $

274,284
19,595
254,689 $

194,219
12,933
181,286

Adjustments:
Net impact of derivative accounting(1) ..............................................
Net tax effect(2) ..............................................................................
Total “Core Earnings” adjustments to GAAP ....................................

3,127
1,199
1,928

(1,849 )
(711 )
(1,138 )

1,746
659
1,087

“Core Earnings” attributable to SLM Corporation common stock ....... $

231,051 $

253,551 $

182,373

GAAP diluted earnings per common share ....................................... $
Derivative adjustments, net of tax ...................................................
“Core Earnings” diluted earnings per common share ......................... $

0.53 $
—
0.53 $

0.59 $
—
0.59 $

0.42
—
0.42

______
(1) Derivative Accounting: “Core Earnings” exclude periodic unrealized gains and losses caused by the mark-to-market
valuations on derivatives that do not qualify for hedge accounting treatment under GAAP, as well as the periodic unrealized
gains and losses that are a result of ineffectiveness recognized related to effective hedges under GAAP. Under GAAP, for our
derivatives held to maturity, the cumulative net unrealized gain or loss over the life of the contract will equal $0.

(2) “Core Earnings” tax rate is based on the effective tax rate at the Bank where the derivative instruments are held.

Private Education Loan Originations

Private Education Loans are the principal asset on our balance sheet, and the amount of new Private Education Loan

originations we generate each year is a key indicator of the trajectory of our business, including our future earnings and asset
growth.

Funding Sources

Deposits

We utilize brokered, retail and other core deposits to meet funding needs and enhance our liquidity position. These
deposits can be term or liquid deposits. Term brokered deposits may have terms as long as seven years. Interest rates on most of
our long-term deposits are swapped into one-month LIBOR. This structure has the effect of matching our interest rate exposure
to the index on which our assets reset, thereby minimizing our financing cost exposure to interest rate risk. Retail deposits are
sourced through a direct banking platform and serve as an important source of diversified funding. Brokered deposits are
sourced through a network of brokers and provide a stable source of funding. In addition, we accept certain deposits that are
considered non-brokered that are held in large accounts structured to allow FDIC insurance to flow through to underlying
individual depositors. During 2016, we added $1.5 billion in deposits from Educational 529 and Health Savings Accounts as a
way to diversify our funding sources. These and other large omnibus accounts, aggregating the deposits of many individual
depositors, represented $5.4 billion of our deposit total as of December 31, 2016.

Loan Securitizations

We have diversified our funding sources by issuing term ABS and by entering into a Private Education Loan asset-backed

commercial paper facility (the “ABCP Facility”). Term ABS financing provides long-term funding for our Private Education
Loan portfolio at attractive interest rates and at terms that effectively match the average life of the assets. Loans associated with
these transactions will remain on our balance sheet if we retain the residual interest in these trusts. The ABCP Facility provides
an extremely flexible source of funds that can be drawn upon on short notice to meet funding needs within the Bank.
Borrowings under our ABCP Facility are accounted for as secured financings.

2016 Management Objectives

For 2016, we set out the following major goals for ourselves: (1) prudently grow Private Education Loan assets and
revenues; (2) maintain our strong capital position; (3) enhance our customers’ experience by further improving the delivery of
our products and services; (4) sustain the consumer protection improvements we have made to our policies, procedures and
compliance management system since the Spin-Off and further enhance our risk oversight infrastructure; (5) successfully
launch one or more complementary new products to increase the level of engagement we have with our customers; and (6)
manage operating expenses while improving efficiency.

The following describes our performance relative to each of these goals.

Prudently Grow Private Education Loan Assets and Revenues

We originated $4.7 billion in new Private Education Loans in 2016, compared with $4.3 billion in 2015, an increase of 8

percent. As our business, capital and balance sheet continued to grow, we were able to exceed our annual Private Education
Loan origination targets for the year. This growth in originations was accomplished while maintaining our FICO scores and
cosigner rates on our 2016 originations at levels similar to those at which we ended 2015. The average FICO scores at approval
and the cosigner rates for originations for the year ended December 31, 2016 were 748 and 89 percent, compared with 749 and
90 percent in the year ended December 31, 2015.

Our allowance for loan losses for Private Education Loans was $182 million at December 31, 2016, compared with
$109 million at the prior year-end. The provision expense on our Private Education Loans was $160 million for the year ended
December 31, 2016, compared with $87 million in 2015.

Maintain Our Strong Capital Position

The Bank is required by its regulators, the UDFI and the FDIC, to maintain sufficient capital to support its assets and

operations. At December 31, 2016, the Bank had a Common Equity Tier 1 risk-based capital ratio and a Tier 1 risk-based
capital ratio of 12.6 percent, a Total risk-based capital ratio of 13.8 percent, and a Tier 1 leverage ratio of 11.1 percent, which
are each well in excess of the current “well capitalized” standard for insured depository institutions and in line with the levels
established by the Bank’s Board of Directors. In 2016, we completed our first Dodd-Frank Act Stress Test (“DFAST”) exercise,
which demonstrated that our current capital levels are more than adequate to support our student loan portfolio even in times of
severe adverse economic stress. For a further discussion of regulatory capital requirements, see Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Regulatory
Capital” in this Form 10-K for the year ended December 31, 2016.

Enhance Customers’ Experience By Further Improving Delivery of Products and Services

The Spin-Off provided us the opportunity to redesign our processes, procedures and customer experiences exclusively

around our Private Education Loan products, rather than accommodating the servicing of those products as well as FFELP and
Direct Student Loans serviced under direction of the Department of Education (the “DOE”). In 2016, we continued to focus on
our new servicing platform and processes to specifically target further simplifications in our customers’ Private Education Loan
experience. Recent enhancements include:

• All servicing is now conducted by in-house Sallie Mae associates;

• Additional customer service sites have opened to provide redundancy during key processing periods;

• We continued to provide agents with improved procedures and technology;

• We increased our efforts to further clarify and simplify customer communications on important topics, such as

payment options, by seeking to standardize information across platforms; and

• We continued to expand functionality and information available to our customers online.

In 2016, we also implemented a customer feedback process, which provides us the ability to gain insights from customers

at key points of interaction with us. This enables us to identify areas of opportunity and improve customer satisfaction on an
ongoing basis.

Sustain Consumer Protection Improvements Made Since the Spin-Off and Further Enhance Our Risk Oversight
Infrastructure

We continue to undertake significant work to establish that all customer protection policies, procedures and compliance

management systems are sufficient to meet or exceed currently applicable regulatory standards. Our redesigned SCRA
processes and procedures have the approval of the DOJ and all required restitution activities under the FDIC Consent Order and
DOJ Consent Order have been completed. In 2014, we engaged a third-party firm to conduct independent audits of consumer
protection processes and procedures, including our own compliance management system. At this time, that engagement is
ongoing and we are nearing the end of our second full cycle of those audits. To date, these audits have produced no high risk
findings.

During 2016, we continued the development of our Enterprise Risk Management capability, including significant
advances in the Model Risk Management area and enhancements to our Governance, Risk and Compliance platform. These
programs contributed to our successful DFAST submission during the year. Additionally, the Manager’s Assessment of Risk
and Controls entered its second year of use and is proving effective in assisting the first lines of defense in the management of
their internal controls.

Successfully Launch One or More Complementary New Products to Increase Level of Engagement With Customers

In 2015, our management team began to consider expanding the suite of products we provide to customers. Given our

limited time and experience with our new originations platform and servicing capabilities, we prioritized opportunities to focus
first on those that can leverage our core competencies and capabilities, rather than require the development or acquisition of
new or alternative ones. For example, in the first quarter of 2016, we leveraged our experience with our Smart Option Student
Loan products by launching a Private Education Loan product permitting parents to borrow and fund their children’s education

without a student co-borrower (“Parent Loans”). The Parent Loan program is designed for parents who wish to separately
finance their children’s education, rather than cosign loans with their children. We believe there is a market for this product that
is separate from the Smart Option Student Loan market, and we believe our product is a competitive alternative to PLUS loans
being offered by the DOE. This product complements our portfolio of Private Education Loan offerings, but did not have a
material impact on 2016 earnings. We originated $31 million of Parent Loans in 2016.

In 2016, we also explored other product opportunities by researching products that will be easily understood and

attractive to our customers.

Manage Operating Expenses While Improving Efficiency

We will continue to measure our effectiveness in managing operating expenses by monitoring our non-GAAP operating
efficiency ratio. (See Item 6. “Selected Financial Data,” for the definition of this measure.) This ratio was 40.2 percent for the
year ended December 31, 2016, compared with 46.8 percent and 45.3 percent for the years ended December 31, 2015 and 2014,
respectively. The large improvement in the non-GAAP operating efficiency ratio in the year ended December 31, 2016
compared with the year-ago period was partially due to a $9 million increase in other income as a result of an increase in the tax
indemnification receivable related to uncertain tax positions and the one-time $10 million change in reserve estimates related to
our Upromise rewards business recorded in the first quarter of 2016. Excluding these two items, the non-GAAP operating
efficiency ratio for the year ended December 31, 2016 would have been 41.1 percent.

2017 Management Objectives

In 2017, we intend to devote ourselves to further growing our business and improving our customers’ experience. We plan

to do so by further continuing to improve the delivery of our products and services and incrementally adding to our product
offerings to reinforce and expand our existing customer relationships and foster new ones.

For 2017, we have set out the following major goals for ourselves: (1) prudently grow our Private Education Loan assets
and revenues while continuing to diversify the mix of our funding sources; (2) maintain our strong capital position; (3) enhance
our customers’ experience by further improving the delivery of our products and services; (4) sustain the consumer protection
improvements we have made since the Spin-Off and maintain our strong governance, risk oversight and compliance
infrastructure; (5) continue our disciplined expansion of new products to increase the level of engagement we have with our
existing customers and attract new customers; (6) manage operating expenses while improving efficiency; and (7) continue to
promote a culture centered on our core values (collaboration, mutual respect, honesty, integrity, performance, and
accountability), sustained through ongoing employee engagement, recognition and development, and aligned with our mission
and business plan for growth. Here is how we plan to achieve these objectives:

Prudently Grow Private Education Loan Assets and Revenues

We will continue to pursue managed growth in our Private Education Loan portfolio in 2017 by leveraging our Sallie Mae

brand, our relationship with more than two thousand colleges and universities, and our direct consumer marketing efforts. In
order to help facilitate the expected increase in our Private Education Loan originations, we plan to continue diversifying the
mix of our funding sources in 2017. We are determined to maintain overall credit quality and cosigner rates in our Smart Option
Student Loan originations.

Maintain Our Strong Capital Position

We intend to maintain levels of capital at the Bank that significantly exceed those necessary to be considered “well

capitalized” by the FDIC. The Company is a source of strength for the Bank and will obtain or provide additional capital as,
and if, necessary to the Bank. We regularly evaluate the quality of assets, stability of earnings, and adequacy of our allowance
for loan losses, and we continue to believe our existing capital levels are sufficient to support the Bank’s plan for significant
growth over the next several years while remaining “well capitalized.” As our balance sheet grows in 2017, these ratios will
decline but will remain significantly in excess of the capital levels required to be considered “well capitalized” by our
regulators. We do not plan to pay a common stock dividend or repurchase shares in 2017 (except to repurchase common stock
acquired as a result of taxes withheld in connection with award exercises and vesting under our employee stock-based
compensation plans).

Enhance Customers’ Experience By Further Improving Delivery of Products and Services

We have made significant improvements in our customers’ experience over the last two years, and we will continue to

implement strategies and tactics to fulfill our brand and customer experience visions. In 2017, we will focus on initiatives that
will further simplify the application, fulfillment and servicing experience for our customers, including:

• Creating an integrated online origination and servicing experience with a single point of entry and improved customer

messaging;

• Providing enhanced functionality to our customers that will give them more flexibility to service their accounts online

and over the phone; and

• Continuing to support customers throughout the Private Education Loan experience with enhanced communication and

tools.

Sustain Consumer Protection Improvements Made Since the Spin-Off and Maintain Our Strong Governance, Risk
Oversight and Compliance Infrastructure

We have continued to undertake significant work to establish that all customer protection policies, procedures and
compliance management systems are sufficient to meet or exceed currently applicable regulatory standards. Our redesigned
SCRA processes and procedures received the approval of the DOJ and all required restitution activities under the FDIC Consent
Order and DOJ Consent Order were completed in 2016. In compliance with the FDIC Consent Order, a third-party firm
conducted independent audits of our consumer protection processes and procedures, including our compliance management
system, with no high risk findings to date. We will continue to work closely with the FDIC in 2017 to demonstrate
sustainability of the improvements made in connection with the FDIC Consent Order and will begin conducting our own audits
of consumer protection processes and procedures, including our compliance management system, primarily using internal audit
staff supplemented with staff from the same third-party firm that has conducted the compliance audits since 2014. Our goal is to
sustain the improvements implemented to date and consistently comply with or exceed regulatory standards while continuing to
improve our customers’ experience and satisfaction levels.

Continue Disciplined Expansion of New Products to Increase Level of Engagement With Our Existing Customers and
Attract New Customers

In 2016, we began to expand the suite of products we provide to customers. We did so by leveraging our core

competencies and capabilities, rather than requiring the development or acquisition of new or alternative ones. For example, we
leveraged our experience with our Smart Option Student Loan products to launch a Parent Loan program designed for parents
who wish to separately finance their children’s education, rather than cosign loans with their children.

In 2017, through an affiliation with another lender, we plan to launch a credit card program for young professionals. We

do not expect this product to have a material impact on 2017 earnings. We also plan to continue developing our infrastructure in
2017 so that in early 2018 we have the capability to originate and service unsecured personal loans to be used for non-
educational purposes. We will also continue to explore other product opportunities in 2017. In this process, we will place a high
premium on designing and launching products that meet the needs of our existing customers, attract new customers, and assist
both populations in achieving their financial goals. Any 2017 activity will focus on implementation success. We are not
forecasting significant contributions to our originations, revenues or net income from any potential new products in 2017.

Manage Operating Expenses While Improving Efficiency

We will continue to measure our effectiveness in managing operating expenses by monitoring our operating efficiency
ratio. We expect our operating efficiency ratio to decline steadily over the next several years as the number of loans on which
we earn either net interest income or servicing revenue grows to a level commensurate with our loan origination platform and
we control the growth of our expense base. Our operating efficiency ratio is a non-GAAP measure. See Item 6. “Selected
Financial Data,” for more information about the measure.

Continue to Promote a Culture Centered on Our Core Values (Collaboration, Mutual Respect, Honesty, Integrity,
Performance, and Accountability), Sustained Through Ongoing Employee Engagement, Recognition, and Development and
Aligned with our Mission and Business Plan for Growth

In 2017, we plan to further promote a culture centered on our core values - collaboration, mutual respect, honesty,
integrity, performance, and accountability - as we seek to grow our business. When evaluating employee performance, we will
review not only what was accomplished by employees, but whether and how they demonstrated our core values in achieving
those accomplishments. We will continue to encourage and enable high performance in a variety of ways, including by
encouraging employee engagement, and differentiating, recognizing, and rewarding high performing employees. In addition,
we plan to invest in our employees by identifying and providing development opportunities that align with our business plan
and support succession plans throughout our organization.

Results of Operations

We present the results of operations below first on a consolidated basis in accordance with GAAP.

GAAP Statements of Income

(Dollars in millions, except per share data)
Interest income:

Loans ...........................................
Investments ....................................
Cash and cash equivalents .....................
Total interest income .............................
Total interest expense ............................
Net interest income ..............................
Less: provisions for credit losses ................
Net interest income after provisions for credit
losses ..............................................
Non-interest income:

Gains on sales of loans, net ...................
(Losses) gains on derivatives and hedging
activities, net ...................................
Other income ...................................
Total non-interest income .......................
Non-interest expenses:

Operating expenses ............................
Acquired intangible asset amortization
expense .........................................
Restructuring and other reorganization
expenses ........................................
Total non-interest expenses ......................
Income before income tax expense .............
Income tax expense ..............................
Net income .......................................
Preferred stock dividends ........................

Net income attributable to SLM Corporation
common stock .................................... $

Basic earnings per common share
attributable to SLM Corporation ............. $

Diluted earnings per common share
attributable to SLM Corporation ............. $

Years Ended December 31,
2015

2016

2014

Increase (Decrease)

2016 vs. 2015
%
$

2015 vs. 2014
%
$

1,060 $
9
8
1,077
186
891
159

817 $
10
4
831
129
702
90

661 $
9
4
674
96
578
85

243
(1 )
4
246
57
189
69

732

612

493

120

30 %
(10 )
100

27
77

—

(1 )
70
69

385

—

386
415
165
250
21

135

5
43
183

349

356
439
165
274
19

121

(4 )
40
157

275

316
334
140
194
13

(135 )

(6 )
27
(114 )

(1 )

(100 )

(120 )
63

(62 )

(50 )

(5 )

(100 )

30
(24 )
—
(24 )
2

(5 )
—

(9 )
11

156
1
—
157
33
124
5

119

9
3
26

(1 )

(33 )

40
105
25
80
6

24 %
11
—

21
6

225
8

(33 )

(87 )

31
18

41
46

229

255

181

(26 )

(10 )%

0.54

0.60

0.43

(0.06 )

(10 )%

0.53

0.59

0.42

(0.06 )

(10 )%

41 %

0.17

40 %

0.17

40 %

GAAP Consolidated Earnings Summary

Year Ended December 31, 2016 Compared with Year Ended December 31, 2015

For the year ended December 31, 2016, net income was $250 million, or $.53 diluted earnings per common share,
compared with net income of $274 million, or $.59 diluted earnings per common share, for the year ended December 31, 2015.
The decrease in net income was primarily due to a $135 million decrease in gains on sales of loans, net, a $69 million increase
in provisions for credit losses and a $30 million increase in total non-interest expenses, which were partially offset by a
$189 million increase in net interest income and a $27 million increase in other income.

The primary contributors to each of the identified drivers of change in net income for the current year period compared

with the year-ago period are as follows:

• Net interest income increased by $189 million primarily due to a $2.9 billion increase in average Private Education
Loans outstanding and a 19 basis point increase in net interest margin. Net interest margin increased primarily as a
result of an increase in the ratio of higher yielding Private Education Loans relative to our other interest earning assets,
which more than offset a 17 basis point increase in our cost of funds. Cost of funds increased primarily as a result of
the full year impact of the increase in LIBOR rates that occurred at the end of 2015, as well as a $1.1 billion increase
in the average balance of securitized financings that have a longer term and higher cost than retail and brokered
deposits.

• Provisions for credit losses increased $69 million compared with the year-ago period. This increase was primarily the
result of an additional $1.0 billion loans entering repayment in the year ended December 31, 2016, compared with
loans entering repayment in the year-ago period, and a $153 million increase in Private Education Loans becoming
classified as TDRs (where we provide for life-of-loan losses) compared with Private Education Loans becoming
classified as TDRs in the year-ago period. In the period in which Private Education Loans become classified as a TDR,
we record a life of loan allowance against these loans through a charge to the provision for credit losses.

• Gains on sales of loans, net, decreased $135 million in 2016 compared with the year-ago period, as there were no loan

sales in 2016. In 2015, we sold $1.5 billion of loans through Private Education Loan sales and securitization
transactions with third-parties. We discontinued the practice of selling loans in 2016 and chose to retain all loans
originated on our balance sheet.

•

(Losses) gains on derivatives and hedging activities, net, resulted in a net loss of $1 million in 2016 compared with a
gain of $5 million in the year-ago period. The primary factors affecting the change were interest rates and whether
derivatives qualified for hedge accounting treatment. In 2016, we used fewer derivatives to economically hedge risk
that qualified for hedge accounting treatment than we did in the year-ago period.

• Other income increased $27 million compared with the year-ago period. Of this increase, $10 million relates to a one-
time gain resulting from a change in reserve estimates for our Upromise rewards program. Also contributing to this
increase is an increase in the tax indemnification receivable related to uncertain tax positions and an increase in third-
party servicing income.

• Total non-interest expenses were $386 million compared with $356 million in the year-ago period. Full-year operating
expenses grew 10 percent year-over-year while the non-GAAP operating efficiency ratio decreased to 40.2 percent in
2016, from 46.8 percent in 2015. The improvement in the non-GAAP operating efficiency ratio was primarily due to
the continued infrastructure efficiency as the portfolio grew, operational improvements resulting from 2015 customer
experience investments, and, to a lesser extent, the one-time items recorded in other income during 2016.

• The effective income tax rate increased to 39.6 percent in 2016 from 37.5 percent in 2015. The increase in the effective

income tax rate for 2016 was primarily the result of an increase in uncertain tax positions. The uncertain tax positions
contributing to the increase in our effective income tax rate had minimal impact to net income for the year as we
recorded a largely matching offset in other income. For additional information regarding the uncertain tax positions,
see Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies - Correction Recorded in the
Current Period.”

Year Ended December 31, 2015 Compared with Year Ended December 31, 2014

For the year ended December 31, 2015, net income was $274 million, or $.59 diluted earnings per common share,
compared with net income of $194 million, or $.42 diluted earnings per common share, for the year ended December 31, 2014.
The increase in net income was primarily due to a $124 million increase in net interest income and a $14 million increase in net
gains on sales of loans, which were partially offset by a $40 million increase in total expenses.

The primary contributors to each of the identified drivers of change in net income for 2015 compared with 2014 are as

follows:

• Net interest income increased by $124 million primarily due to a $2.3 billion increase in average Private Education
Loans outstanding and a 22 basis point increase in net interest margin. Net interest margin increased primarily as a
result of an increase in the ratio of higher yielding Private Education Loans relative to our other interest earning assets,
which more than offset a 14 basis point increase in our cost of funds. Cost of funds increased primarily as a result of
the use of higher cost funding such as our ABCP Facility and the issuance of $631 million in term ABS financing to
third-parties in July 2015 (which term ABS financing has a significantly longer average life and higher cost than
deposit funding). Costs of funds were also higher in 2015 because several interest rate swaps that were not designated
for hedge accounting treatment for seven months of 2014 were designated for the full year of 2015. Therefore, all
interest costs associated with these hedges were included in the cost of funds in 2015, as opposed to only five months
of interest costs in 2014.

• Provisions for credit losses for 2015 increased $5 million compared with 2014. This increase was primarily as a result
of a $1.3 billion increase in Private Education Loans in repayment and a $206 million increase in Private Education
Loans classified as TDRs (where we provide for life-of-loan losses). The impact on provision expense from loan sales
in 2014 compared with 2015 was greater because we sold $306 million more in credit impaired loans in 2014 than in
2015. When we sell a credit impaired loan at a loss, the loss is recorded as additional provision expense. Also
included in 2014 provision expense was a $14 million benefit from the change in our charge-off policy.

• Gains on sales of loans, net, increased $14 million. In 2015, we sold $1.5 billion of loans through Private Education
Loan sales and securitization transactions with third-parties. As a result, we recorded gains of $135 million. In 2014,
we sold $1.9 billion of loans through Private Education Loan sales and a securitization transaction with third-parties
and recorded gains of $121 million. Gains on sales of loans, net, were higher in 2015 as these loans were sold at a
higher price.

• Gains (losses) on derivatives and hedging activities, net, resulted in a net gain of $5 million in 2015 compared with a
loss of $4 million in 2014. The primary factors affecting the change were interest rates and whether derivatives
qualified for hedge accounting treatment. In 2015, we used more derivatives to economically hedge risk that qualified
for hedge accounting treatment than we did in 2014.

• Operating expenses were $349 million in 2015 compared with $275 million in 2014. The year-over-year increase in

operating expenses was primarily the result of increased personnel costs related to being a stand-alone company and an
increase in loans serviced for the Company and third-parties. In addition, we made investments in our servicing
platform to improve customer service, such as expanding weekend service hours and improved response times.
Operating expenses in 2014 benefited from an $8 million reversal of reserves for remediation costs relating to the
FDIC Consent Order.

• Restructuring and other reorganization expenses were $5 million in 2015 compared with $38 million in 2014. The

decrease was primarily the result of the wind-down of our separation efforts related to the Spin-Off.

• The effective tax rate decreased to 37.5 percent in 2015 from 41.9 percent in 2014. The decrease in the effective tax
rate for 2015 was primarily the result of additional reserves recorded in fourth-quarter 2014 related to uncertain
historical tax positions and the release of reserves for uncertain tax positions and lower state tax rates in 2015, as a
result of the favorable outcome of several state matters.

Financial Condition

Average Balance Sheets - GAAP

The following table reflects the rates earned on interest-earning assets and paid on interest-bearing liabilities and reflects

our net interest margin on a consolidated basis.

(Dollars in thousands)

Years Ended December 31,

2016

2015

2014

Balance

Rate

Balance

Rate

Balance

Rate

Average Assets
Private Education Loans ........ $ 12,747,756
1,063,325
FFELP Loans .......................
1,114
Other loans ..........................
407,860
Taxable securities .................

8.02 % $ 9,819,053
3.53
1,179,723
6.77
2.24

7.93 % $ 7,563,356
3.26
1,353,497
— —
2.59

8.16 %
3.24
— —
2.68

395,718

331,479

Cash and other short-term
investments ..........................
Total interest-earning assets ...

1,480,170
15,700,225

0.51

6.86 %

1,407,158
12,801,652

0.27

6.49 %

1,746,839
10,995,171

0.26

6.13 %

Non-interest-earning assets ....

772,167

670,084

549,237

Total assets .......................... $ 16,472,392

$ 13,471,736

$ 11,544,408

Average Liabilities and
Equity
Brokered deposits ................. $ 7,154,218
5,095,631
Retail and other deposits .......
Other interest-bearing
liabilities(1) ...........................
Total interest-bearing
liabilities ..............................

13,726,589

1,476,740

1.31 % $ 6,640,078
3,869,359
1.06

1.19 % $ 5,588,569
3,593,817
0.95

1.12 %
0.92

2.58

398,851

3.27

26,794

0.91

1.35 %

10,908,288

1.18 %

9,209,180

1.04 %

Non-interest-bearing
liabilities ..............................
539,153
2,206,650
Equity .................................
Total liabilities and equity...... $ 16,472,392

610,715
1,952,733
$ 13,471,736

727,806
1,607,422
$ 11,544,408

Net interest margin ...............

5.68 %

5.49 %

5.26 %

_________________

(1)

For the years ended December 31, 2016 and 2015, includes the average balance of our secured
borrowings and amortization expense of transaction costs related to our term asset-backed
securitizations and our ABCP Facility.

Rate/Volume Analysis - GAAP

The following rate/volume analysis shows the relative contribution of changes in interest rates and asset volumes.

(Dollars in thousands)

Increase
(Decrease)

Change Due To(1)

Rate

Volume

2016 vs. 2015
Interest income ............................................................ $ 246,128 $ 49,394 $ 196,734
36,365
Interest expense ...........................................................
Net interest income ...................................................... $ 188,839 $ 25,007 $ 163,832

20,924

57,289

2015 vs. 2014
Interest income ............................................................ $ 156,824 $ 40,302 $ 116,522
18,987
Interest expense ...........................................................
99,077
Net interest income ...................................................... $ 124,020 $ 24,943 $

32,804

13,817

(1)

Changes in income and expense due to both rate and volume have been allocated in proportion to the
relationship of the absolute dollar amounts of the change in each. The changes in income and expense are
calculated independently for each line in the table. The totals for the rate and volume columns are not the
sum of the individual lines.

Summary of Our Education Loan Portfolio

Ending Education Loan Balances, net

(Dollars in thousands)

Total education loan portfolio:

December 31, 2016

December 31, 2015

Private
Education
Loans

FFELP
Loans

Total
Portfolio

Private
Education
Loans

FFELP
Loans

Total
Portfolio

In-school(1) .............................
Grace, repayment and other(2) ..
Total, gross .................................

3,371,870
10,879,805
14,251,675

377
1,010,531
1,010,908

$ 3,372,247
11,890,336
15,262,583

2,823,035
7,773,402
10,596,437

582
1,115,081
1,115,663

2,823,617
8,888,483
11,712,100

Deferred origination costs and
unamortized premium ..................
Allowance for loan losses .............
(182,472 )
Total education loan portfolio ....... $ 14,113,409

44,206

2,941

47,147

27,884

3,114

30,998

(2,171 )
$ 1,011,678

(184,643 )
$ 15,125,087

(108,816 )
$ 10,515,505

(3,691 )
$ 1,115,086

(112,507 )
$ 11,630,591

% of total ....................................

93 %

7 %

100 %

90 %

10 %

100 %

_________
(1)
(2)

Loans for customers still attending school and who are not yet required to make payments on the loan.
Includes loans in deferment or forbearance.

(Dollars in thousands)

Total education loan portfolio:

December 31, 2014

December 31, 2013

Private
Education
Loans

FFELP
Loans

Total
Portfolio

Private
Education
Loans

FFELP
Loans

Total
Portfolio

In-school(1) ............................
Grace, repayment and other(2) ..
Total, gross ................................

$ 2,548,721
5,762,655
8,311,376

1,185
1,263,622
1,264,807

$ 2,549,906
7,026,277
9,576,183

$ 2,191,445
4,371,897
6,563,342

2,477
1,424,495
1,426,972

2,193,922
5,796,392
7,990,314

Deferred origination costs and
unamortized premium .................
Allowance for loan losses ............
(78,574 )
Total education loan portfolio ....... $ 8,246,647

13,845

3,600

17,445

5,063

4,081

9,144

(5,268 )
$ 1,263,139

(83,842 )
$ 9,509,786

(61,763 )
$ 6,506,642

(6,318 )
$ 1,424,735

(68,081 )
7,931,377

% of total ...................................

87 %

13 %

100 %

82 %

18 %

100 %

_________

(1) Loans for customers still attending school and who are not yet required to make payments on the loan.
(2) Includes loans in deferment or forbearance.

December 31, 2012

(Dollars in thousands)
Total education loan portfolio ....... $ 5,447,699

Private
Education
Loans

FFELP
Loans

$ 1,039,755

Total
Portfolio
$ 6,487,454

% of total ...................................

84 %

16 %

100 %

Average Education Loan Balances (net of unamortized premium/discount)

(Dollars in thousands)

2016

2015

2014

Years Ended December 31,

Private Education Loans ...... $ 12,747,756
FFELP Loans ......................
Total portfolio ..................... $ 13,811,081 100 % $ 10,998,776 100 % $ 8,916,853 100 %

89 % $ 7,563,356
11

92 % $ 9,819,053
8

1,179,723

1,353,497

1,063,325

85 %
15

Education Loan Activity

Year Ended December 31, 2016

Private
Education
Loans

FFELP
Loans

Total
Portfolio

(Dollars in thousands)
Beginning balance ................................. $ 10,515,505 $ 1,115,086 $ 11,630,591
4,685,622
Acquisitions and originations..................
Capitalized interest and deferred
origination cost premium amortization.....
Sales ....................................................
Loan consolidation to third-parties ..........
(280,132 )
Repayments and other ............................
(1,276,410 )
Ending balance ..................................... $ 14,113,409 $ 1,011,678 $ 15,125,087

(9,521 )
(235,118 )
(1,182,242 )

—
(45,014 )
(94,168 )

374,937
(9,521 )

4,685,622

339,163

35,774

—

Year Ended December 31, 2015

Private
Education
Loans

FFELP
Loans

Total
Portfolio

(Dollars in thousands)
Beginning balance ................................. $ 8,246,647 $ 1,263,139 $ 9,509,786
4,366,651
Acquisitions and originations..................
Capitalized interest and deferred
origination cost premium amortization.....
Sales ....................................................
Loan consolidation to third-parties ..........
(118,456 )
Repayments and other ............................
(994,448 )
Ending balance ..................................... $ 10,515,505 $ 1,115,086 $ 11,630,591

239,330
(1,412,015 )
(75,369 )
(849,739 )

—
(43,087 )
(144,709 )

279,073
(1,412,015 )

4,366,651

39,743

—

Year Ended December 31, 2014

Private
Education
Loans

FFELP
Loans

Total
Portfolio

(Dollars in thousands)
Beginning balance ................................. $ 6,506,642 $ 1,424,735 $ 7,931,377
4,094,790
Acquisitions and originations..................
Capitalized interest and deferred
origination cost premium amortization.....
Sales ....................................................
Loan consolidation to third-parties ..........
(56,571 )
Repayments and other ............................
(795,141 )
Ending balance ..................................... $ 8,246,647 $ 1,263,139 $ 9,509,786

170,306
(1,873,414 )
(14,811 )
(629,396 )

46,093
(7,654 )
(41,760 )
(165,745 )

216,399
(1,881,068 )

4,087,320

7,470

Private Education Loan Originations

The following table summarizes our Private Education Loan originations.

Years Ended December 31,

2016

(Dollars in thousands)
Smart Option - interest only(1) ............. $ 1,189,517
1,403,421
Smart Option - fixed pay(1) .................
2,034,100
Smart Option - deferred(1) ...................
7,953
Smart Option - principal and interest ...
31,272
Parent Loan ......................................

2015

25 % $ 1,075,260
1,350,680
30
1,902,729
44
1,727
—
—
1

25 % $
31
44
—
—

2014
998,612
1,256,978
1,817,011
3,347
—

25 %
31
44
—
—

Total Private Education Loan
originations ....................................... $ 4,666,263

100 % $ 4,330,396

100 % $ 4,075,948

100 %

Percentage of loans with a cosigner .....
Average FICO at approval ..................

89 %
748

90 %
749

90 %
748

________
(1)

Interest only, fixed pay and deferred describe the payment option while in school or in grace period. See Item 1. “Business -
Our Business - Private Education Loans” for further discussion.

Allowance for Loan Losses

Education Loan Allowance for Loan Losses Activity

Private
Education
Loans

(Dollars in thousands)
Beginning balance ............ $ 108,816 $
Less:

Years Ended December 31,

2016

2015

2014

FFELP
Loans

Total
Portfolio

Private
Education
Loans

FFELP
Loans

Total
Portfolio

Private
Education
Loans

3,691 $ 112,507 $ 78,574 $

5,268 $ 83,842 $ 61,763 $

FFELP
Loans

Total
Portfolio
6,318 $ 68,081

Charge-offs(1) ................
Loan Sales(2) .................

(90,203 )
(6,034 )

(1,348 )
—

(91,551 )
(6,034 )

(55,357 )
(7,565 )

(2,582 )
—

(57,939 )
(7,565 )

(14,442 )
(53,485 )

(2,996 )
—

(17,438 )

(53,485 )

Plus:
Recoveries .....................
Provision .......................
Ending balance ................ $ 182,472 $

10,382
159,511

—

10,382
(172 ) 159,339
2,171 $ 184,643 $ 108,816 $

5,820
87,344

5,820
88,349

—
1,005
3,691 $ 112,507 $ 78,574 $

1,155
83,583

1,155
—
1,946
85,529
5,268 $ 83,842

Troubled debt
restructuring(3) ............ $ 612,606

—

$ 612,606

$ 265,831

—

$ 265,831

$ 60,278

—

$ 60,278

Years Ended December 31,

2013

2012

Private
Education
Loans

(Dollars in thousands)
Beginning balance ............ $ 65,218 $
Less:

FFELP
Loans

Total
Portfolio

Private
Education
Loans

3,971 $ 69,189 $ 69,090 $

FFELP
Loans

Total
Portfolio
402 $ 69,492

Charge-offs(1) ................
Loan Sales(2) .................

—
(68,410 )

(2,037 )
—

(2,037 )
(68,410 )

—
(66,319 )

(100 )
—

(100 )

(66,319 )

Plus:
Recoveries .....................
Provision .......................
Ending balance ................ $ 61,763 $

—
64,955

—
69,339

—
4,384
6,318 $ 68,081 $ 65,218 $

—
62,447

—
—
3,669
66,116
3,971 $ 69,189

Troubled debt
restructuring(3) ............ $

_________

—

(1)

Prior to the Spin-Off, we sold all loans greater than 90 days delinquent to an entity
that is now a subsidiary of Navient Corporation, prior to being charged off.
Consequently, many of the pre-Spin-Off, historical credit indicators and period-over-
period trends are not comparable and may not be indicative of future performance.

(2) Represents fair value adjustments on loans sold.

(3) Represents the recorded investment of loans classified as troubled debt restructuring.

Private Education Loan Allowance for Loan Losses

In establishing the allowance for Private Education Loan losses as of December 31, 2016, we considered several factors
with respect to our Private Education Loan portfolio, in particular, credit quality and delinquency, forbearance and charge-off
trends.

Private Education Loan provision for credit losses increased $72 million compared with the year-ago period. This
increase was primarily the result of an additional $1.0 billion loans entering repayment in the year ended December 31, 2016,
compared with loans entering repayment in the year-ago period, and a $153 million increase in Private Education Loans
becoming classified as TDRs (where we provide for life-of-loan losses) in the year ended December 31, 2016, compared with
Private Education Loans becoming classified as TDRs in the year-ago period.

Changes in our allowance for loan losses are driven in large measure by the amount and age of our loans in full principal
and interest repayment. As a larger proportion of our portfolio enters full principal and interest repayment in the coming years,
we would expect the amount of TDRs, as well as our allowance for loan losses and charge-offs, to increase.

In 2016, we changed our methodology for determining loans in full principal and interest repayment status, and that
metric now includes only loans for which scheduled full principal and interest payments were due at the end of each applicable
reporting period. Loans in full principal and interest repayment status were 36 percent of our total portfolio at December 31,
2016, 31 percent of our total portfolio at December 31, 2015 and 24 percent of our total portfolio at December 31, 2014.

For a more detailed discussion of our policy for determining the collectability of Private Education Loans and

maintaining our allowance for Private Education Loan losses, see Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Critical Accounting Policies and Estimates — Allowance for Loan Losses.”

Our default aversion strategies are focused on the final stages of delinquency. Pre-Spin-Off, these final stages were from

150 days to 212 days delinquent. As a result of changing our corporate charge-off policy and greatly reducing the number of
potentially delinquent loans we sell to Navient, the final stages of delinquency and our default aversion strategies now focus
more on loans 30 to 120 days delinquent. This change has the effect of accelerating the recognition of losses due to the shorter
charge-off period. In addition, we changed our loss emergence period from two years to one year to reflect the shorter charge-
off policy and our revised servicing practices. A loss emergence period represents the expected period between the first
occurrence of an event likely to cause a loss on a loan and the date the loan is expected to be charged off, taking into
consideration account management practices that affect the timing of a loss, such as the usage of forbearance.

In connection with the Spin-Off, the agreement under which the Bank previously made loan sales was amended so the

Bank now only has the right to require Navient to purchase loans (at fair value) where (a) the borrower has a lending
relationship with both the Bank and Navient (“Split Loans”) and (b) the Split Loans either (1) are more than 90 days past due;
(2) have been restructured; (3) have been granted a hardship forbearance or more than six months of administrative
forbearance; or (4) have a borrower or cosigner who has filed for bankruptcy. At December 31, 2016, we held approximately
$67 million of Split Loans.

For the reasons described above, many of our historical credit indicators and period-over-period trends are not indicative

of future performance. The following results have not been adjusted to reflect what the delinquencies, charge-offs and
recoveries would have been had we not sold these loans.

The table below presents our Private Education Loan delinquency trends. Loans in repayment includes loans on which

borrowers are making interest only and fixed payments as well as loans that have entered full principal and interest repayment
status after any applicable grace period.

2016

December 31,

2015

2014

(Dollars in thousands)
Loans in-school/grace/deferment(1) .............................. $ 4,189,955
351,962
Loans in forbearance(2) ...............................................
Loans in repayment and percentage of each status:

Balance

Balance
$ 3,427,964
241,207

Balance
$ 3,027,143
135,018

9,509,394
124,773
51,423
24,168

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 ........................... 14,251,675
44,206
Private Education Loan deferred origination costs .........
Total Private Education Loans ..................................... 14,295,881
Private Education Loan allowance for losses ................
(182,472 )
Private Education Loans, net ....................................... $ 14,113,409

97.9 %
1.3
0.5
0.3

6,773,095 97.8 %

91,129
42,048
20,994

1.3
0.6
0.3

5,045,600
63,873
29,041
10,701

98.0 %
1.2
0.6
0.2

10,596,437
27,884
10,624,321
(108,816 )
$ 10,515,505

5,149,215 100.0 %
8,311,376
13,845
8,325,221
(78,574 )
$ 8,246,647

9,709,758 100.0 %

6,927,266 100.0 %

Percentage of Private Education Loans in repayment .....

68.1 %

65.4 %

62.0 %

Delinquencies as a percentage of Private Education
Loans in repayment....................................................

2.1 %

2.2 %

Loans in forbearance as a percentage of Private
Education Loans in repayment and forbearance ............

3.5 %

3.4 %

_________
(1) Deferment includes customers who have returned to school or are engaged 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).

(2)

(3)

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, 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.

2.0 %

2.6 %

The following table summarizes changes in the allowance for Private Education Loan losses.

(Dollars in thousands)
Allowance at beginning of period ................................. $
Provision for Private Education Loan losses ..................
Net charge-offs:
Charge-offs(1) ..........................................................
Recoveries ..............................................................
Net charge-offs...........................................................
Loan sales(2) ...............................................................
Allowance at end of period .......................................... $

Years Ended December 31,

2016
108,816
159,511

2015
78,574
87,344

2014
61,763
83,583

2013
65,218
64,955

2012
69,090
62,447

(90,203 )
10,382
(79,821 )
(6,034 )
182,472

(55,357 )
5,820
(49,537 )
(7,565 )

108,816

(14,442 )
1,155
(13,287 )
(53,485 )
78,574

—
—
—
(68,410 )
61,763

—
—
—
(66,319 )
65,218

1.28 %

Allowance as a percentage of ending total loans ............
Allowance as a percentage of ending total loans in
repayment(3) ...............................................................
Allowance coverage of net charge-offs .........................
Net charge-offs as a percentage of average loans in
repayment(3) ...............................................................
Delinquencies as a percentage of ending loans in
repayment ..................................................................
Loans in forbearance as a percentage of ending loans in
repayment and forbearance ..........................................
Ending total loans, gross ............................................. $ 14,251,675
Average loans in repayment(3) ...................................... $ 8,283,036
Ending loans in repayment(3) ........................................ $ 9,709,758

1.88 %
2.29

0.96 %

2.06 %

3.50 %

1.03 %

1.57 %
2.20

0.82 %

0.95 %

1.53 %
5.91

0.30 %

0.94 %

1.55 %
-

1.18 %

1.74 %
-

2.23 %

2.01 %

0.99 %

1.19 %

3.36 %

2.56 %

0.41 %

0.24 %

$ 10,596,437
$ 6,031,741
$ 6,927,266

$ 8,311,376
$ 4,495,709
$ 5,149,215

$ 6,563,342
$ 3,509,502
$ 3,972,317

$ 5,507,908
$ 3,928,692
$ 3,750,223

_______

(1)

(2)

(3)

Prior to the Spin-Off, we sold all loans greater than 90 days delinquent to an entity that is now a subsidiary of Navient Corporation, prior to being
charged off. Consequently, many of the pre-Spin-Off, historical credit indicators and period-over-period trends are not comparable and may not be
indicative of future performance.

Represents fair value adjustments on loans sold.

Loans in repayment include loans on which borrowers are making interest only and fixed payments as well as loans that have entered full principal and interest
repayment status after any applicable grace period.

As part of concluding on the adequacy of the allowance for loan losses, we review key allowance and loan metrics.

The most significant of these metrics considered are the allowance coverage of charge-offs ratio; the allowance as a percentage
of total loans and of total loans in repayment; and delinquency and forbearance percentages. The allowance as a percentage of
ending total loans and ending total loans in repayment increased over the past three years primarily as a result of an increase in
the balance of our TDRs, for which we hold a life-of-loan allowance.

Use of Forbearance as a Private Education Loan Collection Tool

Forbearance involves granting the customer a temporary cessation of payments (or temporary acceptance of smaller than
scheduled payments) for a specified period of time. Using forbearance extends the original term of the loan. Forbearance does
not grant any reduction in the total repayment obligation (principal or interest). While in forbearance status, interest continues
to accrue and is capitalized to principal when the loan re-enters repayment status. Our forbearance policies include limits on the
number of forbearance months granted consecutively and the total number of forbearance months granted over the life of the
loan. We grant forbearance in our servicing centers if a borrower who is current requests it for increments of three months at a
time, for up to twelve months. Forbearance as a collection tool is used most effectively when applied based on a customer’s
unique situation, including historical information and judgments. We leverage updated customer information and other decision
support tools to best determine who will be granted forbearance based on our expectations as to a customer’s ability and

willingness to repay their obligation. This strategy is aimed at mitigating the overall risk of the portfolio as well as encouraging
cash resolution of delinquent loans. In some instances, we require good-faith payments before granting forbearance. Exceptions
to forbearance policies are permitted when such exceptions are judged to increase the likelihood of collection of the loan.

Forbearance may be granted to customers who are exiting their grace period to provide additional time to obtain

employment and income to support their obligations, or to current customers who are faced with a hardship and request
forbearance time to provide temporary payment relief. In these circumstances, a customer’s loan is placed into a forbearance
status in limited monthly increments and is reflected in the forbearance status at month-end during this time. At the end of their
granted forbearance period, the customer will enter repayment status as current and is expected to begin making scheduled
monthly payments on a go-forward basis.

Forbearance may also be granted to customers who are delinquent in their payments. If specific requirements are met, the

forbearance can cure the delinquency and the customer is returned to a current repayment status. In more limited instances,
delinquent customers will also be granted additional forbearance time.

The tables below show the composition and status of the Private Education Loan portfolio aged by number of months in
active repayment status (months for which a scheduled monthly payment was due). Active repayment status includes loans on
which borrowers are making interest only and fixed payments as well as loans that have entered full principal and interest
repayment status after any applicable grace period. Our experience shows that the percentage of loans in forbearance status
decreases the longer the loans have been in active repayment status. At December 31, 2016, loans in forbearance status as a
percentage of total loans in repayment and forbearance were 2.7 percent for loans that have been in active repayment status for
less than 25 months. Approximately 76 percent of our Private Education Loans in forbearance status have been in active
repayment status less than 25 months.

(Dollars in millions)
December 31, 2016
Loans in-school/grace/deferment ........ $
Loans in forbearance .........................
Loans in repayment - current .............
Loans in repayment - delinquent 31-
60 days ............................................
Loans in repayment - delinquent 61-
90 days ............................................
Loans in repayment - delinquent
greater than 90 days ..........................
Total ................................................ $
Unamortized discount .......................
Allowance for loan losses ..................
Total Private Education Loans, net .....

Loans in forbearance as a percentage
of total Private Education Loans in
repayment and forbearance ................

(Dollars in millions)
December 31, 2015
Loans in-school/grace/deferment ........ $
Loans in forbearance .........................
Loans in repayment - current .............
Loans in repayment - delinquent 31-
60 days ............................................
Loans in repayment - delinquent 61-
90 days ............................................
Loans in repayment - delinquent
greater than 90 days ..........................
Total ................................................ $
Unamortized discount .......................
Allowance for loan losses ..................
Total Private Education Loans, net .....

Loans in forbearance as a percentage
of total Private Education Loans in
repayment and forbearance ................

Monthly Scheduled Payments Due

0 to 12
—
211
3,437

13 to 24
—
56
2,739

25 to 36
—
42
1,766

37 to 48
—
25
876

More than
48

—
18
692

Not Yet in
Repayment
4,190
—
—

Total
4,190
352
9,510

—

125

11
3,737

5
$ 2,841

4
1,840

2
918

2
726

—
4,190

24
14,252
43
(182 )
$ 14,113

2.10 %

0.55 %

0.42 %

0.25 %

0.18 %

— %

3.50 %

Monthly Scheduled Payments Due

0 to 12
—
150
2,834

13 to 24
—
38
2,026

25 to 36
—
26
1,037

37 to 48
—
16
485

More than
48

—
11
391

Not Yet in
Repayment
3,428
—
—

Total
3,428
241
6,773

—

12
3,060

4
$ 2,096

3
1,085

1
513

2
414

—
3,428

22
10,596
29
(109 )
$ 10,516

2.09 %

0.53 %

0.36 %

0.22 %

0.16 %

— %

3.36 %

(Dollars in millions)
December 31, 2014
Loans in-school/grace/deferment ......... $
Loans in forbearance ..........................
Loans in repayment - current ..............
Loans in repayment - delinquent 31-
60 days .............................................
Loans in repayment - delinquent 61-
90 days .............................................
Loans in repayment - delinquent
greater than 90 days ...........................
Total ................................................ $
Unamortized discount ........................
Allowance for loan losses ...................
Total Private Education Loans, net ......

Loans in forbearance as a percentage
of total Private Education Loans in
repayment and forbearance .................

Monthly Scheduled Payments Due

0 to 12
—
82
2,242

13 to 24
—
23
1,484

25 to 36
—
16
725

37 to 48
—
11
391

More than
48

—
3
204

7
2,375

2
1,532

1
755

1
411

—
212

—
3,027

Not Yet in
Repayment
3,027
—
—

Total
3,027
135
5,046

—

11
8,312
14
(79 )
8,247

1.55 %

0.44 %

0.30 %

0.21 %

0.06 %

— %

2.56 %

Private Education Loan Repayment Options

The following table shows the comparison of our Private Education Loan portfolio by product type for the years ended

December 31, 2016 and 2015.

Total
9,709,758
14,251,675

Total
6,927,266
10,596,437

(Dollars in thousands
$ in repayment(1) .............. $
$ in total .......................... $

December 31, 2016

Parent Loan

Smart Option

Career
Training

Signature and
Other

164,725 $
334,512 $

29,212 $
29,430 $

9,501,040 $
13,872,378 $

14,781 $
15,355 $

December 31, 2015

Parent Loan

Smart Option

Career
Training

Signature and
Other

141,900 $
302,949 $

— $
— $

6,769,788 $
10,277,517 $

15,578 $
15,971 $

(Dollars in thousands
$ in repayment(1) .............. $
$ in total .......................... $
_

(1) Loans in repayment include loans on which borrowers are making interest only and fixed payments as well as
loans that have entered full principal and interest repayment status after any applicable grace period.

Accrued Interest Receivable

The following table provides information regarding accrued interest receivable on our Private Education Loans. The table

also discloses the amount of accrued interest on loans greater than 90 days past due as compared to our allowance for
uncollectible interest. The allowance for uncollectible interest exceeds the amount of accrued interest on our 90 days past due
portfolio for all periods presented.

Private Education Loan
Accrued Interest Receivable

(Dollars in thousands)
December 31, 2016 ...................... $
December 31, 2015 ...................... $
December 31, 2014 ...................... $
December 31, 2013 ...................... $
December 31, 2012 ...................... $

Total Interest
Receivable

Greater Than
90 Days
Past Due

Allowance for
Uncollectible
Interest

739,847 $
542,919 $
445,710 $
333,857 $
215,752 $

845 $
791 $
443 $
1 $
33 $

2,898
3,332
3,517
4,076
3,608

Liquidity and Capital Resources

Funding and Liquidity Risk Management

Our primary liquidity needs include our ongoing ability to fund our businesses throughout market cycles, including
during periods of financial stress, our ongoing ability to fund originations of Private Education Loans and servicing our Bank
deposits. To achieve these objectives, we analyze and monitor our liquidity needs, maintain excess liquidity and access diverse
funding sources, such as deposits at the Bank, issuance of secured debt primarily through asset-backed securitizations and other
financing facilities. It is our policy to manage operations so liquidity needs are fully satisfied through normal operations to
avoid unplanned asset sales under emergency conditions. Our liquidity management is governed by policies approved by our
Board of Directors. Oversight of these policies is performed in the Asset and Liability Committee, a management-level
committee.

These policies take into account the volatility of cash flow forecasts, expected maturities, anticipated loan demand and a

variety of other factors to establish minimum liquidity guidelines.

Key risks associated with our liquidity relate to our ability to access the capital markets and the markets for bank deposits

at reasonable rates. This ability may be affected by our performance, competitive pressures, the macroeconomic environment
and the impact they have on the availability of funding sources in the marketplace.

Sources of Liquidity and Available Capacity

Ending Balances

(Dollars in thousands)

Sources of primary liquidity:
Unrestricted cash and liquid investments:

Holding Company and other non-bank subsidiaries .......
Sallie Mae Bank(1) ......................................................
Available-for-sale investments .....................................
Total unrestricted cash and liquid investments ................. $

December 31,

2016

2015

2014

9,817 $

18,133 $
1,900,660
208,603

7,677
2,352,103
168,934
2,127,396 $ 2,611,610 $ 2,528,714

2,406,402
195,391

____
(1) This amount will be used primarily to originate Private Education Loans at the Bank.

Average Balances

(Dollars in thousands)

Sources of primary liquidity:
Unrestricted cash and liquid investments:

Years Ended December 31,

2016

2015

2014

Holding Company and other non-bank subsidiaries .......
Sallie Mae Bank(1) .....................................................
Available-for-sale investments ....................................

4,364
1,755,517
140,622
Total unrestricted cash and liquid investments ................. $ 1,646,666 $ 1,570,448 $ 1,900,503
____
(1) This amount will be used primarily to originate Private Education Loans at the Bank.

$
1,422,335 1,377,171
176,036

17,241 $

19,426 $

204,905

Deposits

The following table summarizes total deposits at December 31, 2016 and 2015.

(Dollars in thousands)
Deposits - interest bearing .................................... $
Deposits - non-interest bearing ..............................
Total deposits ...................................................... $

December 31,

2016
13,434,990 $

677

13,435,667 $

2015
11,487,006
701
11,487,707

Interest bearing deposits as of December 31, 2016 and 2015 consisted of retail non-maturity savings deposits, retail and
brokered non-maturity money market deposit accounts (“MMDAs”) and brokered and retail CDs, as discussed further below.
Included in these accounts are what we consider to be core deposits from various sources. During 2016, we added $1.5 billion
in deposits from Educational 529 and Health Savings Accounts as a way to diversify our funding sources. These and other large
omnibus accounts, aggregating the deposits of many individual depositors, represented $5.4 billion of our deposit total as of
December 31, 2016.

Some of our deposit products are serviced by third-party providers. Placement fees associated with the brokered CDs are

amortized into interest expense using the effective interest rate method. We recognized placement fee expense of $10.1 million,
$10.5 million, and $10.3 million in the years ended December 31, 2016, 2015 and 2014, respectively. Fees paid to third-party
brokers related to these CDs were $4.4 million, $4.1 million, and $15.2 million during the years ended December 31, 2016,
2015 and 2014, respectively.

Interest bearing deposits at December 31, 2016 and 2015 are summarized as follows:

December 31, 2016

December 31, 2015

(Dollars in thousands)

Amount

Money market ......................................... $
Savings ...................................................
Certificates of deposit...............................
Deposits - interest bearing ......................

7,129,404
834,521
5,471,065
$ 13,434,990

Year-End
Weighted
Average Stated
Rate(1)

1.22 % $
0.84
1.41

Year-End
Weighted
Average Stated
Rate(1)

1.19 %
0.82
0.98

Amount

4,886,299
669,254
5,931,453
11,487,006

(1) Includes the effect of interest rate swaps in effective hedge relationships.

As of December 31, 2016 and 2015, there were $304.5 million and $709.9 million, respectively, of deposits exceeding

FDIC insurance limits. Accrued interest on deposits was $18.9 million and $15.7 million at December 31, 2016 and 2015,
respectively.

Counterparty Exposure

Counterparty exposure related to financial instruments arises from the risk that a lending, investment or derivative

counterparty will not be able to meet its obligations to us.

Excess cash is generally invested with the Federal Reserve on an overnight basis or in the Federal Reserve’s Term

Deposit Facility, minimizing counterparty exposure on cash balances.

Our investment portfolio includes a small portfolio of mortgage-backed securities issued by government agencies and

government-sponsored enterprises that are purchased to meet Community Reinvestment Act (“CRA”) targets. Small amounts
of other types of securities and investments in funds meeting CRA requirements have been purchased into the investment
portfolio. Additionally, our investing activity is governed by Board-approved limits on the amount allowed to be invested with
any one issuer based on the credit rating of the issuer, further minimizing our counterparty exposure. Counterparty credit risk is
considered when valuing investments and considering impairment.

Related to derivative transactions, protection against counterparty risk is generally provided by International Swaps and

Derivatives Association, Inc. Credit Support Annexes (“CSAs”), or clearinghouses for over-the-counter derivatives. CSAs
require a counterparty to post collateral if a potential default would expose the other party to a loss. All derivative contracts
entered into by the Bank are covered under CSAs or clearinghouse agreements and require collateral to be exchanged based on
the net fair value of derivatives with each counterparty. Our exposure is limited to the value of the derivative contracts in a gain
position less any collateral held by us and plus collateral posted with the counterparty.

Title VII of the Dodd-Frank Act requires all standardized derivatives, including most interest rate swaps, to be submitted

We have liquidity exposure related to collateral movements between us and our derivative counterparties. Movements in

the value of the derivatives, which are primarily affected by changes in interest rates, may require us to return cash collateral
held or may require us to access primary liquidity to post collateral to counterparties.

The table below highlights exposure related to our derivative counterparties as of December 31, 2016.

(Dollars in thousands)
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 Baa .............................................

SLM Corporation
and Sallie Mae Bank
Contracts

44,605

37.28 %

0.18 %

Regulatory Capital

The Bank is subject to various regulatory capital requirements administered by federal and state banking authorities.

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material adverse effect on our business, results of operations and financial
condition. Under U.S. Basel III and the regulatory framework for prompt corrective action, the Bank must meet specific capital
standards that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank’s capital amounts and its classification under the prompt corrective action framework
are also subject to qualitative judgments by the regulators about components of capital, risk weightings and other factors.

“Well capitalized” regulatory requirements are the quantitative measures established by regulation to ensure capital
adequacy. To qualify as “well capitalized,” the Bank must maintain minimum amounts and ratios (set forth in the table below)
of Common Equity Tier 1, Tier 1 and Total capital to risk-weighted assets and of Tier 1 capital to average assets. The following
capital amounts and ratios are based upon the Bank’s assets.

(Dollars in thousands)

Amount

Ratio

Amount

Ratio

Actual

“Well Capitalized”
Regulatory Requirements

As of December 31, 2016:
Common Equity Tier 1 Capital (to Risk-Weighted
Assets) .................................................................
$
Tier 1 Capital (to Risk-Weighted Assets) .................. $
Total Capital (to Risk-Weighted Assets) ................... $
Tier 1 Capital (to Average Assets) ............................ $

As of December 31, 2015:

Common Equity Tier 1 Capital (to Risk-Weighted
Assets) .................................................................
$
Tier 1 Capital (to Risk-Weighted Assets) .................. $
Total Capital (to Risk-Weighted Assets) ................... $
Tier 1 Capital (to Average Assets) ............................ $

2,011,583
2,011,583
2,197,997
2,011,583

12.6 %
12.6 %
13.8 %
11.1 %

>
$ 1,038,638
$ 1,278,323 >
$ 1,597,904 >
907,565 >
$

1,734,315
1,734,315
1,848,528
1,734,315

14.4 %

15.4 %

12.3 %

781,638
>
962,017 >
$
$ 1,202,521 >
704,979 >
$

6.5 %

8.0 %

10.0 %

5.0 %

6.5 %

8.0 %

10.0 %

5.0 %

Capital Management

In order to support asset growth, operating needs, unexpected credit risks and to protect the interests of depositors and the
DIF, we intend to maintain levels of capital at the Bank that significantly exceed the levels of capital necessary to be considered
“well capitalized” by the FDIC. The Bank is required by its regulators, the UDFI and the FDIC, to comply with mandated
capital ratios. The Company is a source of strength for the Bank and will provide additional capital if necessary. The Board of
Directors and management periodically evaluate the quality of assets, the stability of earnings, and the adequacy of the
allowance for loan losses for the Bank. We believe that current and projected capital levels are appropriate for 2017. As our
balance sheet continues to grow in 2017, these ratios will decline but will remain significantly in excess of the capital levels
required to be considered “well capitalized” by our regulators. We do not plan to pay dividends on our common stock. We do
not intend to initiate share repurchase programs as a means to return capital to shareholders. We only expect to repurchase
common stock acquired in connection with taxes withheld in connection with award exercises and vesting under our employee
stock-based compensation plans. Our Board of Directors will periodically reconsider these matters.

As of January 1, 2015, the Bank was required to comply with U.S. Basel III, which is aimed at increasing both the
quantity and quality of regulatory capital and, among other things, establishes Common Equity Tier 1 as a new tier of capital
and modifies methods for calculating risk-weighted assets. Certain aspects of U.S. Basel III, including new deductions from
and adjustments to regulatory capital and a new capital conservation buffer, are being phased in over several years. The Bank’s
Capital Policy requires management to monitor the new capital standards. The Bank is subject to the following minimum
regulatory capital ratios under U.S. Basel III: a Common Equity Tier 1 risk-based capital ratio of 4.5 percent, a Tier 1 risk-based

capital ratio of 6.0 percent, a Total risk-based capital ratio of 8.0 percent, and a Tier 1 leverage ratio of 4.0 percent. In addition,
the Bank is subject to a Common Equity Tier 1 capital conservation buffer, which is being phased in over three years beginning
January 1, 2016: 0.625 percent of risk-weighted assets for 2016, 1.25 percent for 2017, and 1.875 percent for 2018, with the
fully phased-in level of greater than 2.5 percent effective as of January 1, 2019. Failure to maintain the buffer will result in
restrictions on the Bank’s ability to make capital distributions, including the payment of dividends, and to pay discretionary
bonuses to executive officers. Including the buffer, by January 1, 2019, the Bank will be required to maintain the following
minimum capital ratios: a Common Equity Tier 1 risk-based capital ratio of greater than 7.0 percent, a Tier 1 risk-based capital
ratio of greater than 8.5 percent and a Total risk-based capital ratio of greater than 10.5 percent.

U.S. Basel III also revised the capital thresholds for the prompt corrective action framework for insured depository
institutions. To qualify as “well capitalized,” the Bank must maintain a Common Equity Tier 1 risk-based capital ratio of at least
6.5 percent, a Tier 1 risk-based capital ratio of at least 8.0 percent, a Total risk-based capital ratio of at least 10.0 percent, and a
Tier 1 leverage ratio of at least 5.0 percent.

As of December 31, 2016, the Bank had a Common Equity Tier 1 risk-based capital ratio and a Tier 1 risk-based capital
ratio of 12.6 percent, a Total risk-based capital ratio of 13.8 percent and a Tier 1 leverage ratio of 11.1 percent, which are each
well in excess of the current “well capitalized” standard for insured depository institutions. If calculated today based on the
fully phased-in U.S. Basel III standards, our ratios would also exceed the capital levels required under U.S. Basel III and the
“well capitalized” standard.

Dividends

Borrowed Funds

We maintain discretionary uncommitted Federal Funds lines of credit with various correspondent banks, which totaled

$125 million at December 31, 2016. The interest rate we are charged on these lines of credit is priced at Fed Funds plus a
spread at the time of borrowing, and is payable daily. We did not utilize these lines of credit in the years ended December 31,
2016, 2015 and 2014.

We established an account at the FRB to meet eligibility requirements for access to the Primary Credit borrowing facility

at the FRB’s Discount Window (the “Window”). The Primary Credit borrowing facility is a lending program available to
depository institutions that are in generally sound financial condition. All borrowings at the Window must be fully
collateralized. We can pledge asset-backed and mortgage-backed securities, as well as FFELP Loans and Private Education
Loans, to the FRB as collateral for borrowings at the Window. Generally, collateral value is assigned based on the estimated
fair value of the pledged assets. At December 31, 2016 and December 31, 2015, the value of our pledged collateral at the FRB
totaled $2.6 billion and $1.7 billion, respectively. The interest rate charged to us is the discount rate set by the FRB. We did not
utilize this facility in the years ended December 31, 2016, 2015 and 2014.

On December 19, 2014, we closed on a $750.0 million ABCP Facility. Pursuant to FDIC safe harbor guidelines, we
retained a 5 percent or $37.5 million ownership interest in the ABCP Facility, resulting in $712.5 million of funds available for
us to draw under the ABCP Facility.

On February 25, 2016 and February 22, 2017, we amended and extended the maturity of our $750.0 million ABCP
Facility, in which we no longer hold a participation interest. As a result, the full $750.0 million is available for us to draw. We
hold 100 percent of the residual interest in the ABCP Facility trust. Under the amended ABCP Facility, we incur financing costs
of between 0.35 percent and 0.45 percent on unused borrowing capacity and approximately 3-month LIBOR plus 0.90 percent
on outstandings. The amended ABCP Facility extends the revolving period, during which we may borrow, repay and reborrow
funds, until February 22, 2018. The scheduled amortization period, during which amounts outstanding under the ABCP Facility
must be repaid, ends on February 22, 2019 (or earlier, if certain material adverse events occur). For additional information, see

Notes to Consolidated Financial Statements, Note 24, “Subsequent Events.” At December 31, 2016, there were no borrowings
outstanding under the ABCP Facility.

Contractual Loan Commitments

When we approve a Private Education Loan at the beginning of an academic year, that approval may cover the borrowing

for the entire academic year. As such, we do not always disburse the full amount of the loan at the time of such approval, but
instead have a commitment to fund a portion of the loan at a later date (usually at the start of the second semester or subsequent
trimesters). At December 31, 2016, we had $1.7 billion of outstanding contractual loan commitments which we expect to fund
during the remainder of the 2016/2017 academic year. At December 31, 2016, we had a $1.7 million reserve recorded in “Other
Liabilities” to cover expected losses that may occur during the one-year loss emergence period on these unfunded
commitments.

Contractual Cash Obligations

The following table provides a summary of our contractual principal obligations associated with long-term Bank deposits,

term funding commitments, loan commitments and lease obligations at December 31, 2016.

1 Year
or Less

1 to 3
Years

3 to 5
Years

Over 5
Years

Total

2,897,709 $ 6,015,490 $

(Dollars in thousands)
Long-term bank deposits(1)(2) ................ $
Private Education Loan term
securitizations(1)(3) ................................
Loan commitments(1) ...........................
Lease obligations .................................
Total contractual cash obligations .......... $
____
(1) Interest obligations are either variable or fixed in nature.
(2) Excludes derivative market value adjustments of $17 million.
(3) Amounts reflect the contractual requirements of the Private Education Loan term securitizations, based on the expected paydown of

—
859
5,227
6,075
4,892,208 $ 6,562,075 $ 1,345,579 $

2,183,139
1,714,654
23,174
972,129 $ 13,771,991

277,995
1,713,795
2,709

— $ 9,851,024

—
9,163

937,825 $

402,527

962,966

539,651

the underlying collateral.

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 GAAP. Notes to Consolidated Financial Statements, 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. The most significant judgments,
estimates and assumptions relate to the following critical accounting policies that are discussed in more detail below.

Allowance for Loan Losses

In determining the allowance for loan losses on our Private Education Loan non-TDR portfolio, we estimate the principal
amount of loans that will default over the next year (one year being the expected “loss emergence period,” which represents the
expected period between the first occurrence of an event likely to cause a loss on a loan and the date the loan is expected to be
charged off, taking into consideration account management practices that affect the timing of a loss, such as the usage of
forbearance) and how much we expect to recover over the same one year period related to the defaulted amount. The expected
defaults less our expected recoveries adjusted for any qualitative factors (discussed below) 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 one year.

In estimating both the non-TDR and TDR allowance amounts, we start with historical experience of customer
delinquency and 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 may also take certain other qualitative factors into consideration when
calculating the allowance for loan losses. These qualitative factors include, but are not limited to, changes in the economic
environment, changes in lending policies and procedures, including changes in underwriting standards and collection, charge-
off and recovery practices not already included in the analysis, and the effect of other external factors such as legal and
regulatory requirements on the level of estimated credit losses.

Our non-TDR 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 receivable may progress through the various delinquency stages and ultimately
charge off (“roll rate analysis”). Once a charge-off forecast is estimated, a recovery assumption is included.

In connection with the Spin-Off, we changed our charge-off policy for Private Education Loans to charging off loans
when the loans reach 120 days delinquent. Pre-Spin-Off SLM default aversion strategies were focused on the final stages of
delinquency, from 150 days to 212 days. Our default aversion strategies are now focused on loans that are 30 to 120 days
delinquent.

The roll rate analysis model is based upon actual historical collection experience using the 120 day charge-off default
aversion strategies. 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.

Separately, for our TDR portfolio, we estimate an allowance amount sufficient to cover life-of-loan expected losses

Our TDR portfolio is comprised mostly of loans with interest rate reductions and forbearance usage greater than three

months. All of our loans are collectively assessed for impairment, except for loans classified as TDRs (where we conduct
individual assessments of impairment). We modify the terms of loans for certain borrowers when we believe such modifications
may increase the ability and willingness of a borrower to make payments and thus increase the ultimate overall amount

collected on a loan. These modifications generally take the form of a forbearance, a temporary interest rate reduction or an
extended repayment plan. In the first nine months after a loan enters full principal and interest repayment, the loan may be in
forbearance for up to six months without it being classified as a TDR. Once the initial nine-month period described above is
over, however, any loan that receives more than three months of forbearance in a twenty-four month period is classified as a
TDR. Also, a loan becomes a TDR when it is modified to reduce the interest rate on the loan (regardless of when such
modification occurs and/or whether such interest rate reduction is temporary). The majority of our loans that are considered
TDRs involve a temporary forbearance of payments and do not change the contractual interest rate of the loan.

The separate allowance estimates for our TDR and non-TDR portfolios are combined into our total allowance for Private
Education Loan losses. 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 or
recoveries is significantly different than estimated, this could materially affect our estimate of the allowance for loan losses and
the related provision for credit losses on our income statement.

As part of concluding on the adequacy of the allowance for loan losses, we review key allowance and loan metrics. The
most relevant of these metrics are the allowance coverage of charge-offs ratio; the allowance as a percentage of total loans and
of loans in repayment; and delinquency and forbearance percentages.

We consider a loan to be delinquent 31 days after the last payment was contractually due. We use a model to estimate the
amount of uncollectible accrued interest on Private Education Loans and reserve for that amount against current period interest
income.

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 on or after July 1, 2006, we receive 97 percent reimbursement on all qualifying default claims. For
loans disbursed after October 1, 1993, and before July 1, 2006, we receive 98 percent reimbursement. For loans disbursed prior
to October 1, 1993, we receive 100 percent reimbursement.

The allowance for FFELP Loan losses uses historical experience of customer default, behavior and a two-year loss

emergence 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.

Fair Value Measurement

The most significant assumptions used in fair value measurements, including those related to credit and liquidity risk, are

as follows:

1. Derivatives - When determining the fair value of derivatives, we take into account counterparty credit risk for

positions where we are exposed to the counterparty on a net basis by assessing exposure net of collateral held. The
net exposure for each counterparty is adjusted based on market information available for that specific counterparty,
including spreads from credit default swaps. Additionally, when the counterparty has exposure to us related to our
derivatives, we fully collateralize the exposure, minimizing the adjustment necessary to the derivative valuations
for our own credit risk. A major indicator of market inactivity is the widening of the bid/ask spread in these
markets. In general, the widening of counterparty credit spreads and reduced liquidity for derivative instruments as
indicated by wider bid/ask spreads will reduce the fair value of derivatives.

Education Loans - Our Private Education Loans and FFELP Loans are accounted for at cost or at the lower of cost
or fair value if the loan is held-for-sale. The fair values of our education loans are disclosed in Notes to
Consolidated Financial Statements, Note 15, “Fair Value Measurements.” For both Private Education Loans and
FFELP Loans accounted for at cost, fair value is determined by modeling loan level cash flows using stated terms
of the assets and internally developed assumptions to determine aggregate portfolio yield, net present value and
average life. The significant assumptions used to project cash flows are prepayment speeds, default rates, cost of
funds, the amount funded by deposits versus equity, and required return on equity. Significant inputs into the

models are not generally market-observable. They are either derived internally through a combination of historical
experience and management’s expectation of future performance (in the case of prepayment speeds, default rates,
and capital assumptions) or are obtained through external broker quotes (as in the case of cost of funds). When
possible, market transactions are used to validate the model and, when appropriate, the model is calibrated to these
market transactions. During 2015, we had several sales of Private Education Loans through securitization
transactions. We were able to use the market data from these sales to validate the model and, when appropriate,
calibrated the model to these market transactions.

For further information regarding the effect of our use of fair values on our results of operations, see Notes to

Consolidated Financial Statements, Note 15, “Fair Value Measurements.”

Derivative Accounting

The most significant judgments related to derivative accounting are: (1) concluding the derivative is an effective hedge
and qualifies for hedge accounting and (2) determining the fair value of certain derivatives and hedged items. To qualify for
hedge accounting, a derivative must be a highly effective hedge upon designation and on an ongoing basis. There are no “bright
line” tests on what is considered a highly effective hedge. We use a historical regression analysis to prove ongoing and
prospective hedge effectiveness. See the previous discussion in the section titled “Critical Accounting Policies and Estimates —
Fair Value Measurement” for significant judgments related to the valuation of derivatives. Although some of our valuations are
more judgmental than others, we compare the fair values of our derivatives that we calculate to those fair values provided by
our counterparties on a monthly basis. We view this as a critical control which helps validate these judgments. Any significant
differences with our counterparties are identified and resolved appropriately.

Transfers of Financial Assets and the Variable Interest Entity (“VIE”) Consolidation Model

We account for loan sales in accordance with the applicable accounting guidance. If a transfer of loans qualifies as a sale,

we derecognize the loan and recognize a gain or loss as the difference between the carry basis of the loan sold and liabilities
retained and the compensation received. We recognize the results of a transfer of loans based upon the settlement date of the
transaction.

If we have a variable interest in a VIE and we determine that we are the primary beneficiary, then we will consolidate the

VIE. We are considered the primary beneficiary if we have 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. There can be considerable judgment as it relates to determining the primary
beneficiary of a VIE. There are no “bright line” tests. Rather, the assessment of who has the power to direct the activities of the
VIE that most significantly affect the VIE’s economic performance and who has the obligation to absorb losses or receive
benefits of the entity that could potentially be significant to the VIE can be very qualitative and judgmental in nature. We have
determined that as the sponsor and servicer of Sallie Mae securitization trusts, we meet the first primary beneficiary criterion
because we have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance.

In the past three years, we have executed both secured financings and securitized loan sale transactions. Based upon our

relationships with these securitizations, we believe the consolidation assessment is straightforward. We consolidated our
secured financing transactions because either we did not meet the accounting criterion for sales treatment or we determined we
were the primary beneficiary of the VIE because we retained (a) the residual interest in the securitization and, therefore, had the
obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE, as well as (b) the
power to direct the activities of the VIE in our role as servicer. For those accounted for as securitized loan sales, we only
retained servicing and, therefore, are not the primary beneficiary because we have no obligation to absorb losses or receive
benefits of the entity that could potentially be significant to the VIE.

Risk Management

Our Approach

Risk is inherent in our business activities and the specialized lending industry we serve. The ability of management to

anticipate, identify and remediate risk in a timely manner is critical to our continued success. Our enterprise risk management
(“ERM”) framework is designed to identify, remediate, control and report these risks and escalate as appropriate to the Board of
Directors or its designee.

Risk Oversight

Our Board of Directors oversees our overall strategic direction, including our risk management capability and

effectiveness. The Board has oversight of key policies as well as the risk management framework developed and administered
by the management team. We have a robust process to escalate to the Board meaningful departures from our risk appetite
statements, in addition to material, emerging risks.

The Board of Directors oversaw significant risk initiatives during 2016. These significant initiatives included the

following:

• The continued evolution of the ERM function and its attendant policies and processes;
• The embedding of the Manager’s Assessment of Risk and Control, which provides a consistent, risk self-

assessment methodology across the enterprise;

• The continued evolution of our model risk management framework;
• The successful submission of our initial DFAST results; and
• The development of internal controls testing policy and procedures to enhance our control environment.

The Governance Framework

Our overall objective is to ensure all significant risks inherent in our business can be identified, remediated, controlled

and reported. To this end, we have adopted the “three lines of defense” approach to governance. Specifically, the business
units form the “first line of defense” and are the “owners” of risks inherent in their business activities. As the risk owner, the
first line of defense is accountable for the day-to-day execution of risk and control policy and procedures (including activities
performed by third-party contractors). Our ERM and Compliance functions constitute the “second line of defense” and provide
oversight of the execution by the first line of defense. Rather than focusing on execution, the second line of defense is
accountable for the related policy and standards executed upon by the first line of defense. Finally, the Internal Audit function
comprises the “third line of defense.” The Internal Audit function provides opinions to the Board of Directors on the
effectiveness of the first and second lines of defense, as reflected in audit reports. The lines of defense distinction determines
accountabilities; the ERM framework contains the processes and infrastructure necessary to deliver on those accountabilities.

Enterprise Risk Management Policy and Framework

The ERM policy and risk appetite framework are designed to establish a stable risk and control environment across the
enterprise. The policy, which is approved annually by the Board of Directors, outlines the framework used to ensure that risk
and control issues across the enterprise are identified, remediated, controlled and reported. The ERM policy, the risk appetite
framework and the related policies and procedures constitute the core of the overall governance program.

The risk appetite statements are at the core of the overall framework. The risk appetite statements establish the level of

risk we are willing to accept within each risk category, described below, in pursuit of our business objectives. Compliance with
our risk appetite is monitored using a set of performance metrics, with thresholds and limits, for each risk type. The Enterprise
Risk Committee (the “ERC”) provides oversight of the risk appetite framework with escalation to the Board of Directors, as
appropriate. Our Board of Directors approves the risk appetite framework annually and requires that management provide
ongoing updates on adherence to the framework.

Board of Directors Committee Structure

We have a robust committee structure that facilitates oversight, effective challenge and escalation of risk and control

issues.

Risk Committee. The Risk Committee of the Board was established to assist the Board in fulfilling its risk management
oversight responsibilities. Annually, the Risk Committee recommends the ERM policy and the risk appetite framework, to the
Board of Directors for approval. The Risk Committee receives periodic updates on compliance with the framework from the
Chief Risk Officer (the “CRO”).

Audit Committee. The Audit Committee is responsible for oversight of the Internal Audit function. Additionally, the

Audit Committee oversees the quality and integrity of our financial reporting process and financial statements; the
qualifications, hiring, performance and independence of our independent registered accounting firm; and our system of internal
controls.

Nominations, Governance and Compensation Committee. The Nominations, Governance and Compensation Committee,

among other things: (1) periodically reviews management’s succession planning; (2) confirms our compensation practices
properly balance risk and reward and do not promote excessive risk-taking; (3) implements good governance policies for us and
our Board of Directors; (4) approves all compensation and benefits for our Chief Executive Officer, Executive Vice Presidents,
and independent members of our Board of Directors; (5) approves our equity-based compensation plans and management’s
administration of employee benefit plans; (6) reviews related party transactions; (7) conducts assessments of the performance of
our Board of Directors and its committees; and (8) recommends nominees for election to our Board of Directors.

Preferred Stock Committee. The Preferred Stock Committee monitors and evaluates proposed actions that may impact

the rights of holders of our preferred stock.

Compliance Committee. The purpose of the Compliance Committee of the Board of the Bank is to assist the Board of
Directors in: (1) overseeing the continuing maintenance and enhancement of a strong and sustainable compliance culture; (2)
providing oversight of the compliance management system; (3) approving sound policies and objectives and effectively
supervising all compliance - related activities; (4) ensuring that the Bank has a qualified Chief Compliance Officer with
sufficient authority, independence and resources to administer an effective compliance management system; (5) ensuring our
compliance with the Code of Business Conduct; and (6) exercising and performing all other duties and responsibilities
delegated to the Committee.

Management-Level Committee Structure

Enterprise Risk Committee. The ERC is authorized by the Risk Committee of the Board of Directors to provide

management oversight of, and compliance with, the risk appetite framework. The ERC is the conduit from management to the
Risk Committee of the Board and provides for escalation in the instances of non-compliance with the framework. Additionally,
the ERC is authorized to create sub-committees to assist in the fulfillment of its oversight activities. During 2016, Sallie Mae
operated with the following sub-committees:

Credit Committee. The Credit Committee is responsible for credit and counterparty risk, product pricing, and

credit and collections operations.

Operational Risk Committee (“ORC”). The ORC is the oversight body for risk related to inadequate or failed

internal processes, people and systems or from external events. It also reviews information technology risk, and
regulatory and legal risks.

Asset and Liability Committee (“ALCO”). ALCO is responsible for the strategy, processes and authorities with

which the Bank’s interest rate risk, liquidity and capital adequacy are managed.

Model Risk Management Committee (“MRMC”). The MRMC is responsible for the administration and

execution of the model risk management program, including policies and procedures.

Each of these standing sub-committees is comprised of subject matter experts from the senior management team and is

accountable to the ERC. Moreover, these sub-committees may be supported by steering or working groups, as appropriate.
Currently, these steering or working groups include the DFAST steering group, the Allowance for Loan Loss, Critical
Accounting Assumptions working group and the Customer Product and Services Assessment working group.

Disclosure Committee. Our Disclosure Committee assists our Chief Executive Officer and Chief Financial Officer in their

review of periodic SEC reporting documents, earnings releases, investor materials and related disclosure policies and
procedures.

Compliance Committee. Our management-level Bank Compliance Committee oversees regulatory compliance risk

management activities for the Bank and its affiliates.

Internal Audit Risk Assessment

Internal Audit regularly monitors our various risk management and compliance efforts, identifies areas that may require
increased focus and resources, and reports significant control issues and recommendations to executive management and the
Audit Committee of the Board of Directors. Annually, Internal Audit performs an independent risk assessment to evaluate the
risk of all significant components of the Company and uses the results to develop their annual Internal Audit plan. Additionally,
Internal Audit performs selected reviews of both risk management and compliance functions, including key controls, processes
and systems, in order to assess the effectiveness of the overall risk management framework.

Risk Categories

Our ERM framework is designed to address the following risk categories:

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 other failure to perform as agreed. Credit risk is found in all activities where success depends on
counterparty, issuer or borrower performance.

We have credit or counterparty risk exposure with borrowers and cosigners to whom we have made Private Education

Loans, the various counterparties with whom we have entered into derivative contracts and the various issuers with whom we
make investments. Credit and counterparty risks are overseen by the CRO, his staff and the Credit Committee. The CRO, as
well as the Chief Credit Officer of the Bank, report regularly to the Board of Directors.

The credit risk related to Private Education 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
composition and trends; (iii) assignment and management of credit authorities and responsibilities; and (iv) establishment of an
allowance for loan losses that covers estimated future losses based upon an analysis of portfolio metrics and economic factors.

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 the amount of exposure we may take with any one counterparty and
require collateral to secure the position. The credit and counterparty risk associated with derivatives is measured based on the
replacement cost should the counterparty with contracts in a gain position to the Company fail to perform under the terms of the
contract.

Operational Risk. Operational risk is the risk to earnings resulting from inadequate or failed internal processes, people

and systems and third-party vendors, or from external events. Operational risk is pervasive in that it exists in all business lines,
functional units, legal entities and geographic locations, and it includes information technology risk, physical security risk on
tangible assets, as well as regulatory, legal and governance risk.

Operational risk exposures are managed through a combination of first line of defense risk, and control activities and

second line of defense oversight. The ORC is the management committee responsible for operational risk and it supports the
ERC in its oversight duties. The ORC is responsible for escalation to the ERC, as appropriate. Additionally, operational risk
metrics, thresholds and limits are included in the periodic reporting to the Risk Committee of the Board.

Legal Risk. Legal risk is the risk to earnings, capital or reputation manifested by claims made through the legal system

and may arise from a product, a transaction, a business relationship, property (real, personal or intellectual), conduct of an
employee or a change in law or regulation.

Primary ownership and responsibility for legal risk is placed with the first lines of defense, working with their legal
colleagues, to identify and manage their specific legal risks. Compliance supports these activities by providing extensive
training, monitoring and testing of the processes, policies and procedures utilized by the first lines of defense, maintaining
relevant legal and regulatory requirements, and working in close coordination with our Legal group. The ORC has oversight
over the establishment of standards related to our monitoring and control of legal risks, and the General Counsel reports
regularly to the Risk Committee of the Board of Directors.

Our Code of Business Conduct and the on-going training our employees receive in many compliance areas provide a
framework for our employees to conduct themselves with the highest integrity. We instill a risk-conscious culture through
communications, training, policies and procedures. We have strengthened the linkage between the management performance
process and individual compensation to encourage employees to work toward corporate-wide compliance goals.

Market Risk. Market risk is the risk to earnings or capital resulting from changes in market conditions, such as interest

rates, credit spreads or other volatilities. We are exposed to various types of market risk, in particular the risk of loss resulting
from interest rate risk, basis risk and other risks that arise through the management of our investment, debt and education loan
portfolios. Market risk exposures are managed primarily through ALCO. 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 and asset and liability management policies and contingency funding plan developed and administered
by ALCO. The Chief Financial Officer provides reports to the Risk Committee of the Board of Directors on market risk
management.

Funding & 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 inability to
fund liability maturities and deposit withdrawals, or invest in future asset growth and business operations at reasonable market
rates, as well as the inability to fund Private Education Loan originations. Our primary liquidity needs include our ongoing
ability to: meet our funding needs through market cycles, including periods of financial stress; manage the relative maturities of
assets and liabilities on our balance sheet; fund disbursements of Private Education Loans; and service our indebtedness and
bank deposits. Ultimately, our funding and liquidity risk relates to our ability to access the capital markets at reasonable rates
and to maintain retail deposits and other funding sources through the Bank.

Our funding and liquidity risk activities are centralized within our Corporate Finance department, which is responsible for
developing and executing our funding strategy. We analyze and monitor our liquidity risk, maintain excess liquidity and access
diverse funding sources depending on current market conditions. Funding and liquidity risks are overseen and
recommendations approved primarily through ALCO. The Risk Committee of our Board of Directors is responsible for
periodically reviewing the funding and liquidity positions and contingency funding plan developed and administered by ALCO.

Reputational Risk. Reputational risk is the risk to shareholder value and growth trajectory from a negative perception,

whether true or not, of an organization by its key stakeholders, the changing expectations of its stakeholders and/or inadequate
internal coordination of business decisions. This could expose us to litigation, financial loss or other damage to our business or
brand.

Management proactively assesses and manages reputational risk. We have established our government relations function

to manage our review of and response to all formal inquiries from members of Congress, state legislators, and their staff, as
well as providing targeted messaging that reinforces our public policy goals. We review and consider reputational risk on
matters as diverse as the launch of new products and services, our credit underwriting activities and how we fund operations.
Our public relations, marketing and media teams continuously monitor print, electronic and social media to understand how we
are perceived; proactively address customer complaints; and endeavor to enhance the value of our corporate brand. Metrics
related to reputational risk are reported to and monitored by the ERC and the Risk Committee of the Board of Directors. Our
Legal, Government Relations and Compliance groups regularly meet and collaborate with our Media and Investor Relations
teams to provide more coordinated monitoring and management of our reputational risks.

Strategic Risk. Strategic risk is the risk to shareholder value and growth trajectory from adverse business decisions and/or

improper implementation of business strategies. Management must be able to develop and implement business strategies that
leverage the organization’s core competencies and are appropriately structured, resourced and executed. Oversight for this

strategic planning process is provided by the Executive Committee of the Board of Directors. Our performance, relative to our
annual business plan and our longer term strategic plan, is reviewed by management and the Executive Committee of the Board
of Directors.

Common Stock

Our shareholders have authorized the issuance of 1.125 billion shares of common stock (par value of $.20). At

December 31, 2016, 429 million shares were issued and outstanding and 52 million shares were unissued but encumbered for
outstanding stock options, restricted stock units and dividend equivalent units for employee compensation and remaining
authority for stock-based compensation plans. See Notes to Consolidated Financial Statements, Note 12, “Stockholders’
Equity” for additional details.

Arrangements with Navient Corporation

In connection with the Spin-Off, we entered into a Separation and Distribution Agreement. We also entered into various

other ancillary agreements with Navient to effect the Spin-Off and provide a framework for our relationship with Navient
thereafter, such as a transition services agreement, a tax sharing agreement, an employee matters agreement, a loan servicing
and administration agreement, a joint marketing agreement, a key services agreement, a data sharing agreement and a master
sublease agreement. The majority of these agreements are transitional in nature with most having terms that have expired or
will expire within the next two to three years.

We continue to have exposure to risks related to Navient’s creditworthiness. If we are unable to obtain indemnification

payments from Navient, our results of operations and financial condition could be materially and adversely affected.

We briefly summarize below some of the most significant agreements and relationships we continue to have with
Navient. For additional information regarding the Separation and Distribution Agreement and the other ancillary agreements,
see our Current Report on Form 8-K filed on May 2, 2014.

Separation and Distribution Agreement

The Separation and Distribution Agreement addresses, among other things, the following ongoing activities:

•

the obligation of each party to indemnify the other against liabilities retained or assumed by that party pursuant to the
Separation and Distribution Agreement and in connection with claims of third-parties;

the allocation among the parties of rights and obligations under insurance policies;

the agreement by us and Navient (i) not to engage in certain competitive business activities for a period of five years,
(ii) as to the effect of the non-competition provisions on post-spin merger and acquisition activities of the parties and
(iii) regarding “first look” opportunities; and

•

the creation of a governance structure, including a separation oversight committee of representatives from us and
Navient, by which matters related to the separation and other transactions contemplated by the Separation and
Distribution Agreement will be monitored and managed.

The Separation and Distribution Agreement provides specific processes and procedures pursuant to which we may submit

Indemnification Obligations

Navient is legally responsible for, and has agreed to indemnify us against, all claims, actions, damages, losses or expenses

• Navient will indemnify the Company and the Bank for any liabilities, costs or expenses they may incur arising from

• At the time of this filing, the Bank remains subject to the FDIC Consent Order and the DOJ Consent Order. Under the

Long-Term Arrangements

The loan servicing and administration agreement governs the terms by which Navient provides servicing, administration

and collection services for the Bank’s portfolio of FFELP Loans and $67 million of Private Education Loans, as well as
servicing history information with respect to Private Education Loans previously serviced by Navient and access to certain
promissory notes in Navient’s possession. The loan servicing and administration agreement has a fixed term with a renewal
option in favor of the Bank.

The data sharing agreement states we will continue to have the right to obtain from Navient certain post-Spin-Off

performance data relating to Private Education Loans owned or serviced by Navient to support and facilitate ongoing
underwriting, originations, forecasting, performance and reserve analyses.

The tax sharing agreement governs the respective rights, responsibilities and obligations of us and Navient after the Spin-
Off relating to taxes, including with respect to the payment of taxes, the preparation and filing of tax returns and the conduct of
tax contests. Under this agreement, each party is generally liable for taxes attributable to its business. The agreement also
addresses the allocation of tax liabilities that are incurred as a result of the Spin-Off and related transactions. Additionally, the
agreement restricts the parties from taking certain actions that could prevent the Spin-Off from qualifying for the anticipated tax
treatment.

Amended Loan Participation and Purchase Agreement

Prior to the Spin-Off, the Bank sold substantially all of its Private Education Loans to several former affiliates, now
subsidiaries of Navient (collectively, the “Purchasers”), pursuant to this agreement. This agreement predates the Spin-Off, but
was significantly amended and reduced in scope in connection with the Spin-Off. Post-Spin-Off, the Bank retains only the right
to require the Purchasers to purchase Split Loans (at fair value) for which the borrower also has a separate lending relationship
with Navient when the Split Loans either (1) are more than 90 days past due; (2) have been restructured; (3) have been granted
a hardship forbearance or more than 6 months of administrative forbearance; or (4) have a borrower or cosigner who has filed
for bankruptcy. At December 31, 2016, we held approximately $67 million of Split Loans.

During the year ended December 31, 2016, the Bank separately sold loans to the Purchasers in the amount of $15.7
million in principal and $0.3 million in accrued interest income. During the year ended December 31, 2015, the Bank separately
sold loans to the Purchasers in the amount of $27.0 million in principal and $0.6 million in accrued interest income. During the
year ended December 31, 2014, the Bank sold loans to the Purchasers in the amount of $804.7 million in principal and $5.7
million in accrued interest income.

There was no gain or loss resulting from loans sold to the Purchasers in the year ended December 31, 2016 and 2015,
respectively. The gain resulting from loans sold to the Purchasers was $35.8 million in the year ended December 31, 2014. Total
write-downs to fair value for loans sold to the Purchasers with a fair value lower than par totaled $6.0 million, $7.6 million and
$53.5 million in the years ended December 31, 2016, 2015 and 2014, respectively. Navient is the servicer for all of these loans.

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Sensitivity Analysis

Our interest rate risk management program seeks to manage and control interest rate risk, thereby reducing our exposure
to fluctuations in interest rates and achieving consistent and acceptable levels of profit in any rate environment, and sustainable
growth in net interest income over the long term. We evaluate and monitor interest rate risk through two primary methods:

• Earnings at Risk (“EAR”), which measures the impact of hypothetical changes in interest rates on net interest income;

and

• Economic Value of Equity (“EVE”), which measures the sensitivity or change in the economic value of equity to

changes in interest rates.

A number of potential interest rate scenarios are simulated using our asset liability management system. The Bank is the

primary source of interest rate risk within the Company. The majority of the Bank’s assets are priced off of 1-month LIBOR.
Therefore, 1-month LIBOR is considered a core rate in our interest rate risk analysis. Other interest rate changes are correlated
to changes in 1-month LIBOR, with higher or lower correlations based on historical relationships. In addition, key rates are
modeled with a floor, which indicates how low each specific rate is likely to move in practice. Rates are adjusted up or down
via a set of scenarios that includes both rate shocks and ramps. Rate shocks represent an immediate and sustained change in 1-
month LIBOR plus the resulting changes in other indices correlated accordingly. Interest rate ramps represent a linear increase
in 1-month LIBOR over the course of 12 months plus the resulting changes in other indices correlated accordingly.

The following tables summarize the potential effect on earnings over the next 24 months and the potential effect on fair
values of balance sheet assets and liabilities at December 31, 2016 and 2015, based upon a sensitivity analysis performed by
management assuming a hypothetical increase in market interest rates of 100 basis points and 300 basis points while funding
spreads remain constant. The EVE sensitivity is applied only to financial assets and liabilities, including hedging instruments
that existed at the balance sheet date, and does not take into account new assets, liabilities, commitments or hedging
instruments that may arise in 2017. The 2016 EAR analysis indicates a more asset sensitive position over a 24 month horizon
compared with 2015 due primarily to changes in the funding mix away from funding sources highly correlated to short-term
market rate changes, including retail MMDA and savings and fully hedged brokered CDs, and toward more ABS funding. The
funding shifts resulted in a less liability sensitive position over the 24 month horizon. A portion of this shift in liabilities is
expected to be temporary. The EVE analysis, a longer term analysis which is highly sensitive to relatively small balance sheet
changes, also points to a more asset sensitive position due primarily to the long-term impact of higher levels of fixed-rate ABS
funding, as well as some shorter-term fixed-rate brokered CDs on the balance sheet at the end of 2016.

December 31,

2016

2015

+300 Basis
Points

+100 Basis
Points

+300 Basis
Points

+100 Basis
Points

EAR - Shock ................
EAR - Ramp .................
EVE ............................

7.4 %
5.8 %
2.6 %

2.4 %
1.6 %
0.9 %

0.2 %
0.1 %
-3.0 %

0.0 %
0.0 %
-1.3 %

A primary objective in our funding is to manage our sensitivity to changing interest rates by generally funding our assets
with liabilities of similar interest rate repricing characteristics. This funding objective is frequently obtained through the use of
derivatives. Uncertainty in loan repayment cash flows and the pricing behavior of our non-maturity retail deposits pose
challenges in achieving our interest rate risk objectives. In addition to these considerations, we can have a mismatch in the
index (including the frequency of reset) of floating rate debt versus floating rate assets.

As part of its suite of financial products, the Bank offers fixed-rate Private Education Loans. As with other Private
Education Loans, the term to maturity is lengthy, and the customer has the option to repay the loan faster than the promissory
note requires. Asset securitization provides long term fixed-rate funding for some of these assets. Additionally, a portion of the
fixed-rate loans have been hedged with derivatives, which have been used to convert a portion of variable rate funding to fixed-
rate to match the anticipated cash flows of these loans. Any unhedged position arising from the fixed-rate loan portfolio is
monitored and modeled to ensure that the interest rate risk does not cause the organization to exceed its policy limits for
earnings at risk or for the value of equity at risk.

In the preceding tables, the interest rate sensitivity analysis reflects the heavy balance sheet mix of fully variable LIBOR-
based loans, which exceeds the mix of fully variable funding, which in turn includes brokered CDs that have been converted to
LIBOR through derivative transactions. The analysis does not anticipate that retail MMDAs or retail savings balances, while
relatively sensitive to interest rate changes, will reprice to the full extent of interest rate shocks or ramps. Partially offsetting this
asset sensitive position is (i) the impact of FFELP Loans, which receive floor income in low interest rate environments, and will
therefore not reprice fully with interest rate shocks and (ii) the impact of a portion of our fixed-rate loans that have not been
fully match-funded through derivative transactions and fixed-rate funding from asset securitization. The overall slightly asset-
sensitive position will generally cause net interest income to increase somewhat when interest rates rise. However, this
sensitivity position will fluctuate somewhat during the year, depending on the funding mix in place at the time of the analysis.

Although we believe that these measurements provide an estimate of our interest rate sensitivity, they do not account for
potential changes in credit quality, balance sheet mix and size of our balance sheet. They also do not account for other business
developments that could affect net income, or for management actions that could affect net income or could be taken to change
our risk profile. Accordingly, we can give no assurance that actual results would not differ materially from the estimated
outcomes of our simulations. Further, such simulations do not represent our current view of expected future interest rate
movements.

Asset and Liability Funding Gap

The table below presents our assets and liabilities (funding) arranged by underlying indices as of December 31, 2016. In
the following GAAP presentation, the funding gap only includes derivatives that qualify as effective hedges (those derivatives
which are reflected in net interest income, as opposed to those reflected in the “(losses) gains 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. (Note that all fixed-rate assets and liabilities are aggregated into one line item, which does not capture the
differences in time due to maturity.)

(Dollars in millions)
Index
3-month Treasury bill ............
Prime ..................................
3-month LIBOR ...................
1-month LIBOR ...................
1-month LIBOR ...................
Non-Discrete reset(2) .............
Fixed Rate(3) .........................
Total ....................................

______________________

Frequency of
Variable
Resets

weekly
monthly
quarterly
monthly
daily
daily/weekly

Assets

Funding (1)

140.4 $
6.3
—
11,595.7
870.5
1,972.5
3,947.6
$ 18,533.0 $

— $
—
399.2
8,407.8
—
2,757.5
6,968.5
18,533.0 $

Funding
Gap

140.4
6.3
(399.2 )
3,187.9
870.5
(785.0 )
(3,020.9 )
—

Funding (by index) includes all derivatives that qualify as hedges.

(1)
(2) Assets include restricted and unrestricted cash equivalents and other overnight type instruments.
Funding includes liquid retail deposits and the obligation to return cash collateral held related to
derivatives exposures.

(3) Assets include receivables and other assets (including premiums and reserves). Funding includes
unswapped time deposits, liquid MMDA's swapped to fixed rates and stockholders' equity.

The “Funding Gap” in the above table shows primarily mismatches in the 1-month LIBOR, fixed-rate, Non-Discrete reset
and 3-month LIBOR categories. As changes in 1-month and 3-month LIBOR are generally quite highly correlated, the funding
gap associated with 3-month LIBOR is expected to partially offset the 1-month LIBOR gaps. We consider the overall risk to be
moderate since the funding in the Non-Discrete bucket is our liquid retail portfolio, which we have significant flexibility to
reprice at any time, and the funding in the fixed-rate bucket includes $1.9 billion of equity and $0.6 billion of non-interest
bearing liabilities.

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 have interest rate characteristics that we believe are highly correlated. 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 recent years) can lead to a temporary divergence between
indices, resulting in a negative impact to our earnings.

Weighted Average Life

The following table reflects the weighted average lives of our earning assets and liabilities at December 31, 2016.

(Averages in Years)

Earning assets
Education loans ..................
Personal loans ....................
Cash and investments ..........
Total earning assets .............

Deposits
Short-term deposits .............
Long-term deposits .............
Total deposits .....................

Borrowings

Short-term borrowings ........
Long-term borrowings .........
Total borrowings .................

Weighted

Average

Life

6.01
3.48
0.65
5.33

0.09
2.43
0.55

—
4.35
4.35

Item 8. Financial Statements and Supplementary Data

Reference is made to the financial statements listed under the heading “(a) 1.A. Financial Statements” of Item 15 hereof,

which financial statements are incorporated by reference in response to this Item 8.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Nothing to report.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, 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, 2016. Based on this evaluation, our principal
executive officer and principal financial officer concluded that, as of December 31, 2016, 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 officer and principal
financial officer 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, 2016. 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. Based on our assessment and those criteria, management concluded that, as of December 31, 2016, our internal
control over financial reporting is 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, 2016, as stated in their report, under the heading “(a) 1.A. Financial
Statements” of Item 15 hereof.

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.

Changes in Internal Control over Financial Reporting

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, 2016 that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.

Item 9B. Other Information

Nothing to report.

Item 10. Directors, Executive Officers and Corporate Governance

PART III.

The information contained in the 2017 Proxy Statement, including information appearing in the sections titled “Proposal

1 — Election of Directors,” “Executive Officers,” “Other Matters — Section 16(a) Beneficial Ownership Reporting
Compliance” and “Corporate Governance” in the 2017 Proxy Statement, is incorporated herein by reference.

Item 11. Executive Compensation

The information contained in the 2017 Proxy Statement, including information appearing in the sections titled “Executive

Compensation” and “Director Compensation” in the 2017 Proxy Statement, is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information contained in the 2017 Proxy Statement, including information appearing in the sections titled “Equity

Compensation Plan Information,” “Ownership of Common Stock” and “Ownership of Common Stock by Directors and
Executive Officers” in the 2017 Proxy Statement, is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information contained in the 2017 Proxy Statement, including information appearing under “Other Matters —
Certain Relationships and Transactions” and “Corporate Governance” in the 2017 Proxy Statement, is incorporated herein by
reference.

Item 14. Principal Accounting Fees and Services

The information contained in the 2017 Proxy Statement, including information appearing under “Independent Registered

Public Accounting Firm” in the 2017 Proxy Statement, is incorporated herein by reference.

Item 15. Exhibits, Financial Statement Schedules

PART IV.

(a) 1. Financial Statements

A. The following consolidated financial statements of SLM Corporation and the Report of the Independent Registered
Public Accounting Firm thereon are included in Item 8 above:

Report of Independent Registered Public Accounting Firm ...........................................................................
Report of Independent Registered Public Accounting Firm ...........................................................................
Consolidated Balance Sheets as of December 31, 2016 and 2015 .................................................................
Consolidated Statements of Income for the years ended December 31, 2016, 2015 and 2014 ......................

Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and
2014 ................................................................................................................................................................

Consolidated Statements of Changes in Equity for the years ended December 31, 2016, 2015 and 2014 .....
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014 ...............
Notes to Consolidated Financial Statements ..................................................................................................

F-2
F-3
F-4
F-5

F-6

F-7
F-10
F-12

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 Corporate Secretary.

(b) Exhibits

2.2

3.1

3.2

4.1

10.1†

10.2†

10.3†

10.4†

10.5†

10.6†

10.7†

10.8†

10.9†

Form of Separation and Distribution Agreement by and among SLM Corporation, New BLC Corporation and Navient
Corporation, dated as of April 28, 2014 (incorporated by reference to Exhibit 2.2 of the Company’s Current Report on Form 8-K
filed on May 2, 2014).

Restated Certificate of Incorporation of the Company, dated February 25, 2015 (incorporated by reference to Exhibit 3.1 to the
Company’s Annual Report on Form 10-K filed on February 26, 2015).

Amended and Restated By-Laws of the Company effective June 25, 2015 (incorporated by reference to Exhibit 3.2 of the
Company’s Current Report on Form 8-K filed on June 29, 2015).

Indenture, dated as of June 17, 2015, between SLM Corporation and Deutsche Bank National Trust Company, as Trustee
(incorporated by reference to Exhibit 4.3 of the Company’s Registration Statement on Form S-3 filed on June 17, 2015).

Form of SLM Corporation Omnibus Incentive Plan, Bonus Restricted Stock Unit Term Sheet (one-year restriction), 2014
Management Incentive Plan Award (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q
filed on April 22, 2015).

Form of SLM Corporation Omnibus Incentive Plan, Bonus Restricted Stock Unit Term Sheet (two-year restriction), 2014
Management Incentive Plan Award (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q
filed on April 22, 2015).

Form of SLM Corporation Omnibus Incentive Plan, Bonus Restricted Stock Unit Term Sheet (three-year restriction), 2014
Management Incentive Plan Award (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q
filed on April 22, 2015).

Form of SLM Corporation Omnibus Incentive Plan, Bonus Restricted Stock Unit Term Sheet (one-year restriction), 2015
Management Incentive Plan Award (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q
filed on April 20, 2016).

Form of SLM Corporation Omnibus Incentive Plan, Bonus Restricted Stock Unit Term Sheet (two-year restriction), 2015
Management Incentive Plan Award (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q
filed on April 20, 2016).

Form of SLM Corporation Omnibus Incentive Plan, Bonus Restricted Stock Unit Term Sheet (three-year restriction), 2015
Management Incentive Plan Award (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q
filed on April 20, 2016).

Form of SLM Corporation 2012 Omnibus Incentive Plan, Restricted Stock Unit Term Sheet - 2015 (incorporated by reference to
Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q filed on April 22, 2015).

Form of SLM Corporation 2012 Omnibus Incentive Plan, Restricted Stock Unit Term Sheet - 2016 (incorporated by reference to
Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q filed on April 20, 2016).

Form of SLM Corporation 2012 Omnibus Incentive Plan, Performance Stock Unit Term Sheet - 2016 (incorporated by reference
to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q filed on April 20, 2016).

10.10†

Form of SLM Corporation 2012 Omnibus Incentive Plan, Independent Director Restricted Stock Agreement 2015 (incorporated
by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on July 22, 2015).

10.11†

Form of SLM Corporation 2012 Omnibus Incentive Plan, Independent Director Restricted Stock Agreement - 2016
(incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on July 20, 2016).

10.12†

SLM Corporation Executive Severance Plan for Senior Officers, including amendments as of June 25, 2015 (incorporated by
reference to Exhibit 10.6 of the Company’s Annual Report on Form 10-K filed on February 26, 2016).

10.13†

SLM Corporation Change in Control Severance Plan for Senior Officers, including amendments as of June 25, 2015
(incorporated by reference to Exhibit 10.7 of the Company’s Annual Report on Form 10-K filed on February 26, 2016).

10.14†

Form of Director’s Indemnification Agreement (incorporated by reference to Exhibit 10.24 of the Company’s Annual Report on
Form 10-K filed on February 27, 2012).

10.15†

Sallie Mae Supplemental 401(k) Savings Plan, as Amended and Restated as of June 25, 2015 (incorporated by reference to
Exhibit 10.9 of the Company’s Annual Report on Form 10-K filed on February 26, 2016).

10.16†

Sallie Mae Deferred Compensation Plan for Key Employees, as Established Effective May 1, 2014 and Amended June 25, 2015
(incorporated by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K filed on February 26, 2016).

10.17†

SLM Corporation Deferred Compensation Plan for Directors, as Established Effective May 1, 2014 and Amended June 25, 2015
(incorporated by reference to Exhibit 10.11 of the Company’s Annual Report on Form 10-K filed on February 26, 2016).

10.18† Amended and Restated SLM Corporation Incentive Plan (incorporated by reference to Exhibit 10.24 of the Company’s Current

Report on Form 8-K (file no. 001-13251) filed on May 25, 2005).

10.19† Director’s Stock Plan (incorporated by reference to Exhibit 10.25 of the Company’s Current Report on Form 8-K (file no. 001-

13251) filed on May 25, 2005).

10.20†

Form of SLM Corporation Incentive Stock Plan Stock Option Agreement, Net-Settled, Performance Vested Options, 2009
(incorporated by reference to Exhibit 10.32 of the Company’s Annual Report on Form 10-K filed on March 2, 2009).

10.21†

SLM Corporation Directors Equity Plan (incorporated by reference to Exhibit 10.1 of the Company’s Registration Statement on
Form S-8 (File No. 333-159447) filed on May 22, 2009).

10.22†

SLM Corporation 2009-2012 Incentive Plan (incorporated by reference to Exhibit 10.2 of the Company’s Registration Statement
on Form S-8 (File No. 333-159447) filed on May 22, 2009).

10.23†

Form of SLM Corporation Directors Equity Plan Non-Employee Director Stock Option Agreement - 2009 (incorporated by
reference to Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q filed on November 5, 2009).

10.24†

Form of SLM Corporation 2009-2012 Incentive Plan Stock Option Agreement, Net Settled, Time Vested Options - 2010
(incorporated by reference to Exhibit 10. 7 of the Company’s Quarterly Report on Form 10-Q filed on May 6, 2010).

10.25†

Form of SLM Corporation 2009-2012 Incentive Plan Performance Stock Award Term Sheet, Time Vested - 2010 (incorporated
by reference to Exhibit 10.8 of the Company’s Quarterly Report on Form 10-Q filed on May 6, 2010).

10.26† Amendment to Stock Option and Restricted/Performance Stock Terms (incorporated by reference to Exhibit 10.49 of the

Company’s Annual Report on Form 10-K filed on February 28, 2011).

10.27†

Form of SLM Corporation 2009-2012 Incentive Plan Stock Option Agreement, Net Settled, Time Vested Options - 2011
(incorporated by reference to Exhibit 10.50 of the Company’s Annual Report on Form 10-K filed on February 28, 2011).

10.28†

Form of SLM Corporation 2009-2012 Incentive Plan Restricted Stock and Restricted Stock Unit Term Sheet, Time Vested -
2011 (incorporated by reference to Exhibit 10.51 of the Company’s Annual Report on Form 10-K filed on February 28, 2011).

10.29†

Form of SLM Corporation 2009-2012 Incentive Plan, Performance Stock Unit Term Sheet - 2012 (incorporated by reference to
Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on May 4, 2012).

10.30†

Form of SLM Corporation 2009-2012 Incentive Plan, Bonus Restricted Stock Unit Term Sheet - 2012 (incorporated by
reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed on May 4, 2012).

10.31†

Form of SLM Corporation 2009-2012 Incentive Plan, Stock Option Agreement, Net Settled Options - 2012 (incorporated by
reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on May 4, 2012).

10.32†

SLM Corporation 2012 Omnibus Incentive Plan (incorporated by reference to Appendix A of the Company’s Definitive Proxy
Statement for the 2012 Annual Meeting of Shareholders filed on April 13, 2012).

10.33†

Form of SLM Corporation 2012 Omnibus Incentive Plan, Performance Stock Unit Term Sheet - 2013 (incorporated by reference
to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on May 3, 2013).

10.34†

Form of SLM Corporation 2012 Omnibus Incentive Plan, Bonus Restricted Stock Unit Term Sheet - 2013 (incorporated by
reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed on May 3, 2013).

10.35†

Form of SLM Corporation 2012 Omnibus Incentive Plan, Stock Option Agreement, Net Settled Options-2013 (incorporated by
reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on May 3, 2013).

10.36†

Form of SLM Corporation 2012 Omnibus Incentive Plan, Independent Director Restricted Stock Agreement - 2013
(incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q filed on May 3, 2013).

10.37†

Form of SLM Corporation 2012 Omnibus Incentive Plan, Independent Director Stock Option Agreement - 2013 (incorporated
by reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q filed on May 3, 2013).

10.38†

Form of SLM Corporation 2012 Omnibus Incentive Plan, Restricted Stock Unit Term Sheet - 2013 (incorporated by reference to
Exhibit 10.36 of the Company’s Annual Report on Form 10-K filed on February 19, 2014).

10.39†

Letter Agreement, dated January 15, 2014 with Raymond J. Quinlan (incorporated by reference to Exhibit 10.38 of the
Company’s Annual Report on Form 10-K filed on February 19, 2014).

10.40†

SLM Corporation 2012 Omnibus Incentive Plan, Restricted Stock Unit Term Sheet - Raymond J. Quinlan Signing Award
(incorporated by reference to Exhibit 10.39 of the Company’s Annual Report on Form 10-K filed on February 19, 2014).

10.41†

Form of SLM Corporation 2012 Omnibus Incentive Plan, Bonus Restricted Stock Unit Term Sheet - 2014 (incorporated by
reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on May 12, 2014).

10.42†

Form of SLM Corporation 2012 Omnibus Incentive Plan, Restricted Stock Unit Term Sheet - 2014 (incorporated by reference to
Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q filed on May 12, 2014).

10.43†

Employment Agreement, dated April 21, 2014 between Laurent C. Lutz and the Company (incorporated by reference to Exhibit
10.1 of the Company’s Quarterly Report on Form 10-Q filed on July 24, 2014).

10.44†

Sallie Mae Employee Stock Purchase Plan, Amended and Restated as of June 24, 2014, Including Amendments as of June 25,
2015 (incorporated by reference to Exhibit 10.39 of the Company’s Annual Report on Form 10-K filed on February 26, 2016).

10.45†

Form of SLM Corporation 2012 Omnibus Incentive Plan, Independent Director Restricted Stock Agreement (incorporated by
reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on July 24, 2014).

10.46†

Letter Agreement, dated April 24, 2014, with Jeffrey Dale (incorporated by reference to Exhibit 10.41 to the Company’s Annual
Report on Form 10-K filed on February 26, 2015).

10.47†

Sallie Mae 401(k) Savings Plan (Effective as of April 30, 2014) (incorporated by reference to Exhibit 10.44 to the Company’s
Annual Report on Form 10-K filed on February 26, 2015).

10.48

10.49

10.50

10.51

Transition Services Agreement by and between New Corporation and SLM Corporation, dated as of April 29, 2014
(incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on May 2, 2014).

Employee Matters Agreement between New BLC Corporation and Navient Corporation, dated as of April 28, 2014
(incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on May 2, 2014).

Tax Sharing Agreement between Navient Corporation and New BLC Corporation, dated as of April 29, 2014 (incorporated by
reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on May 2, 2014).

Amended and Restated Loan Servicing and Administration Agreement between Sallie Mae Bank and Navient Solutions, Inc.,
dated as of April 30, 2014 (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed on
May 2, 2014).

12.1*

Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.

21.1*

List of Subsidiaries.

23.1*

Consent of KPMG LLP

31.1*

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2003.

31.2*

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2003.

32.1*

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2003.

32.2*

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2003.

101.INS XBRL Instance Document.

101.SCH XBRL Taxonomy Extension Schema Document.

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB XBRL Taxonomy Extension Label Linkbase Document.

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.

† Management Contract or Compensatory Plan or Arrangement
* Filed herewith

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 24, 2017

SIGNATURES

SLM CORPORATION

By:

/S/ RAYMOND J. QUINLAN

Raymond J. Quinlan
Executive Chairman 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.

/S/ RAYMOND J. QUINLAN

Raymond J. Quinlan

/S/ STEVEN J. MCGARRY

Steven J. McGarry

/S/ JONATHAN R. BOYLES

Jonathan R. Boyles

/S/ PAUL G. CHILD

Paul G. Child

Executive Chairman and Chief Executive Officer
(Principal Executive Officer)

February 24, 2017

Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

February 24, 2017

Senior Vice President and Controller
(Principal Accounting Officer)

February 24, 2017

Director

February 24, 2017

/S/ MARY CARTER WARREN FRANKE

Mary Carter Warren Franke

Director

February 24, 2017

/S/ EARL A. GOODE

Earl A. Goode

/S/ RONALD F. HUNT

Ronald F. Hunt

/S/ MARIANNE M. KELER

Marianne M. Keler

/S/ JIM MATHESON

Jim Matheson

Director

February 24, 2017

Director

February 24, 2017

Director

February 24, 2017

Director

February 24, 2017

/S/ JED H. PITCHER

Jed H. Pitcher

/S/ FRANK C. PULEO

Frank C. Puleo

/S/ VIVIAN C. SCHNECK-LAST

Director

February 24, 2017

Director

February 24, 2017

Vivian C. Schneck-Last

Director

February 24, 2017

/S/ WILLIAM N. SHIEBLER

William N. Shiebler

/S/ ROBERT S. STRONG

Robert S. Strong

/S/ KIRSTEN O. WOLBERG

Kirsten O. Wolberg

Director

February 24, 2017

Director

February 24, 2017

Director

February 24, 2017

CONSOLIDATED FINANCIAL STATEMENTS

INDEX

Report of Independent Registered Public Accounting Firm ............................................................................................. F-2
Report of Independent Registered Public Accounting Firm ............................................................................................. F-3
Consolidated Balance Sheets ............................................................................................................................................ F-4
Consolidated Statements of Income ................................................................................................................................. F-5
Consolidated Statements of Comprehensive Income ....................................................................................................... F-6
Consolidated Statements of Changes in Equity ................................................................................................................ F-7
Consolidated Statements of Cash Flows .......................................................................................................................... F-10
Notes to Consolidated Financial Statements .................................................................................................................... F-12

Page

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
SLM Corporation:

We have audited the accompanying consolidated balance sheets of SLM Corporation and subsidiaries (the
Company) as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive
income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2016.
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 conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2016 and 2015, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2016, 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), SLM Corporation’s internal control over financial reporting as of December 31, 2016, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO), and our report dated February 24, 2017 expressed an unqualified opinion on
the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

McLean, Virginia
February 24, 2017

F-2

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
SLM Corporation:

We have audited SLM Corporation’s (the Company) internal control over financial reporting as of December 31,
2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). 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 conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). 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 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.

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.

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.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of SLM Corporation and subsidiaries as of December 31, 2016 and 2015,
and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for
each of the years in the three-year period ended December 31, 2016, and our report dated February 24, 2017
expressed an unqualified opinion on those consolidated financial statements.

McLean, Virginia
February 24, 2017

/s/ KPMG LLP

F-3

SLM CORPORATION

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)

Assets
Cash and cash equivalents .................................................................... $
Available-for-sale investments at fair value (cost of $211,406 and
$196,402, respectively) ........................................................................
Loans held for investment (net of allowance for losses of $184,701 and
$112,507, respectively) ........................................................................
Restricted cash and investments ............................................................
Other interest-earning assets .................................................................
Accrued interest receivable ...................................................................
Premises and equipment, net .................................................................
Tax indemnification receivable .............................................................
Other assets ........................................................................................

Total assets ......................................................................................... $

Liabilities
Deposits ............................................................................................. $
Short-term borrowings .........................................................................
Long-term borrowings .........................................................................
Income taxes payable, net .....................................................................
Upromise member accounts ..................................................................
Other liabilities ...................................................................................
Total liabilities ....................................................................................
Commitments and contingencies
Equity

Preferred stock, par value $0.20 per share, 20 million shares authorized:

Series A: 3.3 million and 3.3 million shares issued, respectively, at
stated value of $50 per share ..............................................................

Series B: 4 million and 4 million shares issued, respectively, at stated
value of $100 per share ......................................................................

Common stock, par value $0.20 per share, 1.125 billion shares
authorized: 436.6 million and 430.7 million shares issued, respectively .....
Additional paid-in capital .....................................................................
Accumulated other comprehensive loss (net of tax benefit of $5,364 and
$9,949, respectively) ............................................................................
Retained earnings ................................................................................
Total SLM Corporation stockholders’ equity before treasury stock ...........
Less: Common stock held in treasury at cost: 7.7 million and 4.4 million
shares, respectively ..............................................................................
Total equity .........................................................................................

Total liabilities and equity .................................................................... $

December 31,

2016

2015

1,918,793 $

2,416,219

208,603

195,391

15,137,922
53,717
49,114
766,106
87,063
259,532
52,153
18,533,003 $

13,435,667 $

—
2,167,979
184,324
256,041
141,934
16,185,945

11,630,591
27,980
54,845
564,496
81,273
186,076
57,227
15,214,098

11,487,707
500,175
579,101
166,662
275,384
108,746
13,117,775

165,000

400,000

87,327
1,175,564

(8,671 )
595,322
2,414,542

86,136
1,135,860

(16,059 )
366,609
2,137,546

(67,484 )
2,347,058
18,533,003 $

(41,223 )
2,096,323
15,214,098

See accompanying notes to consolidated financial statements.

F-4

SLM CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)

Years Ended December 31,

2016

2015

2014

Interest income:

Loans ..........................................................................................

Investments ..................................................................................

Cash and cash equivalents .............................................................
Total interest income .......................................................................

1,060,487 $
9,160
7,599
1,077,246

817,120 $
10,247
3,751
831,118

Interest expense:

Deposits ......................................................................................

Interest expense on short-term borrowings ......................................

Interest expense on long-term borrowings .......................................

Other interest expense ...................................................................
Total interest expense ......................................................................
Net interest income .........................................................................
Less: provisions for credit losses.......................................................
Net interest income after provisions for credit losses ...........................
Non-interest income:

Gains on sales of loans, net ............................................................

(Losses) gains on derivatives and hedging activities, net ...................

Other income ...............................................................................
Total non-interest income .................................................................
Non-interest expenses:

Compensation and benefits ............................................................

FDIC assessment fees ...................................................................

Other operating expenses ...............................................................

Total operating expenses ...............................................................
Acquired intangible asset amortization expense ...............................

Restructuring and other reorganization expenses ..............................
Total non-interest expenses ..............................................................
Income before income tax expense ....................................................
Income tax expense .........................................................................
Net income ....................................................................................
Less: net loss attributable to noncontrolling interest ............................
Net income attributable to SLM Corporation ......................................
Preferred stock dividends .................................................................
Net income attributable to SLM Corporation common stock ................ $
Basic earnings per common share attributable to SLM Corporation ...... $
Average common shares outstanding .................................................
Diluted earnings per common share attributable to SLM Corporation ... $
Average common and common equivalent shares outstanding..............

148,408
7,322
30,178
—
185,908
891,338
159,405
731,933

230
(958 )
69,544
68,816

183,996
19,209
182,202
385,407
906
—
386,313
414,436
164,109
250,327
—
250,327
21,204
229,123 $
0.54 $

427,876

0.53 $

432,919

116,391
6,490
5,738
—
128,619
702,499
90,055
612,444

135,358
5,300
41,935
182,593

158,975
14,348
175,772
349,095
1,480
5,398
355,973
439,064
164,780
274,284
—
274,284
19,595
254,689 $
0.60 $

425,574

0.59 $

432,234

660,792
8,913
4,589
674,294

95,774
—
—
41
95,815
578,479
85,529
492,950

121,359
(3,996 )
39,921
157,284

129,709
6,150
139,022
274,881
3,290
38,311
316,482
333,752
139,967
193,785

(434 )
194,219
12,933
181,286
0.43
423,970
0.42
432,269

See accompanying notes to consolidated financial statements.

F-5

SLM CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)

Net income ........................................................................

Other comprehensive income (loss):

Unrealized (losses) gains on investments ............................

Unrealized gains (losses) on cash flow hedges .....................

Total unrealized gains (losses) ...........................................
Income tax (expense) benefit ...............................................
Other comprehensive income (losses), net of tax (expense)
benefit ...............................................................................
Total comprehensive income ................................................

Years Ended December 31,

2016

2015

250,327 $

274,284 $

2014
193,785

(1,792 )
13,764
11,972
(4,584 )

(2,205 )
(5,224 )
(7,429 )
2,763

6,066
(19,772 )

(13,706 )
5,337

7,388
257,715 $

(4,666 )
269,618 $

(8,369 )
185,416

See accompanying notes to consolidated financial statements.

F-6

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except share and per share amounts)

Common Stock Shares

Preferred
Stock
Shares

Issued

Treasury

Outstanding Preferred

Stock

Common
Stock

Additional
Paid-In
Capital

Navient’s
Subsidiary
Investment

Accumulated
Other
Comprehensive
Income (Loss)

Retained

Earnings

Treasury
Stock

Total SLM
Corporation
Equity

Non-
controlling
interest

Total Equity

$
—
—

1,164,495

$
68,173

(3,024 ) $
—

$
—
126,046

$
—
—

$
1,161,471
194,219

$
4,672
(434 )

1,166,143
193,785

Balance at
December 31, 2013 ..

Net income (loss) ..
Other
comprehensive
loss, net of tax .....

Total
comprehensive
income (loss) ........
Net transfers from
affiliate ..............
Separation
adjustments related
to Spin-Off of
Navient
Corporation .........
Sale of non-
controlling interest ..

Cash dividends:

Preferred Stock,
series A ($2.61
per share) .........

Preferred Stock,
series B ($1.47 per
share) .............

Dividend equivalent
units related to
employee stock-
based compensation
plans ................
Issuance of common
shares ...............
Tax benefit related
to employee stock-
based compensation .
Stock-based
compensation
expense..............
Shares repurchased
related to employee
stock-based
compensation plans .
Balance at
December 31, 2014 ..

—
—

—

—
—

—

—
—

—

479,409

7,300,000

422,790,320

—

422,790,320

565,000

84,558

1,062,519

(1,712,077 )

—

2,013,805

—

2,013,805

—

(1,365,277 )

—

403

—

8,280

3,271

16,394

—

(8,369 )

—

(7,667 )

(5,266 )

(47 )

—

(8,369 )

—

(8,369 )

185,850

479,409

(434 )

185,416

—

479,409

—

(4,238 )

(7,667 )

(5,266 )

—

8,683

3,271

16,394

—

(7,667 )

(5,266 )

—

8,683

3,271

16,394

(12,187 )

—

(12,187 )

7,300,000

424,804,125

(1,365,277 )

423,438,848

$ 565,000

84,961

$ 1,090,511

—

(11,393 ) $

113,066

(12,187 ) $

1,829,958

—

1,829,958

See accompanying notes to consolidated financial statements.

F-7

Balance at December 31, 2014 .......
Net income ........................
Other comprehensive loss, net of
tax ................................
Total comprehensive income ........

Separation adjustments related to
the Spin-Off of Navient
Corporation .........................
Cash dividends:

Preferred Stock, series A ($3.48
per share) .........................
Preferred Stock, series B ($2.06
per share) .........................
Dividend equivalent units related to
employee stock-based compensation
plans ................................
Issuance of common shares ..........
Tax benefit related to employee
stock-based compensation ...........
Stock-based compensation expense ..

Shares repurchased related to
employee stock-based compensation
plans ................................
Balance at December 31, 2015 .......

—
—

—

—
—

—
7,300,000

—
—

—

—
—

—
5,873,309

—
—

—

430,677,434

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share and per share amounts)

Common Stock Shares

Preferred
Stock Shares

Issued

Treasury

Outstanding

Preferred
Stock

Common Stock

Additional
Paid-In Capital

Accumulated
Other
Comprehensive
Income (Loss)

Retained
Earnings

Treasury Stock

Total SLM
Corporation
Equity

7,300,000
—

424,804,125
—

(1,365,277 )
—

423,438,848
—

565,000
—

84,961
—

1,090,511
—

—
—

—

—
—

—

—
—

—

—
—

—
5,873,309

—
—

—

—
—

—

—
—

—
1,175

—
—

1,660

—
—

1,146
14,805

6,140
21,598

(11,393 )
—
(4,666 )
—

—

—
—

113,066
274,284

(12,187 )
—

—
—

—

(11,501 )

(8,094 )

(1,146 )
—

—
—

—

—
—

1,829,958
274,284

(4,666 )
269,618

1,660

(11,501 )

(8,094 )

—
15,980

6,140
21,598

(3,008,913 )
(4,374,190 )

(3,008,913 )
426,303,244 $

—
565,000 $

—
86,136 $

—
1,135,860 $

—
(16,059 ) $

—
366,609 $

(29,036 )
(41,223 ) $

(29,036 )
2,096,323

See accompanying notes to consolidated financial statements.

F-8

Balance at December 31, 2015 .......
Net income ........................
Other comprehensive income, net
of tax .............................
Total comprehensive income ........

Cash dividends:

Preferred Stock, series A ($3.49
per share) .........................
Preferred Stock, series B ($2.41
per share) .........................
Dividend equivalent units related to
employee stock-based compensation
plans ................................
Issuance of common shares ..........
Tax deficiency related to employee
stock-based compensation ...........
Stock-based compensation expense ..

Shares repurchased related to
employee stock-based compensation
plans ................................
Balance at December 31, 2016 .......

—
—
—
—
—

—
—

—
7,300,000

—
—
—
—
—

—
5,955,045

—
—

—

436,632,479

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share and per share amounts)

Common Stock Shares

Preferred
Stock Shares

Issued

Treasury

Outstanding

Preferred
Stock

Common Stock

Additional
Paid-In Capital

Accumulated
Other
Comprehensive
Income (Loss)

Retained
Earnings

Treasury Stock

Total SLM
Corporation
Equity

7,300,000
—

430,677,434
—

(4,374,190 )
—

426,303,244 $
—

565,000 $
—

86,136 $
—

1,135,860 $
—

—
—
—
—
—

—

—
—

—
—
—
—
—

—
5,955,045

—
—

—
—
—
—
—

—
—

—
—
—
—
—

—
1,191

—
—

—
—
—
—
—

410
18,000
(1,650 )
22,944

(16,059 ) $
—

7,388

—
—
—
—

—
—

366,609 $
250,327

—
—
—
(11,501 )

(9,703 )

(410 )
—

—
—

(41,223 ) $
—

2,096,323
250,327

—
—
—
—
—

—
—

7,388
257,715
—

(11,501 )

(9,703 )

—
19,191

(1,650 )
22,944

(3,354,730 )
(7,728,920 )

(3,354,730 )
428,903,559 $

—
565,000 $

—
87,327 $

—
1,175,564 $

—
(8,671 ) $

—
595,322 $

(26,261 )
(67,484 ) $

(26,261 )
2,347,058

See accompanying notes to consolidated financial statements.

F-9

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Operating activities
Net income ......................................................................................................... $
Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Provisions for credit losses ...................................................................................
Deferred tax benefit ...........................................................................................
Amortization of brokered deposit placement fee ........................................................
Amortization of ABCP upfront fee .........................................................................
Amortization of deferred loan origination costs and fees, net ........................................
Net amortization of discount on investments .............................................................
Interest income on tax indemnification receivable ......................................................
Depreciation of premises and equipment..................................................................
Amortization of acquired intangibles ......................................................................
Stock-based compensation expense ........................................................................
Unrealized losses (gains) on derivative and hedging activities, net..................................
Gains on sale of loans, net ...................................................................................
Other adjustments to net income, net ......................................................................

Changes in operating assets and liabilities:

Net decrease in loans held for sale .........................................................................
Origination of loans held for sale ...........................................................................
Increase in accrued interest receivable.....................................................................
Increase in restricted cash and investments, net .........................................................
Decrease (increase) in other interest-earning assets.....................................................
Decrease in tax indemnification receivable ...............................................................
Increase in other assets ........................................................................................
(Decrease) increase in income tax payable, net ..........................................................
Increase in accrued interest payable ........................................................................
Increase (decrease) in payable due to entity that is a subsidiary of Navient .......................
Increase (decrease) in other liabilities .....................................................................
Total adjustments ..........................................................................................
Total net cash used in operating activities ...................................................................
Investing activities

Years Ended December 31,

2016

2015

2014

250,327 $

274,284 $

193,785

159,405
(88,732 )
10,133
1,229
5,811
2,043
(12,283 )
9,592
906
22,944
2,263
(230 )
3,524

—
—
(582,361 )
(3,559 )
5,731
59,633
(47,162 )
(18,997 )
3,736
553
14,562
(451,259 )
(200,932 )

90,055
(77,227 )
10,510
2,337
3,746
1,716
(5,398 )
7,437
1,480
21,598
(2,500 )
(135,358 )
(306 )

55
(55 )
(377,648 )
(737 )
17,634
59,633
(18,070 )
56,813
303
(6,774 )
(14,731 )
(365,487 )
(91,203 )

85,529
(40,888 )
10,164
—
1,995
633
(5,904 )
6,099
3,290
24,971
1,214
(121,359 )
—

6,519
(6,519 )

(331,014 )

(493 )

(72,435 )
44,724
(24,959 )

(221,222 )
2,985
8,764
(2,652 )

(630,558 )

(436,773 )

Loans acquired and originated ..............................................................................
Net proceeds from sales of loans held for investment ..................................................
Proceeds from claim payments ..............................................................................
Net decrease in loans held for investment ................................................................
Increase in restricted cash and investment - variable interest entities ...............................
Purchases of available-for-sale securities .................................................................
Proceeds from sales and maturities of available-for-sale securities..................................

(4,698,548 )
9,521
64,869
1,332,341
(22,178 )
(55,767 )
38,721
Total net cash used in investing activities ................................................................... (3,331,041 )
Financing activities

Brokered deposit placement fee .............................................................................
Net (decrease) increase in certificates of deposit ........................................................
Net increase in other deposits ...............................................................................
Issuance costs for collateralized borrowings .............................................................
Borrowings collateralized by loans in securitization trusts - issued .................................
Borrowings collateralized by loans in securitization - repaid .........................................
Borrowings under ABCP facility ...........................................................................

(4,371 )
(434,740 )
2,412,221
(2,090 )
1,775,692
(187,686 )
376,325

(4,366,651 )
1,547,373
111,580
913,005
(22,439 )
(64,112 )
33,735
(1,847,509 )

(4,098 )
611,643
324,518
—
620,681
(41,976 )
1,210,180

(4,094,790 )
2,001,625
127,869
638,321
—
(72,049 )
10,653
(1,388,371 )

(15,098 )
340,225
1,207,487
—
—
—
—

F-10

—
Repayment of borrowings under ABCP facility .........................................................
(876,500 )
—
Fees paid - ABCP facility ....................................................................................
(1,450 )
—
Net decrease in deposits with entity that is a subsidiary of Navient .................................
(5,633 )
472,718
—
Special cash contribution from Navient ...................................................................
12,022
—
Net capital contributions from entity that is a subsidiary of Navient ................................
3,271
Excess tax (expense) benefit from the exercise of stock-based awards .............................
(1,650 )
Preferred stock dividends paid ..............................................................................
(21,204 )
(12,933 )
2,002,059
3,034,547
Net cash provided by financing activities .................................................................
176,915
Net (decrease) increase in cash and cash equivalents .....................................................
(497,426 )
Cash and cash equivalents at beginning of year ............................................................ 2,416,219
2,182,865
Cash and cash equivalents at end of year ................................................................ $ 1,918,793 $ 2,416,219 $ 2,359,780
Cash disbursements made for:

(710,005 )
(2,337 )
—
—
—
6,140
(19,595 )
1,995,151
56,439
2,359,780

Interest ...........................................................................................................
Income taxes paid ..............................................................................................
Income taxes refunded ........................................................................................

$
$
$

169,854 $
271,721 $
(86 ) $

111,563 $
205,698 $
(25,151 ) $

90,329
401,834
(3,015 )

See accompanying notes to consolidated financial statements.

F-11

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, unless otherwise noted)

1. Organization and Business

SLM Corporation (“Sallie Mae,” “SLM,” the “Company,” “we” or “us”) is a holding company that operates through a
number of subsidiaries. Its predecessor was formed in 1972 as the Student Loan Marketing Association, a federally chartered
government-sponsored enterprise (the “GSE”), with the goal of furthering access to higher education by providing liquidity to
the education loan marketplace. The GSE’s federal charter prohibited it from originating student loans in the primary market.

In 1996, the United States Congress passed the Student Loan Marketing Association Reorganization Act, which set the
stage for the “privatization” of the GSE. As part of the privatization process, we incorporated SLM Corporation in 1997 as a
Delaware corporation, the GSE became a subsidiary of SLM Corporation, and by mid-2004 the GSE stopped purchasing loans
insured or guaranteed under the Federal Family Education Loan Program (“FFELP Loans”) in the secondary market and was
dissolved by the end of 2004.

On November 3, 2005, SLM Corporation formed Sallie Mae Bank, a Utah industrial bank subsidiary (the “Bank”), to

On March 30, 2010, President Obama signed into law the Federal Direct Student Loan Program (the “DSLP”), effective

On April 30, 2014, we completed our plan to legally separate into two distinct publicly traded entities: an education loan

management, servicing and asset recovery business, named Navient Corporation (“Navient”), which retained all assets and
liabilities generated prior to the Spin-Off other than those explicitly retained by SLM Corporation; and a consumer banking
business, named SLM Corporation. The separation of Navient from SLM Corporation (the “Spin-Off”) was preceded by an
internal corporate reorganization, which was the first step to separate the education loan management, servicing and asset
recovery business from the consumer banking business. As a result of a holding company merger under Section 251(g) of the
Delaware General Corporation Law, which is referred to herein as the “SLM Merger,” all of the shares of then existing SLM
Corporation’s common stock were converted, on a 1-to-1 basis, into shares of common stock of New BLC Corporation, a
newly formed company that was a subsidiary of pre-Spin-Off SLM Corporation (“pre-Spin-Off SLM”), and, pursuant to the
SLM Merger, New BLC Corporation replaced then existing SLM Corporation as the publicly traded registrant and changed its
name to SLM Corporation. As part of the internal corporate reorganization, the assets and liabilities associated with the
education loan management, servicing and asset recovery business were transferred to Navient, and those assets and liabilities
associated with the consumer banking business remained with or were transferred to the newly constituted SLM Corporation.
The separation and distribution were accounted for on a substantially tax-free basis.

Our primary business is to originate and service loans we make to students and their families to finance the cost of their

education. We use “Private Education Loans” to mean education loans to students or their families that are not made, insured or
guaranteed by any state or federal government. Private Education Loans do not include FFELP Loans. The core of our
marketing strategy is to generate Private Education Loan originations by promoting our products on campuses through the
financial aid offices as well as through online and direct marketing to students and their families. The Bank is regulated by the
Utah Department of Financial Institutions (“UDFI”), the Federal Deposit Insurance Corporation (“FDIC”) and the Consumer
Financial Protection Bureau (“CFPB”). We also operate Upromise, Inc. (“Upromise”), a save-for-college rewards program
helping Americans save for higher education.

F-12

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies

Basis of Presentation

The financial reporting and accounting policies of SLM Corporation conform to generally accepted accounting principles

in the United States of America (“GAAP”). In conjunction with the Spin-Off, our consolidated financial statements are
comprised of financial information relating to the Bank and Upromise. Also included in our financial statements, for periods
before the Spin-Off, are certain general corporate overhead expenses allocated to the Company.

The timing and steps necessary to complete the Spin-Off and comply with the Securities and Exchange Commission

(“SEC”) reporting requirements, including the replacement of pre-Spin-Off SLM with our current publicly traded registrant,
have resulted in our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 19,
2014, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed with the SEC on May 12, 2014,
providing business results and financial information for the periods reported therein on the basis of the consolidated businesses
of pre-Spin-Off SLM. While information contained in those prior reports may provide meaningful historical context for our
business, the Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 was our first periodic report made on the
basis of the post-Spin-Off business.

For periods before the Spin-Off, these financial statements are presented on a basis of accounting that reflects a change in

reporting entity and have been adjusted for the effects of the Spin-Off. These carved-out financial statements and selected
financial information represent only those operations, assets, liabilities and equity that form Sallie Mae on a stand-alone basis.
Because the Spin-Off occurred on April 30, 2014, these financial statements include the carved-out financial results for the first
four months of 2014. All prior period amounts represent comparably determined carved-out amounts. The year ended
December 31, 2015 was the first full year where the financial results did not include the effect of carved-out amounts.

Use of Estimates and Assumptions

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. Actual results
could differ from those estimates. Key accounting policies that include significant judgments and estimates include the
valuation of allowance for loan losses, fair value measurements and derivative accounting.

Correction Recorded in the Current Period

We recognized in the current period adjustments for tax positions relating to historical transactions among entities that are
now subsidiaries of Navient that should have been recorded at the time of the Spin-Off. We have evaluated the quantitative and
qualitative materiality of these corrections to all of the relevant periods and concluded that the out of period correction to
recognize the asset, liabilities and income statement impacts in the year ended December 31, 2016 is not material to our
consolidated financial statements for any of the relevant periods. The adjustments increased our tax indemnification receivable
and income taxes payable by $120 million and increased our other income and income tax expense by $9 million, as we believe
we are indemnified by Navient for these additional tax liabilities. Accordingly, there was no effect on equity or net income as a
result of these corrections in the current or prior periods. Prospectively, these uncertain tax position liabilities and related assets
will be accounted for consistent with our existing accounting policies for these kinds of assets and liabilities.

F-13

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

Consolidation

The consolidated financial statements include the accounts of SLM Corporation and its majority-owned and controlled

subsidiaries after eliminating the effects of intercompany accounts and transactions.

We consolidate any variable interest entity (“VIE”) where we have determined we are the primary beneficiary. The
primary beneficiary 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.

Cash and Cash Equivalents

Cash and cash equivalents include cash held in the Federal Reserve Bank of San Francisco (“FRB”) and commercial bank
accounts, and other short-term liquid instruments with original maturities of three months or less. Fees associated with investing
cash and cash equivalents are amortized into interest income using the effective interest rate method.

Investments

Investments consisted of mortgage-backed securities and Utah Housing Corporation Bonds in 2016 and only mortgage-

backed securities in 2015. We record our investment purchases and sales on a trade date basis. The amortized cost of debt
securities is adjusted for amortization of premiums and accretion of discounts, which are amortized using the effective interest
rate method.

Our investments are classified as available-for-sale and reported at fair value. Unrealized gains or losses on available-for-

sale investments are recorded in equity and are reported as a component of other comprehensive income (loss), net of
applicable income taxes, unless a decline in the investment’s value is considered to be other-than-temporary, in which case the
loss is recorded directly to earnings.

Management reviews all investments at least quarterly to determine whether any impairment is other-than-temporary.
Impairment is evaluated by considering several factors, including the length of time and extent to which the fair value has been
less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability to retain the investment to
allow for an anticipated recovery in fair value. If, based on the analysis, it is determined that the impairment is other-than-
temporary, the investment is written down to fair value and a loss is recognized through earnings.

Loans Held for Investment

Loans, consisting primarily of Private Education Loans and FFELP 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
discussed under “Loan Interest Income.” Loans which are held for investment are reported net of an allowance for loan losses.

Restricted Cash and Investments

Restricted cash and investments primarily include amounts held in student 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.

F-14

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

Allowance for Loan Losses

We maintain an allowance for loan losses at an amount sufficient to absorb probable losses incurred in our portfolios, as

well as regarding future loan commitments, at the reporting date based on a projection of estimated probable credit losses
incurred in the portfolio. 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.

We analyze our portfolios to determine the effects that the various stages of delinquency and forbearance have on

borrower default behavior and ultimate charge off. We estimate the allowance for loan losses for our loan portfolios using a roll
rate analysis of delinquent and current accounts. A “roll rate analysis” is a technique used to estimate the likelihood that a loan
receivable may progress through the various delinquency stages and ultimately charge off. We also take into account the current
and future economic environment and certain other qualitative factors when calculating the allowance for loan losses.

The evaluation of the allowance for loan losses is inherently subjective, as it requires material estimates that may be
susceptible to significant changes. Our default estimates are based on a loss emergence period of one year for Private Education
Loans and two years for FFELP Loans. A loss emergence period represents the expected period between the first occurrence of
an event likely to cause a loss on a loan and the date the loan is expected to be charged off, taking into consideration account
management practices that affect the timing of a loss, such as the usage of forbearance. The loss emergence period underlying
the allowance for loan losses is subject to a number of assumptions. If actual future performance in delinquency, charge-offs
and recoveries is significantly different than estimated, or account management assumptions or practices were to change, this
could materially affect the estimate of the allowance for loan losses, the timing of when losses are recognized, and the related
provision for credit losses on our consolidated statements of income.

We utilize various models to determine an appropriate allowance for loan losses. Changes to model inputs are made as

deemed necessary. These models are reviewed and validated periodically.

Below we describe in further detail our policies and procedures for the allowance for loan losses as they relate to our

Private Education Loan and FFELP Loan portfolios.

Allowance for Private Education Loan Losses

We maintain an allowance for loan losses at an amount sufficient to absorb probable losses incurred in our portfolios at

the reporting date based on a projection of estimated probable credit losses incurred in the portfolio.

In determining the allowance for loan losses on our Private Education Loans that are not troubled debt restructurings

(“TDRs”), we estimate the principal amount of loans that will default over the next year (one year being the expected period
between a loss event and default) and how much we expect to recover over the same one year period related to the defaulted
amount. The expected defaults less our expected recoveries adjusted for any qualitative factors (discussed below) 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 one year.

F-15

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

off and recovery practices not already included in the analysis, and the effect of other external factors such as legal and
regulatory requirements on the level of estimated credit losses.

Our non-TDR 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 receivable may progress through the various delinquency stages and ultimately
charge off. Once a charge-off forecast is estimated, a recovery assumption is layered on top. In estimating recoveries, we use
both estimates of what we would receive from the sale of delinquent loans as well as historical borrower payment behavior to
estimate the timing and amount of future recoveries on charged-off loans.

In the fourth quarter of 2015, we stopped our previous practice of selling all defaulted loans to third-parties and began
collecting on some defaulted loans in-house. It is our expectation that in the future we will continue to collect on defaulted
loans in-house as well as sell defaulted loans to third-parties. Prior to this change in practice, we only used estimates of what we
would receive from the sale of delinquent loans in estimating recoveries. For December, 31, 2016 and 2015, we used both an
estimate of recovery rates from in-house collections as well as expectations of future sales of defaulted loans to estimate the
timing and amount of future recoveries on charged-off loans.

The roll rate analysis model is based upon actual experience using the 120 day charge-off default aversion strategies.

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.

In connection with the Spin-Off, the agreement under which the Bank previously made sales of defaulted loans to an
affiliate was amended so that the Bank now has the right to require Navient to purchase (at fair value) loans only where (a) the
borrower has a lending relationship with both the Bank and Navient (“Split Loans”) and (b) the Split Loans either (1) are more
than 90 days past due; (2) have been restructured; (3) have been granted a hardship forbearance or more than six months of
administrative forbearance; or (4) have a borrower or cosigner who has filed for bankruptcy. At December 31, 2016, we held
approximately $67 million of Split Loans.

Pre-Spin-Off SLM charged off loans when they were 212 days delinquent. As such, default aversion strategies were
focused on the final stages of delinquency, from 150 days to 212 days. In connection with the Spin-Off, we changed our charge-
off policy for Private Education Loans to charging off loans when they reach 120 days delinquent. As a result of changing our
corporate charge-off policy and greatly reducing the number of potentially delinquent loans we sell to Navient, our default
aversion strategies now focus on loans 30 to 120 days delinquent. This change has the effect of accelerating the recognition of
losses due to the shorter charge-off period (120 days). In addition, at the time of the Spin-Off, we changed our loss emergence
period from two years to one year to reflect the shorter charge-off policy and our revised servicing practices. These two
changes resulted in recognizing a $14 million net reduction in our allowance for loan losses in second quarter 2014 because we
are now only reserving for one year of losses as compared with two years under the prior policy, which more than offset the
impact of the shorter charge-off period.

Allowance for Personal Loans

In December 2016, we began to opportunistically acquire newly originated personal loans (“Personal Loans”). We
maintain an allowance for loan losses at an amount sufficient to absorb probable losses incurred in this portfolio at the reporting
date based on a projection of estimated probable credit losses incurred in the portfolio. In determining the allowance for loan
losses on our Personal Loan portfolio that are not TDRs, we estimate the principal amount of the loans that will default over the
next eight months (eight months being the expected period between a loss event and default) and how much we expect to
recover over the same eight-month period related to the defaulted amounts. The expected defaults less our expected recoveries
adjusted for any qualitative factors equal the allowance related to this portfolio. At December 31, 2016, we held $12.8 million
in Personal Loans and the amount of allowance related to this portfolio was immaterial.

F-16

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

Troubled Debt Restructurings

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 interest rate reductions and loans with forbearance usage
greater than three months.

We modify the terms of loans for certain borrowers when we believe such modifications may increase the ability and

willingness of a borrower to make payments and thus increase the ultimate overall amount collected on a loan. These
modifications generally take the form of a forbearance, a temporary interest rate reduction or an extended repayment plan. In
the first nine months after a loan enters full principal and interest repayment, the loan may be in forbearance for up to six
months without it being classified as a TDR. Once the initial nine-month period described above is over, however, any loan
that receives more than three months of forbearance in a 24-month period is classified as a TDR. Also, a loan becomes a TDR
when it is modified to reduce the interest rate on the loan (regardless of when such modification occurs and/or whether such
interest rate is temporary). The majority of our loans that are considered TDRs involve a temporary forbearance of payments
and do not change the contractual interest rate of the loan. Once a loan qualifies for TDR status, it remains a TDR for allowance
purposes for the remainder of its life. Approximately 26 percent and 23 percent of the loans granted forbearance as of
December 31, 2016 and December 31, 2015, respectively, have been classified as TDRs due to their forbearance status.

Key Credit Quality Indicators

We determine the collectability of our Private Education Loan portfolio by evaluating certain risk characteristics. We

consider credit score, existence of a cosigner, loan status and loan seasoning as the key credit quality indicators because they
have the most significant effect on the determination of the adequacy of our allowance for loan losses. Credit scores are an
indicator of the creditworthiness of a borrower and the higher the credit score the more likely it is the borrower will be able to
make all of their contractual payments. Loan status affects the credit risk because a past due loan is more likely to result in a
credit loss than a current loan. Additionally, loans in the deferred payment status have different credit risk profiles compared
with those in current pay status. 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. The existence of a cosigner
lowers the likelihood of default as well. We monitor and update these credit quality indicators in the analysis of the adequacy of
our allowance for loan losses on a quarterly basis.

Certain Private Education Loans do not require borrowers to begin repayment until six months after they have graduated

or otherwise left school. Consequently, the loss estimates for these loans is generally low while the borrower is in school. At
December 31, 2016 and 2015, 29 percent and 32 percent, respectively, of the principal balance in the Private Education Loan
portfolio was related to borrowers who are in an in-school (fully deferred), grace, or deferment status and not required to make
payments. As this population of borrowers leaves school, they will be required to begin payments on their loans, and the
allowance for losses may change accordingly.

Similar to the rules governing FFELP payment requirements, our collection policies allow for periods of nonpayment for

borrowers requesting additional payment grace periods upon leaving school or experiencing temporary difficulty meeting
payment obligations. This is referred to as forbearance status and is considered separately in the allowance for loan losses. The
loss emergence period is in alignment with the typical collection cycle and takes into account these periods of nonpayment.

As part of concluding on the adequacy of the allowance for loan losses, we review key allowance and loan metrics. The

most relevant of these metrics considered are the allowance coverage of charge-offs ratio; the allowance as a percentage of total
loans and of loans in repayment; and delinquency and forbearance percentages.

F-17

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

Allowance for FFELP Loan Losses

FFELP Loans are insured as to their principal and accrued interest in the event of default subject to a risk sharing level

The allowance for FFELP Loan losses uses historical experience of customer default behavior and a two-year loss

Deposits

Our retail deposit accounts are principally certificates of deposit (“CD”), money market deposit accounts (“MMDA”) and

high yield savings (“HYS”) accounts. CDs are accounts that have a stipulated maturity and interest rate. Retail CDs may be
withdrawn early, but a penalty is assessed. MMDA and HYS accounts are both interest and non-interest bearing accounts that
have no maturity or expiration date. For retail MMDA and HYS accounts, the depositor may be required to give written notice
of any intended withdrawal not less than seven days before the withdrawal is made, although this provision is not generally
enforced.

The Bank also includes brokered CDs in its funding base. Early withdrawal of brokered CDs is prohibited (except in the

case of death or legal incapacity). Other deposit accounts include large interest-bearing omnibus accounts deposited in the Bank
by commercial entities having custodial responsibilities for many underlying accounts. These omnibus accounts may be
structured with or without fixed maturities, and may have fixed or variable interest rates.

Upromise member accounts

Upromise member accounts represent amounts owed to Upromise rewards members for rebates they have earned from

qualifying purchases from Upromise’s participating merchants. These amounts are held in trust for the benefit of the members
until distributed in accordance with the Upromise member’s request and/or the terms of the Upromise service agreement.
Upromise, which acts as the trustee for the trust, has deposited a majority of the cash with the Bank pursuant to a money market
deposit account agreement between the Bank and Upromise as trustee of the trust.

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 consolidated balance sheet with changes in fair value recorded in the consolidated statement of income;
In the consolidated balance sheet with changes in fair value recorded in the accumulated other comprehensive income
section of the consolidated statement of changes in equity;
In the consolidated balance sheet for instruments carried at lower of cost or fair value with impairment charges recorded
in the consolidated statement of income; and

F-18

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

•

In the notes to the consolidated 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 (including for our
liabilities), 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, credit, and bid/offer 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.

Loan Interest Income

For all loans, including impaired loans, classified as “held for investment,” we recognize interest income as earned,
adjusted for the amortization of deferred direct origination and acquisition costs. This adjustment is recognized based upon the
expected yield of the loan over its life after giving effect to prepayments and extensions. We consider our constant prepayment
rate (“CPR”) estimates a significant accounting assumption used to measure the expected prepayment activity in our education
loan portfolio. The estimates are based on a number of factors such as historical prepayment rates for loans with similar loan
characteristics, assumptions about portfolio composition and loan terms, and the prepayment curve’s tendency to follow a ramp
pattern (i.e., the prepayment rate typically increases during the in-school and early repayment periods, then stabilizes). The CPR
measures the expected prepayment activity over the life of the loan and is applied as a flat-rate input assumption when used in
forecasting. Additionally, interest earned on education loans reflects potential non-payment adjustments in accordance with our
uncollectible interest recognition policy as discussed further in “Allowance for Loan Losses” of this Note 2. Because of this, we
do not place loans in nonaccrual status prior to charge off. We do not amortize any adjustments to the basis of education loans
when they are classified as held-for-sale.

Our CPR estimates include the effect of voluntary prepayments and consolidation (if the loans are consolidated to third

parties), both of which shorten the lives of loans. CPR estimates also consider the utilization of deferment, forbearance, and
extended repayment plans, which lengthen the lives of loans. We regularly evaluate the assumptions used to estimate the CPRs.
In instances where there are changes to the assumptions, amortization of deferred direct origination and acquisition costs is
adjusted on a cumulative basis to reflect the change since the origination or purchase of the loan. For the year ended December
31, 2016, our CPR for Private Education Loans was 5.00 percent, compared with a CPR of 5.12 percent for the year ended
December 31, 2015.

We also pay to the U.S. Department of Education (the “DOE”) an annual 105 basis point Consolidation Loan Rebate Fee

on FFELP consolidation loans, which is netted against loan interest income. Additionally, interest earned on education loans

F-19

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

reflects potential non-payment adjustments in accordance with our uncollectible interest recognition policy. We do not amortize
any adjustments to the basis of education loans when they are classified as “held-for-sale.”

We recognize certain fee income (primarily late fees) on education loans when earned according to the contractual
provisions of the promissory notes, as well as our expectation of collectability. Fee income is recorded when earned in “other
non-interest income” in the accompanying consolidated statements of income.

Interest Expense

Interest expense is based upon contractual interest rates adjusted for the amortization of issuance costs. We incur interest
expense on interest bearing deposits comprised of non-maturity savings deposits, brokered and retail CDs, brokered and retail
MMDAs and secured financings. Interest expense is recognized when amounts are contractually due to deposit and debt
holders and is adjusted for net payments/receipts related to interest rate swap agreements that qualify and are designated hedges
of interest bearing liabilities. 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. We incur certain fees related to our Private Education Loan
asset-backed commercial paper facility (the “ABCP Facility”), including an unused ABCP Facility fee, and also incur fees
related to our term asset-backed securities (“ABS”). These fees are included in interest expense. Refer to Note 8, “Deposits,”
and Note 9, “Borrowings” for further details of our interest bearing liabilities.

Gains on Sale of Loans, Net

We participate and sell loans to third-parties and affiliates, including entities that were related parties prior to the Spin-

Off. These sales may occur through whole loan sales or securitization transactions that qualify for sales treatment. If a transfer
of loans qualifies as a sale, we derecognize the loan and recognize a gain or loss as the difference between the carry basis of the
loan sold and liabilities retained and the compensation received. We recognize the results of a transfer of loans based upon the
settlement date of the transaction. These loans were initially recorded as held for investment, and were transferred to held-for-
sale immediately prior to sale or securitization. We did not sell loans in 2016 and currently do not expect to sell loans in 2017.

Prior to the Spin-Off, the Bank sold loans to an entity that is now a subsidiary of Navient when loans became 90 days

delinquent and to facilitate securitization transactions. Prior to the Spin-Off, the Bank sold $805 million of loans resulting in a
net gain on sale of loans of $36 million for the year ended December 31, 2014. Subsequent to the Spin-Off, we sold loans
through loan sales and securitization transactions with third-parties (including Navient) resulting in a net gain on sale of loans
of $135 million and $85 million for the years ended December 31, 2015 and 2014, respectively. See Note 16, “Arrangements
with Navient Corporation,” for further discussion regarding loan purchase agreements.

Other Income

Our Upromise subsidiary has a number of programs that encourage consumers to save for the cost of college education.

We have established a consumer savings network, which is designed to promote college savings by consumers who are
members of this program by encouraging them to purchase goods and services from the merchants that participate in the
program. Participating merchants generally pay Upromise fees based on member purchase volume, either online or in stores,
depending on the contractual arrangement with the merchant. We recognize revenue as marketing and administrative services
are rendered, based upon contractually determined rates and member purchase volumes.

Also included in other income are late fees on both Private Education Loans and FFELP Loans, which we recognize when

the cash has been received, fees related to our credit card affinity program, income for servicing private student loans for third
parties and changes to our tax indemnification receivable from Navient.

F-20

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

Securitization Accounting

Our securitizations transactions use a two-step structure with a special purpose entity VIE that legally isolates the

transferred assets from us in the event of bankruptcy or receivership. 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. If a securitization qualifies as a sale, we then assess whether we are the primary
beneficiary of the securitization trust and are required to consolidate such trust. We are considered the primary beneficiary if we
have 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. There can be
considerable judgment as it relates to determining the primary beneficiary of the VIEs. There are no “bright line” tests. Rather,
the assessment of who has the power to direct the activities of the VIE that most significantly affect the VIE’s economic
performance and who has the obligation to absorb losses or receive benefits of the entity that could potentially be significant to
the VIE can be very qualitative and judgmental in nature. If we are the primary beneficiary, then no gain or loss is recognized.

We have determined that as the servicer of Sallie Mae securitization trusts, we meet the first primary beneficiary criterion

because we have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance.

Irrespective of whether a securitization receives sale or on-balance sheet treatment, our continuing involvement with our

securitization trusts is generally limited to:

• Owning the equity certificates of certain trusts;

• The servicing of the student loan assets within the securitization trusts, on both a pre- and post-default basis;

• Our acting as administrator for the securitization transactions we sponsored;

• Our responsibilities relative to representation and warranty violations; and

• The option to exercise the clean-up call and purchase the student loans from the trust when the pool balance is 10

percent or less of the original pool balance.

In 2015 and 2014, we executed both secured financing and securitized loan sale transactions. Based upon our
relationships with these securitizations, we believe the consolidation assessment is straightforward. We consolidated our
secured financing transactions because either we did not meet the accounting criterion for sales treatment or we determined we
were the primary beneficiary of the VIE because we retained (a) the residual interest in the securitization and therefore had the
obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE as well as (b) the
power to direct the activities of the VIE in our role as servicer. For those accounted for as securitized loan sales, we were not
the primary beneficiary because we have no obligation to absorb losses or receive benefits of the entity that could potentially be
significant to the VIE.

The investors in our securitization trusts have no recourse to our other assets should there be a failure of the trust to pay
when due. Generally, the only recourse the securitization trusts have to us is in the event we breach a seller representation or
warranty or our duties as master servicer and servicer, in which event we are obligated to repurchase the related loans from the
trust.

We did not record a servicing asset or servicing liability related to our securitization transactions because we determined

the servicing fees we receive are at market rate.

F-21

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

Derivative Accounting

We account for our derivatives, consisting of interest rate swaps, at fair value on the consolidated balance sheets as either

an asset or liability. Derivative positions are recorded as net positions by counterparty based on master netting arrangements
(see Note 11, “Derivative Financial Instruments”) exclusive of accrued interest and cash collateral held or pledged. We
determine the fair value for our derivative contracts primarily using pricing models that consider current market conditions and
the contractual terms of the derivative contracts. These factors include interest rates, time value, forward interest rate curves,
and volatility factors. Inputs are generally from active financial markets.

The majority of our derivatives qualify as effective hedges. For these derivatives, the relationship between the hedging

instrument and the hedged items (including the hedged risk and method for assessing effectiveness), as well as the risk
management objective and strategy for undertaking various hedge transactions at the inception of the hedging relationship, is
documented.

Each derivative is designated to a specific (or pool of) liability(ies) on the consolidated balance sheets, and is designated
as either a “fair value” hedge or a “cash flow” hedge. Fair value hedges are designed to hedge our exposure to changes in fair
value of a fixed-rate liability. For effective fair value hedges, both the hedge and the hedged item (for the risk being hedged) are
recorded at fair value with any difference reflecting ineffectiveness which is recorded immediately in the consolidated
statements of income. Cash flow hedges are designed to hedge our exposure to variability in cash flows related to variable-rate
deposits. 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 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 fair value of the derivative with no offsetting amount from the hedged item since the last time it was effective. If it is
also determined the hedge will not be effective in the future, we discontinue the hedge accounting prospectively and begin
amortization of any basis adjustments that exist related to the hedged item.

Stock-Based Compensation

We recognize stock-based compensation cost in our consolidated statements of income using the fair value 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 vesting period of the stock-based grant.

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 when applicable, 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.

An uncertain 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 consolidated financial statements is the largest
amount of benefit that is more than fifty percent likely of being sustained upon ultimate settlement of the uncertain tax position.
We recognize interest and penalties related to unrecognized tax benefits in income tax expense (benefit).

F-22

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

In connection with the Spin-Off, we have become the taxpayer legally responsible for $283 million of deferred taxes
payable (installment payments due quarterly through 2018) in connection with gains recognized by pre-Spin-Off SLM on debt
repurchases in prior years. As part of the tax sharing agreement between us and Navient, Navient has agreed to fully pay us for
these deferred taxes due. An indemnification receivable of $291 million was recorded, which represents the fair value of the
future payments under the agreement based on a discounted cash flow model. We will accrue interest income on the
indemnification receivable using the interest method.

In connection with the Spin-Off, we also recorded a liability related to uncertain tax positions of $27 million for which we

are indemnified by Navient. If there is an adjustment to the indemnified uncertain tax liability, an offsetting adjustment to the
indemnification receivable will be recorded as pre-tax adjustment to other income in the income statement.

As of the date of the Spin-Off on April 30, 2014, we recorded a liability of $310 million ($283 million related to deferred

taxes and $27 million related to uncertain tax positions) and an indemnification receivable of $291 million ($310 million less
the $19 million discount). As of December 31, 2016, with respect to those amounts recorded at the Spin-Off, the remaining
liability balance is $159 million ($131 million related to deferred taxes and $28 million related to uncertain tax positions) and
the remaining indemnification receivable balance is $144 million ($116 million related to deferred taxes and $28 million related
to uncertain tax positions).

In addition, we believe we are indemnified by Navient for uncertain tax positions relating to historical transactions among

entities that are now subsidiaries of Navient that should have been recorded at the time of the Spin-Off. See “Correction
Recorded in the Current Period” above in this Note 2 for further discussion. The remaining balance of the indemnification
receivable related to these uncertain tax positions was also $116 million at December 31, 2016.

Reclassifications

Certain reclassifications have been made to the balances as of and for the years ended December 31, 2015 and 2014, to be

consistent with classifications adopted for 2016, which had no effect on net income, total assets or total liabilities.

Recently Issued but Not Yet Adopted Accounting Pronouncements

On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which
it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue
recognition guidance when it becomes effective. The new standard is effective on January 1, 2018. Early application is not
permitted. The adoption of this guidance by the Company is not expected to have a material impact on its consolidated financial
statements.

On January 5, 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and
Financial Liabilities,” which changes the income statement impact of equity investments, and the recognition of changes in fair
value of financial liabilities when the fair value option is elected. The new standard is effective on January 1, 2018. The
adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

On February 25, 2016, the FASB issued ASU No. 2016-02, “Leases,” a comprehensive new lease standard which will

supersede previous lease guidance. The standard requires a lessee to recognize in its balance sheet assets and liabilities related
to long-term leases that were classified as operating leases under previous guidance. An asset will be recognized related to the
right to use the underlying asset and a liability will be recognized related to the obligation to make lease payments over the term
of the lease. The standard also requires expanded disclosures surrounding leases. The standard is effective for fiscal periods
beginning after December 15, 2018, and requires modified retrospective adoption, with early adoption permitted. We are
currently evaluating the impact of the adoption of this standard on our consolidated financial statements and related disclosures.

F-23

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

On March 30, 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718):

Improvements to Employee Share-Based Payment Accounting,” which amends the current stock compensation guidance. The
amendments simplify the accounting for the taxes related to stock-based compensation, including adjustments to how excess
tax benefits and a company’s payments for tax withholdings should be classified. The standard is effective for fiscal periods
beginning after December 15, 2016, with early adoption permitted. We expect the standard to result in immaterial volatility in
earnings caused by the change in the treatment of the tax benefits or deficiencies related to share-based payments at settlement
(or expiration) through “income tax expense” in our consolidated statements of income.

On June 16, 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses for financial
assets held. Under this standard, we will be required to hold an allowance equal to the expected life-of-loan losses on our loan
portfolio. The standard is effective for fiscal periods beginning after December 15, 2019. While we are currently evaluating the
impact of our pending adoption of this standard on our consolidated financial statements, we expect the adoption to have a
material impact on our consolidated financial statements and capital ratios.

3. Cash and Cash Equivalents

As of December 31, 2016, cash and cash equivalents include cash due from the FRB of $1.9 billion and cash due from
depository institutions of $26.9 million. As of December 31, 2015, cash and cash equivalents include cash due from the FRB of
$2.4 billion and cash due from depository institutions of $22.4 million. As of December 31, 2016 and 2015, we had no
outstanding cash equivalents.

In 2010, the FRB introduced the Term Deposit Facility to facilitate the conduct of monetary policy by providing a tool
that may be used to manage the aggregate quantity of reserve balances held by depository institutions. Under this program, the
FRB accepts deposits for a stated maturity at a rate of interest determined via auction. The funds are removed from the
accounts of participating institutions for the life of the term deposit. We participated in these auctions in 2016 and 2015,
resulting in interest income of $0.2 million and $0.3 million, respectively. As of December 31, 2016 and 2015, no funds were
on deposit with the FRB under this program.

We are required to maintain average reserve balances with the FRB based on a percentage of deposits. The average
amounts of those reserves for the years ended December 31, 2016 and 2015 were $0.5 million and $1.2 million, respectively.

F-24

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

4. Investments

The amortized cost and fair value of securities available for sale are as follows:

December 31, 2016

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value

Available for sale:
Mortgage-backed securities .......... $
Utah Housing Corporation bonds ..
Total .......................................... $

196,406 $
15,000
211,406 $

929 $
—
929 $

(3,042 ) $
(690 )
(3,732 ) $

194,293
14,310
208,603

December 31, 2015

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value

Available for sale:
Mortgage-backed securities .......... $

196,402 $

1,370 $

(2,381 ) $

195,391

The following table summarizes the amount of gross unrealized losses for our mortgage-backed securities and Utah

housing bonds and the estimated fair value by length of time the securities have been in an unrealized loss position:

Less than 12 months

12 months or more

Total

Gross
Unrealized
Losses

Estimated
Fair Value

Gross
Unrealized
Losses

Estimated
Fair Value

Gross
Unrealized
Losses

Estimated
Fair Value

As of December 31, 2016:
Mortgage-backed securities .............. $
Utah Housing Corporation bonds ......
Total .............................................. $

As of December 31, 2015:
Mortgage-backed securities .............. $

(2,423 ) $
(690 )
(3,113 ) $

129,549 $
14,310
143,859 $

(619 ) $
—
(619 ) $

10,885 $
—
10,885 $

(3,042 ) $
(690 )
(3,732 ) $

140,434
14,310
154,744

(827 ) $

73,802 $

(1,554 ) $

39,271 $

(2,381 ) $

113,073

F-25

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

4. Investments (Continued)

Our investment portfolio is comprised primarily of mortgage-backed securities issued by Ginnie Mae, Fannie Mae and

Freddie Mac, with amortized costs of $101.2 million, $66.5 million, and $28.8 million, respectively, at December 31, 2016. We
own these securities to meet our requirements under the Community Reinvestment Act. As of December 31, 2016, there were
48 of 84 separate mortgage-backed securities with unrealized losses in our investment portfolio. As of December 31, 2016, 21
of the 48 securities in a net loss position were issued under Ginnie Mae programs that carry a full faith and credit guarantee
from the U.S. Government. The remaining securities in a net loss position carry a principal and interest guarantee by Fannie
Mae. As of December 31, 2015, there were 35 of 74 separate mortgage-backed securities with unrealized losses in our
investment portfolio. Fourteen of the 35 securities in a net loss position were issued by Ginnie Mae. We have the ability and the
intent to hold these securities for a period of time sufficient for the market price to recover to at least the adjusted amortized
cost of the security.

In December 2016, we invested in Utah Housing Corporation bonds for the purpose of complying with the Community

Reinvestment Act. These bonds are Aa3 rated by Moody’s Investors Service. The amortized cost of the investment on the
consolidated balance sheet at December 31, 2016 was $15 million. We have the intent and ability to hold these bonds for a
period of time sufficient for the market price to recover to at least the adjusted amortized cost of the security.

As of December 31, 2016, the amortized cost and fair value of securities, by contractual maturities, are summarized

below. Contractual maturities versus actual maturities may differ due to the effect of prepayments.

Year of Maturity
2038 ................................ $
2039 ................................
2042 ................................
2043 ................................
2044 ................................
2045 ................................
2046 ................................
2047 ................................
Total ................................ $

Amortized
Cost

278 $

5,405
15,344
46,996
37,970
50,814
39,599
15,000
211,406 $

Estimated
Fair Value
303
5,758
14,621
47,045
37,876
50,084
38,606
14,310
208,603

The mortgage-backed securities have been pledged to the FRB as collateral against any advances and accrued interest

under the Primary Credit lending program sponsored by the FRB. We had $188.0 million and $188.3 million par value of
mortgage-backed securities pledged to this borrowing facility at December 31, 2016 and 2015, respectively, as discussed further
in Note 9, “Borrowings.”

F-26

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

5. Loans Held for Investment

Loans Held for Investment consist of Private Education Loans, FFELP Loans and Personal Loans.

Our Private Education Loans are made largely to bridge the gap between the cost of higher education and the amount

funded through financial aid, government loans and customers’ resources. Private Education Loans bear the full credit risk of
the customer. We manage this risk through risk-performance underwriting strategies and qualified cosigners. Private Education
Loans generally carry a variable rate indexed to LIBOR. As of December 31, 2016, 81 percent of all Private Education Loans
were indexed to LIBOR. We provide incentives for customers to include a cosigner on the loan, and the vast majority of loans
in our portfolio are cosigned. We also encourage customers to make payments while in school.

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 on or after July 1, 2006, we receive 97 percent reimbursement on all qualifying claims. For loans
disbursed after October 1, 1993, and before July 1, 2006, we receive 98 percent reimbursement. For loans disbursed prior to
October 1, 1993, we receive 100 percent reimbursement.

In December 2016, we acquired $12.9 million of Personal Loans originated by third parties.

Loans held for investment are summarized as follows:

Private Education Loans .......................................... $
Deferred origination costs ........................................
Allowance for loan losses ........................................
Total Private Education Loans, net............................

FFELP Loans .........................................................
Unamortized acquisition costs, net ............................
Allowance for loan losses ........................................
Total FFELP Loans, net ...........................................

Personal Loans .......................................................
Allowance for loan losses ........................................
Total Personal Loans, net .........................................

December 31,

2016
14,251,675 $
44,206
(182,472 )
14,113,409

1,010,908
2,941
(2,171 )
1,011,678

12,893
(58 )
12,835

2015
10,596,437
27,884
(108,816 )
10,515,505

1,115,663
3,114
(3,691 )
1,115,086

—
—
—

Loans held for investment, net ................................. $

15,137,922 $

11,630,591

The estimated weighted average life of education loans in our portfolio was approximately 6.0 years and 6.2 years at

December 31, 2016 and 2015, respectively.

F-27

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

5. Loans Held for Investment (Continued)

The average balance and the respective weighted average interest rates for our education loan portfolio are summarized as

follows:

Years Ended December 31,

2016

2015

2014

Weighted
Average
Interest
Rate

Average
Balance

Weighted
Average
Interest
Rate

Average
Balance

Private Education Loans ...... $ 12,747,756
FFELP Loans .....................
Total education loan
portfolio ............................ $ 13,811,081

1,063,325

8.02 % $ 9,819,053
3.53

1,179,723

7.93 % $ 7,563,356
3.26

1,353,497

8.16 %
3.24

$ 10,998,776

$ 8,916,853

Certain Collection Tools — Private Education Loans

Forbearance may be granted to customers who are exiting their grace period to provide additional time to obtain

employment and income to support their obligations, or to current customers who are faced with a hardship and request
forbearance time to provide temporary payment relief. In these circumstances, a customer’s loan is placed into a forbearance
status in limited monthly increments and is reflected in the forbearance status at month-end during this time. At the end of the
granted forbearance period, the customer will enter repayment status as current and is expected to begin making scheduled
monthly payments on a go-forward basis.

Forbearance may also be granted to customers who are delinquent in their payments. If specific requirements are met, the

forbearance can cure the delinquency and the customer is returned to a current repayment status. In more limited instances,
delinquent customers will also be granted additional forbearance time.

We also have an interest rate reduction program to assist customers in repaying their Private Education Loans through

reduced payments, while continuing to reduce their outstanding principal balance. This program is offered in situations where
the potential for principal recovery, through an interest rate reduction that results in a lower monthly payment amount, is more
suitable than other alternatives currently available. As part of demonstrating the ability and willingness to pay, the customer
must make three consecutive monthly payments at the reduced rate to qualify for the program. Once the customer has made the
initial three payments, the loan’s status is returned to current and the interest rate is reduced for a twenty-four month period.

F-28

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

5. Loans Held for Investment (Continued)

During the first four months of 2014, we did not utilize these collection tools because we sold loans that would otherwise

be managed using one or more of these collection tools to an entity that is now a subsidiary of Navient. See Note 16,
“Arrangements with Navient Corporation.”

The period of delinquency for loans is based on the number of days scheduled payments are contractually past due. As of

December 31, 2016 and 2015, we had $67.5 million and $122.9 million, respectively, of FFELP Loans and $24.2 million and
$20.9 million, respectively, of Private Education Loans held for investment which were more than 90 days delinquent that
continue to accrue interest. At December 31, 2016 and 2015, we had no loans in nonaccrual status.

Borrower-in-Custody Arrangements

We maintain Borrower-in-Custody arrangements with the FRB. Under these arrangements, we can pledge FFELP
consolidation loans or Private Education Loans to the FRB to secure any advances and accrued interest generated under the
Primary Credit program at the FRB. As of December 31, 2016 and 2015, we had $0 and $0, respectively, of FFELP
consolidation loans and $2.7 billion and $1.7 billion, respectively, of Private Education Loans pledged to this borrowing
facility, as discussed further in Note 9, “Borrowings.”

Loans Held for Investment by Region

At December 31, 2016, 40.3 percent of total education loans were concentrated in the following states:

New York ..............
California ..............
Pennsylvania .........
New Jersey ............
Illinois ..................

2016

10.3 %
9.4
8.4
6.9
5.3
40.3 %

At December 31, 2015, 39.8 percent of total education loans were concentrated in the following states:

New York ..............
California ..............
Pennsylvania .........
New Jersey ............
Illinois ..................

2015

10.1 %
9.6
8.1
6.7
5.3
39.8 %

No other state had a concentration of total education loans in excess of 5 percent of the aggregate outstanding loans held

for investment.

F-29

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

6. Allowance for Loan Losses

Our provision for credit losses represents the periodic expense of maintaining an allowance sufficient to absorb incurred

probable losses in the held-for-investment loan portfolios. The evaluation of the allowance for loan losses is inherently
subjective, as it requires material estimates that may be susceptible to significant changes. We believe the allowance for loan
losses is appropriate to cover probable losses incurred in the loan portfolios. See Note 2, “Significant Accounting Policies —
Allowance for Private Education Loan Losses and — Allowance for FFELP Loan Losses” for a more detailed discussion.

Allowance for Loan Losses Metrics

Allowance for Loan Losses

Year Ended December 31, 2016

FFELP Loans

Private Education
Loans

Total

Allowance for Loan Losses
Beginning balance ................................................................... $
Total provision......................................................................

Net charge-offs:

Charge-offs ........................................................................

Recoveries .........................................................................

Net charge-offs .....................................................................

Loan sales(1) .........................................................................
Ending Balance ....................................................................... $

Allowance:
Ending balance: individually evaluated for impairment ............... $
Ending balance: collectively evaluated for impairment ................ $

Loans:
Ending balance: individually evaluated for impairment ............... $
Ending balance: collectively evaluated for impairment ................ $
Net charge-offs as a percentage of average loans in repayment(2) ..
Allowance as a percentage of the ending total loan balance ..........
Allowance as a percentage of the ending loans in repayment(2) .....
Allowance coverage of net charge-offs ......................................
Ending total loans, gross .......................................................... $
Average loans in repayment(2) ................................................... $
Ending loans in repayment(2) .................................................... $

____________

112,507
159,339

(91,551 )
10,382
(81,169 )

(6,034 )
184,643

86,930
97,713

612,606
14,649,977

3,691
(172 )

108,816
159,511

(1,348 )
—
(1,348 )
—
2,171

—
2,171

—
1,010,908

0.17 %
0.21 %
0.28 %
1.61
1,010,908
793,203
786,332

(90,203 )
10,382
(79,821 )

(6,034 )

182,472

86,930
95,542

612,606
13,639,069

$
0.96 %
1.28 %
1.88 %
2.29
14,251,675
8,283,036
9,709,758

(1) Represents fair value adjustments on loans sold.
(2) Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have

entered full principal and interest repayment status after any applicable grace period.

F-30

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

6. Allowance for Loan Losses (Continued)

Allowance for Loan Losses

Year Ended December 31, 2015

FFELP Loans

Private Education
Loans

Total

Allowance for Loan Losses
Beginning balance................................................................... $
Total provision .....................................................................

5,268
1,005

78,574
87,344

Net charge-offs:

Charge-offs .......................................................................

Recoveries ........................................................................

Net charge-offs .....................................................................

Loan sales(1) .........................................................................
Ending Balance ...................................................................... $

Allowance:
Ending balance: individually evaluated for impairment ............... $
Ending balance: collectively evaluated for impairment................ $

Loans:
Ending balance: individually evaluated for impairment ............... $
Ending balance: collectively evaluated for impairment................ $
Net charge-offs as a percentage of average loans in repayment(2) ..
Allowance as a percentage of the ending total loan balance .........
Allowance as a percentage of the ending loans in repayment(2) ....
Allowance coverage of net charge-offs ......................................
Ending total loans, gross .......................................................... $
Average loans in repayment(2)................................................... $
Ending loans in repayment(2) .................................................... $

____________

(1) Represents fair value adjustments on loans sold.

(2,582 )
—
(2,582 )
—
3,691

—
3,691

$
$

(55,357 )
5,820
(49,537 )
(7,565 )

108,816

43,480
65,336

$
$

—
1,115,663

$
$

0.30 %
0.33 %
0.45 %
1.43
1,115,663
857,359
813,815

$
$
$

265,831
10,330,606

$
$
0.82 %
1.03 %
1.57 %
2.20
10,596,437
6,031,741
6,927,266

83,842
88,349

(57,939 )
5,820
(52,119 )

(7,565 )
112,507

43,480
69,027

265,831
11,446,269

(2)

Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full
principal and interest repayment status after any applicable grace period.

F-31

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

6. Allowance for Loan Losses (Continued)

Allowance for Loan Losses

Year Ended December 31, 2014

FFELP Loans

Private Education
Loans

Total

Allowance for Loan Losses
Beginning balance ..................................................................... $
Total provision ........................................................................

6,318
1,946

61,763
83,583

Net charge-offs:

Charge-offs(1) .......................................................................

(2,996 )

(14,442 )

Recoveries ...........................................................................

—

1,155

Net charge-offs .......................................................................

(2,996 )

(13,287 )

Loan sales(2) ...........................................................................
Ending Balance ......................................................................... $

Allowance:

Ending balance: individually evaluated for impairment.................. $
Ending balance: collectively evaluated for impairment .................. $
Loans:
Ending balance: individually evaluated for impairment.................. $

Ending balance: collectively evaluated for impairment .................. $
Net charge-offs as a percentage of average loans in repayment(3) ....
Allowance as a percentage of the ending total loan balance ............
Allowance as a percentage of the ending loans in repayment(3) .......
Allowance coverage of net charge-offs ........................................
Ending total loans, gross ............................................................ $
Average loans in repayment(3) ..................................................... $
Ending loans in repayment(3) ....................................................... $

____________

—
5,268

—

1,264,807

$
$

0.31 %

0.42 %
0.57 %
1.76
1,264,807
972,390
926,891

(53,485 )
78,574

9,815
68,759

59,402

8,251,974

$
$

0.30 %

0.95 %
1.53 %
5.91
8,311,376
4,495,709
5,149,215

68,081
85,529

(17,438 )

1,155

(16,283 )

(53,485 )
83,842

9,815
74,027

59,402

9,516,781

(1)

(2)

(3)

Prior to the Spin-Off, we sold all loans greater than 90 days delinquent to an entity that is now a subsidiary of Navient Corporation, prior to
being charged off. Consequently, many of the pre-Spin-Off, historical credit indicators and period-over-period trends are not comparable
and may not be indicative of future performance.

Represents fair value adjustments on loans sold.

F-32

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

6. Allowance for Loan Losses (Continued)

Troubled Debt Restructurings

All of our loans are collectively assessed for impairment, except for loans classified as TDRs (where we conduct

individual assessments of impairment). We modify the terms of loans for certain borrowers when we believe such modifications
may increase the ability and willingness of a borrower to make payments and thus increase the ultimate overall amount
collected on a loan. These modifications generally take the form of a forbearance, a temporary interest rate reduction or an
extended repayment plan. In the first nine months after a loan enters full principal and interest repayment, the loan may be in
forbearance for up to six months without it being classified as a TDR. Once the initial nine-month period described above is
over, however, any loan that receives more than three months of forbearance in a 24-month period is classified as a TDR. Also,
a loan becomes a TDR when it is modified to reduce the interest rate on the loan (regardless of when such modification occurs
and/or whether such interest rate reduction is temporary). The majority of our loans that are considered TDRs involve a
temporary forbearance of payments and do not change the contractual interest rate of the loan. Once a loan qualifies for TDR
status, it remains a TDR for allowance purposes for the remainder of its life. Approximately 26 percent and 23 percent of the
loans granted forbearance as of December 31, 2016 and 2015, respectively, have been classified as TDRs due to their
forbearance status.

Prior to the Spin-Off, we did not have TDR loans because the loans generally were sold to a now unrelated affiliate in the

same month that the terms were restructured. Subsequent to May 1, 2014, we have individually assessed $705.5 million of
Private Education Loans as TDRs. When these TDR loans are determined to be impaired, we provide for an allowance for
losses 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.

Within the Private Education Loan portfolio, loans greater than 90 days past due are considered to be nonperforming.
FFELP Loans are at least 97 percent guaranteed as to their principal and accrued interest by the federal government in the event
of default and, therefore, we do not deem FFELP Loans as nonperforming from a credit risk standpoint at any point in their life
cycle prior to claim payment, and continue to accrue interest through the date of claim.

At December 31, 2016 and 2015, all of our TDR loans had a related allowance recorded. The following table provides

the recorded investment, unpaid principal balance and related allowance for our TDR loans.

Recorded
Investment

Unpaid
Principal
Balance

Allowance

December 31, 2016
TDR Loans ...................... $

December 31, 2015
TDR Loans ...................... $

620,991 $

612,606 $

86,930

269,628 $

265,831 $

43,480

F-33

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

6. Allowance for Loan Losses (Continued)

The following table provides the average recorded investment and interest income recognized for our TDR loans.

Years Ended December 31,

2016

2015

2014

Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment

Interest
Income
Recognized

TDR Loans .............. $

422,527 $

30,700 $

174,087 $

14,081 $

23,290 $

1,105

The following table provides information regarding the loan status and aging of TDR loans.

TDR loans in in-school/grace/deferment(1) ..................... $
TDR loans in forbearance(2) ..........................................
TDR loans in repayment(3) and percentage of each
status:

Loans current ..........................................................
Loans delinquent 31-60 days(4) ..................................
Loans delinquent 61-90 days(4) ..................................
Loans delinquent greater than 90 days(4) ....................
Total TDR loans in repayment ....................................
Total TDR loans, gross ................................................. $

_____

December 31,

2016

2015

Balance

24,185
71,851

6,869
43,756

462,187
28,452
17,326
8,605
516,570
612,606

89.5 %
5.5
3.4
1.6
100.0 %

185,936
14,948
9,239
5,083
215,206

86.4 %
6.9
4.3
2.4
100.0 %

$ 265,831

(1) Deferment includes customers who have returned to school or are engaged in other permitted
educational activities and are not yet required to make payments on the loans (e.g., residency
periods for medical students or a grace period for bar exam preparation).

(2)

(3)

(4)

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,
consistent with established loan program servicing policies and procedures.

Loans in repayment include loans on which borrowers are making interest only or fixed
payments, as well as loans that have entered full principal and interest repayment status after any
applicable grace period.

The period of delinquency is based on the number of days scheduled payments are contractually
past due.

F-34

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

6. Allowance for Loan Losses (Continued)

The following table provides the amount of modified loans (which includes forbearance and reductions in interest
rates) that became TDRs in the periods presented. Additionally, for the periods presented, the table summarizes charge-offs
occurring in the TDR portfolio, as well as TDRs for which a payment default occurred in the relevant period presented and
within 12 months of the loan first being designated as a TDR. We define payment default as 60 days past due for this disclosure.

2016

2015

2014

Years Ended December 31,

Modified
Loans(1)

Charge-
offs

Payment-
Default

Modified
Loans(1)

Charge-
offs

Payment-
Default

Modified
Loans(1)

Charge-
offs

Payment-
Default

TDR Loans ......... $ 398,324 $ 24,628 $ 64,811 $ 244,890 $ 10,877 $ 51,602 $ 59,402 $

948 $

325

_______
(1) Represents the principal balance of loans that have been modified during the period and resulted in a TDR.

F-35

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

6. Allowance for Loan Losses (Continued)

Key Credit Quality Indicators

FFELP Loans are at least 97 percent insured and guaranteed as to their principal and accrued interest in the event of

default; therefore, there are no key credit quality indicators associated with FFELP Loans.

For Private Education Loans, the key credit quality indicators are FICO scores, the existence of a cosigner, the loan status

and loan seasoning. The FICO scores are assessed at original approval and periodically refreshed/updated through the loan’s
term. The following table highlights the gross principal balance of our Private Education Loan portfolio stratified by key credit
quality indicators.

Credit Quality Indicators:

Balance(1)

% of Balance

Balance(1)

% of Balance

December 31, 2016

December 31, 2015

Cosigners:

With cosigner ..................................

Without cosigner ..............................
Total .................................................. $

12,816,512
1,435,163
14,251,675

9,515,136
90 % $
10
1,081,301
100 % $ 10,596,437

FICO at Origination:

Less than 670 ...................................

670-699 ...........................................

700-749 ...........................................

Greater than or equal to 750 ..............
Total .................................................. $

920,132
2,092,722
4,639,958
6,598,863
14,251,675

Seasoning(2):

1-12 payments .................................

13-24 payments ................................

25-36 payments ................................

37-48 payments ................................

More than 48 payments .....................

Not yet in repayment ........................
Total .................................................. $

3,737,110
2,841,107
1,839,764
917,633
726,106
4,189,955
14,251,675

___________

(1) Balance represents gross Private Education Loans.

700,779
6 % $
1,554,959
15
3,403,823
33
46
4,936,876
100 % $ 10,596,437

3,059,901
26 % $
2,096,412
20
1,084,818
13
513,125
7
414,217
5
3,427,964
29
100 % $ 10,596,437

90 %
10
100 %

7 %
15
32
46
100 %

29 %
20
10
5
4
32
100 %

(2) Number of months in active repayment (whether interest only payment, fixed payment, or full principal and interest payment

status) for which a scheduled payment was due.

F-36

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

6. Allowance for Loan Losses (Continued)

The following table provides information regarding the loan status of our Private Education Loans. Loans in repayment
include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal
and interest repayment status after any applicable grace period.

2016

Balance

Private Education Loans

December 31,

2015

Balance
$ 3,427,964
241,207

2014

Balance
$ 3,027,143
135,018

Loans in-school/grace/deferment(1) ...................... $ 4,189,955
351,962
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 ......

9,509,394
124,773
51,423
24,168
9,709,758

Total Private Education Loans, gross ................... 14,251,675
Private Education Loans deferred origination
costs .................................................................
Total Private Education Loans ............................ 14,295,881
Private Education Loans allowance for losses .......
(182,472 )
Private Education Loans, net............................... $ 14,113,409
Percentage of Private Education Loans in
repayment .........................................................

44,206

Delinquencies as a percentage of Private
Education Loans in repayment ............................

Loans in forbearance as a percentage of Private
Education Loans in repayment and forbearance ....

97.9 %
1.3
0.5
0.3
100.0 %

6,773,095
91,129
42,048
20,994
6,927,266
10,596,437

97.8 %
1.3
0.6
0.3
100.0 %

5,045,600
63,873
29,041
10,701
5,149,215
8,311,376

98.0 %
1.2
0.6
0.2
100.0 %

27,884

10,624,321
(108,816 )
$ 10,515,505

13,845
8,325,221
(78,574 )
$ 8,246,647

68.1 %

65.4 %

2.1 %

3.5 %

2.2 %

3.4 %

62.0 %

2.0 %

2.6 %

(1) Deferment includes customers who have returned to school or are engaged in other permitted educational

activities and are not yet required to make payments on the loans (e.g., residency periods for medical students or a
grace period for bar exam preparation).

(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, 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-37

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

6. Allowance for Loan Losses (Continued)

Accrued Interest Receivable

The following table provides information regarding accrued interest receivable on our Private Education Loans. The table

Private Education Loan
Accrued Interest Receivable

Total Interest
Receivable

Greater Than
90 Days
Past Due

Allowance for
Uncollectible
Interest

December 31, 2016 ..................... $
December 31, 2015 ..................... $

739,847 $
542,919 $

845 $
791 $

2,898
3,332

F-38

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

7. Premises and Equipment, net

The following is a summary of our premises and equipment.

Land and land improvements ................ $
Buildings and leasehold improvements ..
Furniture, fixtures and equipment ..........
Software .............................................
Premises and equipment, gross .............
Accumulated depreciation ....................
Premises and equipment, net ................. $

December 31,

2016

2015

12,574 $
60,919
15,026
47,688
136,207
(49,144 )
87,063 $

12,574
56,446
12,275
39,530
120,825

(39,552 )
81,273

Depreciation expense for premises and equipment was $9.6 million, $7.4 million and $6.1 million for the years ended

December 31, 2016, 2015 and 2014, respectively.

8. Deposits

The following table summarizes total deposits at December 31, 2016 and 2015.

Deposits - interest bearing .................................... $ 13,434,990 $ 11,487,006
701
Deposits - non-interest bearing ..............................
Total deposits ...................................................... $ 13,435,667 $ 11,487,707

677

December 31,

2016

2015

Interest bearing deposits as of December 31, 2016 and 2015 consisted of retail non-maturity savings deposits, retail and

brokered non-maturity money market deposits (“MMDAs”), and brokered and retail certificates of deposit (“CDs”). Included in
these accounts are what we consider core deposits from various sources. During 2016, we added $1.5 billion in deposits from
Educational 529 and Health Savings Accounts as a way to diversify our funding sources. These and other large omnibus
accounts, aggregating the deposits of many individual depositors, represented $5.4 billion of our deposit total as of December
31, 2016.

Some of our deposit products are serviced by third-party providers. Placement fees associated with the brokered CDs are
amortized into interest expense using the effective interest rate method. We recognized placement fee expense of $10.1 million,
$10.5 million, and $10.3 million in the years ended December 31, 2016, 2015 and 2014, respectively. Fees paid to third-party
brokers related to these CDs were $4.4 million, $4.1 million, and $15.2 million during the years ended December 31, 2016,
2015 and 2014, respectively.

F-39

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

8. Deposits (Continued)

Interest bearing deposits at December 31, 2016 and 2015 are summarized as follows:

December 31, 2016

December 31, 2015

Year-End
Weighted
Average Stated
Rate(1)

Amount

Money market ......................................... $
Savings ..................................................
Certificates of deposit ..............................
Deposits - interest bearing......................

7,129,404
834,521
5,471,065
$ 13,434,990

1.22 % $
0.84
1.41

4,886,299
669,254
5,931,453
$ 11,487,006

1.19 %
0.82
0.98

___

(1) Includes the effect of interest rate swaps in effective hedge relationships.

Certificates of deposit remaining maturities are summarized as follows:

One year or less ............................................ $
After one year to two years ............................
After two years to three years .........................
After three years to four years ........................
After four years to five years ..........................
After five years .............................................
Total ............................................................ $

December 31,

2016
2,565,246 $
1,364,812
936,125
225,245
379,637
—

5,471,065 $

2015
2,667,980
1,210,429
1,053,442
630,851
203,704
165,047
5,931,453

As of December 31, 2016 and 2015, there were $304.5 million and $709.9 million of deposits exceeding FDIC insurance

limits. Accrued interest on deposits was $18.9 million and $15.7 million at December 31, 2016 and 2015, respectively.

F-40

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

9. Borrowings

Outstanding borrowings consist of secured borrowings issued through our term ABS program and our ABCP Facility. The

following table summarizes our secured borrowings at December 31, 2016 and 2015.

December 31, 2016

December 31, 2015

Short-Term Long-Term

Total

Short-Term

Long-Term

Total

Secured borrowings:

Private Education Loan term
securitizations ................................... $
ABCP Facility ...................................
Total ................................................ $

$
—
—
— $

2,167,979

—

2,167,979 $

—

$
500,175
500,175 $

579,101

$
—
579,101 $

579,101
500,175
1,079,276

Short-term Borrowings

Asset-Backed Commercial Paper Funding Facility

On December 19, 2014, we closed on a $750.0 million ABCP Facility. We retained a 5 percent or $37.5 million

ownership interest in the ABCP Facility, resulting in $712.5 million of funds available for us to draw under the ABCP Facility.
During 2015, we incurred financing costs under the ABCP Facility of approximately 0.40 percent on average on unused
borrowing capacity and approximately 3 month LIBOR plus 0.80 percent on outstandings under the ABCP Facility.

Short-term borrowings have a remaining term to maturity of one year or less. The following table summarizes the
outstanding short-term borrowings, the weighted average interest rates at the end of the period and the related average balance
and weighted average interest rates during the period. The ABCP Facility’s contractual maturity is two years from the date of
inception or renewal (one year revolving period plus a one year amortization period); however, we classify advances under our
ABCP Facility as short-term borrowings because it is our intention to repay those advances within one-year. Rates reflect stated
interest of borrowings and related discounts and premiums.

F-41

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

9. Borrowings (Continued)

December 31, 2016

Year Ended
December 31, 2016

Ending Balance

Weighted
Average
Interest Rate

Average Balance

Weighted
Average
Interest Rate

Short-term borrowings:
ABCP Facility .......................................... $
Maximum outstanding at any month end ..... $

—
526,500

— % $

229,719

2.61 %

December 31, 2015

Year Ended
December 31, 2015

Ending Balance

Weighted
Average
Interest Rate

Average Balance

Weighted
Average
Interest Rate

Short-term borrowings:
ABCP Facility .......................................... $
Maximum outstanding at any month end ..... $

500,175
710,005

0.84 % $

135,064

3.10 %

Long-term Borrowings

2016 Transactions

On May 26, 2016, we executed our SMB Private Education Loan Trust 2016-A term ABS transaction, which was

accounted for as a secured financing. A total of $551 million of notes were issued in connection with the transaction. We
retained a 100 percent or $50 million interest in the Class B notes and 100 percent of the residual certificates issued in the
securitization. $501 million of Class A notes from the securitization were sold to third parties, raising $501 million of gross
proceeds. The Class A notes had a weighted average life of 4.01 years and priced at a weighted average LIBOR equivalent cost
of 1-month LIBOR plus 1.38 percent. At December 31, 2016, $564 million of our Private Education Loans were encumbered as
a result of this transaction.

On July 21, 2016, we executed our SMB Private Education Loan Trust 2016-B term ABS transaction, which was

accounted for as a secured financing. A total of $657 million of notes were issued in connection with the transaction. We
retained a 100 percent or $50 million interest in the Class B notes and 100 percent of the residual certificates issued in the
securitization. $607 million of Class A notes from the securitization were sold to third parties, raising $607 million of gross
proceeds. The Class A notes had a weighted average life of 4.01 years and priced at a weighted average LIBOR equivalent cost
of 1-month LIBOR plus 1.36 percent. At December 31, 2016, $683 million of our Private Education Loans were encumbered as
a result of this transaction.

On October 12, 2016, we executed our SMB Private Education Loan Trust 2016-C term ABS transaction, which was

accounted for as a secured financing. A total of $674 million of notes were issued in connection with the transaction. We
retained a 100 percent interest in the residual certificates issued in the securitization. $674 million of notes from the
securitization were sold to third-parties, raising $673 million of gross proceeds. The Class A and Class B notes had a weighted
average life of 4.27 years and priced at a weighted average LIBOR equivalent cost of 1-month LIBOR plus 1.15 percent. At
December 31, 2016, $689 million of our Private Education Loans were encumbered as a result of this transaction.

F-42

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

9. Borrowings (Continued)

2015 Transaction

On July 30, 2015, we executed our SMB Private Education Loan Trust 2015-B term ABS transaction, which was

accounted for as a secured financing. A total of $714 million of notes were issued in connection with the transaction. We
retained a 5 percent or $33 million interest in the Class A and B notes, a 100 percent or $50 million interest in the Class C notes
and 100 percent of the residual certificates issued in the securitization. $631 million of notes from the securitization were sold
to third-parties, raising $623 million of gross proceeds. The Class A and B notes had a weighted average life of 4.8 years and
priced at a weighted average LIBOR equivalent cost of 1 month LIBOR plus 1.53 percent. At December 31, 2016, $627 million
of our Private Education Loans were encumbered as a result of this transaction.

The following table summarizes the outstanding long-term borrowings, the weighted average interest rates at the end of
the period and the related average balance during the period. Rates reflect stated interest of borrowings and related discounts
and premiums. The long-term borrowings amortize over time and mature serially from 2023 to 2040.

December 31, 2016

Ending
Balance

Weighted
Average
Interest Rate

Year Ended
December 31,
2016

December 31, 2015

Year Ended
December 31,
2015

Average
Balance

Ending
Balance

Weighted
Average
Interest Rate

Average
Balance

Floating rate borrowings ............. $ 1,175,819
992,160
Fixed rate borrowings .................
Total long-term borrowings ......... $ 2,167,979

687,580 $
548,465

1.71 % $
2.68
2.15 % $ 1,236,045 $

337,098
242,003
579,101

1.38 % $
3.11
2.10 % $

151,373
102,386
253,759

Secured Financings

Issue

Date Issued

Total Issued

Weighted Average Cost of Funds(1)

Weighted
Average Life
(in years)

Private Education:

2015-B

Total notes issued in 2015

July 2015

Total loans and accrued interest amount
securitized at inception in 2015

$
$

2016-A

2016-B

2016-C

Total notes issued in 2016

May 2016

July 2016

October 2016

1 month LIBOR plus 1.53%

4.82

1 month LIBOR plus 1.38%

1 month LIBOR plus 1.36%

1 month LIBOR plus 1.15%

4.01

4.27

630,800
630,800

745,580

501,000
607,000
674,000
1,782,000

2,107,042

Total loans and accrued interest amount
securitized at inception in 2016

____________

(1) Represents LIBOR equivalent cost of funds for floating and fixed rate bonds, excluding issuance costs.

F-43

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

9. Borrowings (Continued)

Consolidated Funding Vehicles

We consolidate our financing entities that are VIEs as a result of our being the entities’ primary beneficiary. As a result,

these financing VIEs are accounted for as secured borrowings.

December 31, 2016

Debt Outstanding

Carrying Amount of Assets Securing Debt Outstanding

Short-Term

Long-Term

Total

Loans

Restricted
Cash

Other Assets(1)

Total

Secured borrowings:

Private Education Loan
term securitization ........... $
ABCP Facility .................
Total ............................... $

$ 2,167,979

$
—
—
—
— $ 2,167,979 $ 2,167,979 $ 2,562,156 $

$ 2,562,156

—

44,617

$
—
44,617 $

160,783

$ 2,767,556
—
160,783 $ 2,767,556

—

December 31, 2015

Debt Outstanding

Carrying Amount of Assets Securing Debt Outstanding

Short-Term

Long-Term

Total

Loans

Restricted
Cash

Other Assets(1)

Total

Secured borrowings:

Private Education Loan
term securitization ........... $
ABCP Facility .................
Total ............................... $

________

—

$
500,175
500,175 $

579,101

$
—

$
$
687,298
579,101
923,687
500,175
579,101 $ 1,079,276 $ 1,610,985 $

$
9,996
12,443
22,439 $

$
742,860
45,566
58,095
994,225
103,661 $ 1,737,085

(1) Other assets primarily represent accrued interest receivable.

Other Borrowing Sources

We maintain discretionary uncommitted Federal Funds lines of credit with various correspondent banks, which totaled

$125.0 million at December 31, 2016. The interest rate we are charged on these lines of credit is priced at Fed Funds plus a
spread at the time of borrowing, and is payable daily. We did not utilize these lines of credit in the years ended December 31,
2016, 2015 and 2014.

We established an account at the FRB to meet eligibility requirements for access to the Primary Credit borrowing facility

F-44

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

10. Private Education Loan Term Securitizations

We securitize Private Education Loan assets by selling these assets to securitization trusts. If we have a variable

interest in a VIE (e.g., a securitization trust) and have determined that we are the primary beneficiary, then we will consolidate
the VIE and the transfer is accounted for as a financing. For additional information, see Note 9, “Borrowings.” If a transfer of
loans qualifies as a sale, we derecognize the loan and recognize a gain or loss as the difference between compensation received
and the carrying basis of the loans sold and liabilities retained. We recognize the results of a transfer of loans based upon the
settlement date of the transaction.

On October 27, 2015, we executed a $701 million Private Education Loan term ABS transaction that qualified for sale

treatment and removed the principal balance of the loans backing the securitization trust from our balance sheet on the
settlement date. We continue to service the loans in the trust. In the fourth quarter of 2015, we recorded a pre-tax gain of $58
million on the sale, net of closing adjustments and transaction costs, a 7.8 percent premium.

On April 23, 2015, we executed a $738 million Private Education Loan term ABS transaction that qualified for sale

treatment and removed the principal balance of the loans backing the securitization trust from our balance sheet on the
settlement date. We continue to service the loans in the trust. In the second quarter of 2015, we recorded a pre-tax gain of $77
million on the sale, net of closing adjustments and transaction costs, a 10.4 percent premium.

11. Derivative Financial Instruments

Risk Management Strategy

We maintain an overall interest rate risk management strategy that incorporates the use of derivative instruments to
reduce 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 liabilities so any adverse impacts related to movements
in interest rates are managed within low to moderate limits. As a result of interest rate fluctuations, hedged liabilities will
appreciate or depreciate in market value or create variability in cash flows. Income or loss on the derivative instruments that are
linked to the hedged item will generally offset the effect of this unrealized appreciation or depreciation or volatility in cash
flows for the period the item is being hedged. We view this strategy as a prudent management of interest rate risk.

Although we use derivatives to reduce the risk of interest rate 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 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 less collateral held and plus collateral posted. When the fair value of a
derivative contract less collateral held and plus collateral posted is negative, we owe the counterparty and, therefore, we 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
Derivatives Association, Inc. Master Agreement. Depending on the nature of the derivative transaction, bilateral collateral
arrangements 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 held and plus collateral posted, represents exposure
with the counterparty. When there is a net negative exposure, we consider our exposure to the counterparty to be zero.

Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires all standardized

derivatives, including most interest rate swaps, to be submitted for clearing to central counterparties to reduce counterparty risk.
As of December 31, 2016, $4.8 billion notional of our derivative contracts were cleared on the Chicago Mercantile Exchange

F-45

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

11. Derivative Financial Instruments (Continued)

and the London Clearing House. This represents 92.1 percent of our total notional derivative contracts of $5.2 billion. All
derivative contracts cleared through an exchange require collateral to be exchanged based on the fair value of the derivative.
Our exposure is limited to the value of the derivative contracts in a gain position less any collateral held and plus any collateral
posted. When there is a net negative exposure, we consider our exposure to the counterparty to be zero. At December 31, 2016
and 2015, we had a net positive exposure (derivative gain positions to us, less collateral held by us plus collateral posted with
counterparties) related to derivatives of $44.6 million and $50.1 million, respectively.

Accounting for Derivative Instruments

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 fair value.
Our derivative instruments are classified and accounted for by us as fair value hedges and cash flow hedges.

Fair Value Hedges

We generally use fair value hedges to offset the exposure to changes in fair value of a recognized fixed-rate liability. We

enter into interest rate swaps to economically convert fixed-rate debt into variable-rate 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.

Cash Flow Hedges

We use cash flow hedges to hedge the exposure to variability in cash flows of floating-rate deposits. This strategy is used

primarily to minimize the exposure to volatility in cash flows from future changes in interest rates. Gains and losses on the
effective portion of a qualifying hedge are recorded in accumulated other comprehensive income and ineffectiveness is
recorded immediately to earnings. In assessing hedge effectiveness, generally all components of each derivative’s gains or
losses are included in the assessment. We hedge exposure to changes in cash flows due to changes in interest rates or total
changes in cash flow.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest

expense as interest payments are made on our variable-rate deposits. During the next twelve months, we estimate that
$11.2 million will be reclassified as an increase to interest expense.

Trading Activities

When derivative instruments do not qualify for hedge accounting treatment, they are accounted for at fair value with all

changes in fair value recorded through earnings. All our derivative instruments entered into after December 31, 2013 with a
maturity of less than 3 years are economically hedging risk, but do not receive hedge accounting treatment. Trading derivatives
also include any hedges that originally received hedge accounting treatment, but lost hedge accounting treatment due to failed
effectiveness testing, as well as the activity of certain derivatives prior to those derivatives receiving hedge accounting
treatment.

F-46

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

11. Derivative Financial Instruments (Continued)

Summary of Derivative Financial Statement Impact

The following tables summarize the fair values and notional amounts of all derivative instruments at December 31, 2016

and 2015, and their impact on earnings and other comprehensive income for the years ended December 31, 2016, 2015 and
2014.

Impact of Derivatives on the Consolidated Balance Sheet

Cash Flow Hedges
December
31,

December
31,

Fair Value Hedges
December
December
31,
31,

Trading

Total

December
31,

2016

2015

2016

2015

2016

2015

2016

2015

Hedged
Risk
Exposure

Fair Values(1)

Derivative
Assets:(2)

Interest rate
swaps..........

Interest
rate

—

7,808

$ 15,231

—

7,808

$ 15,314

Derivative
Liabilities:(2)

Interest rate
swaps..........

Interest
rate

Total net
derivatives .....

(14,463 )

(27,512 )

(10,398 )

(2,339 )

(1,076 )

(646 )

(25,937 )

(30,497 )

$ (14,463 ) $ (27,512 ) $

(2,590 ) $ 12,892

(1,076 ) $

(563 ) $ (18,129 ) $ (15,183 )

(1)

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.

(2) The following table reconciles gross positions with the impact of master netting agreements to the balance sheet classification:

Other Assets

December 31,
2016

December 31,
2015

Other Liabilities
December 31, December 31,

2016

2015

Gross position(1) ......................... $

7,808 $

15,314 $

(25,937 ) $

(30,497 )

Impact of master netting agreement ..
Derivative values with impact of
master netting agreements (as
carried on balance sheet) ...............
Cash collateral (held) pledged .........
Net position .............................. $

(7,808 )

(9,278 )

7,808

9,278

—
—
— $

6,036
(1,070 )
4,966 $

(18,129 )
48,134
30,005 $

(21,219 )
54,845
33,626

(1) Gross position amounts are exclusive of accrued interest.

F-47

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

11. Derivative Financial Instruments (Continued)

Cash Flow

Fair Value

Trading

Total

December
31,

2016

2015

2016

2015

2016

2015

2016

2015

Notional Values

Interest rate
swaps ...............

$ 1,054,688

$ 1,109,933

$ 3,628,062

$ 3,080,167

494,638

$ 1,305,757

$ 5,177,388

$ 5,495,857

Impact of Derivatives on the Consolidated Statements of Income

Fair Value Hedges

Interest rate swaps:

Hedge ineffectiveness (losses)
gains recorded in earnings(1) .....
Realized gains recorded in
interest expense .......................

Total ......................................

Years Ended December 31,

2016

2015

2014

(1,035 ) $

2,695

1,718

27,810
26,775 $

29,940
32,635 $

20,958
22,676

Cash Flow Hedges

Interest rate swaps:

Hedge ineffectiveness losses
recorded in earnings(1) ..............
Realized losses recorded in
interest expense .......................

(1,579 ) $

(1,427 ) $

(520 )

Total ......................................

(19,244 ) $

(22,902 ) $

(17,665 )

(21,475 )

(9,070 )

(9,590 )

Trading

Interest rate swaps:

Interest reclassification ............
Change in fair value of future
interest payments recorded in
earnings..................................

Total(1) ....................................

Total ........................................ $

2,170 $

3,451 $

(2,250 )

(513 )
1,657
9,188 $

581
4,032
13,765 $

(2,944 )

(5,194 )
7,892

(1) Amounts included in “(losses) gains on derivatives and hedging activities, net.”

F-48

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

11. Derivative Financial Instruments (Continued)

Impact of Derivatives on the Statements of Changes in Stockholders’ Equity

Amount of loss recognized in other
comprehensive income (loss) .............................. $
Amount of loss reclassified in interest expense(1) ..
Total change in other comprehensive income
(loss) for unrealized gains (losses) on derivatives,
before income tax (expense) benefit..................... $

Years Ended December 31,

2016

2015

2014

(3,901 ) $
(17,665 )

(26,699 ) $
(21,475 )

(28,842 )

(9,070 )

13,764

(5,224 ) $

(19,772 )

(1) Amounts included in “realized losses recorded in interest expense” in the “Impact of Derivatives on the

Consolidated Statements of Income” table.

Cash Collateral

Cash collateral held related to derivative exposure between us and our derivatives counterparties was $1.0 million and
$1.1 million at December 31, 2016 and 2015, respectively. Collateral held is recorded in “Other Liabilities” on the consolidated
balance sheets. Cash collateral pledged related to derivative exposure between us and our derivatives counterparties was
$49.1 million and $54.8 million at December 31, 2016 and 2015, respectively. Collateral pledged is recorded in “Other interest-
earning assets” on the consolidated balance sheets.

F-49

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

12. Stockholders’ Equity

Preferred Stock

At December 31, 2016, we had outstanding 3.3 million shares of 6.97 percent Cumulative Redeemable Preferred Stock,

Series A (the “Series A Preferred Stock”) and 4.0 million shares of Floating-Rate Non-Cumulative Preferred Stock, Series B
(the “Series B Preferred Stock”). In connection with the Spin-Off, the Company, by reason of a statutory merger, succeeded
pre-Spin-Off SLM and issued Series A Preferred Stock and Series B Preferred Stock on terms substantially similar to those of
pre-Spin-Off SLM’s respective series of preferred stock. Neither series has a maturity date, but can be redeemed at our option.
Redemption would include any accrued and unpaid dividends for the then current quarterly dividend period (and, in the case of
the Series A Preferred Stock, any prior dividend periods), up to the redemption date. The shares have no preemptive or
conversion rights and are not exchangeable for any of our other securities or property. Dividends on both series are not
mandatory and are paid quarterly, when, as, and if declared by the Board of Directors. Holders of Series A Preferred Stock are
entitled to receive cumulative, quarterly cash dividends at the annual rate of $3.485 per share. Holders of Series B Preferred
Stock are entitled to receive quarterly dividends based on 3-month LIBOR plus 170 basis points per annum in arrears. Upon
liquidation or dissolution of the Company, holders of the Series A and Series B Preferred Stock are entitled to receive $50 and
$100 per share, respectively, plus an amount equal to accrued and unpaid dividends for the then current quarterly dividend
period (and, in the case of the Series A Preferred Stock, all prior dividend periods), pro rata, and before any distribution of
assets are made to holders of our common stock.

Common Stock

Our shareholders have authorized the issuance of 1.125 billion shares of common stock (par value of $.20). At

We did not pay common stock dividends for the years ended December 31, 2016 and 2015. Because of the carve-out

accounting treatment, there were no common stock dividends recognized in the financial statements for the year ended
December 31, 2014. For additional information, see Note 2, “Significant Accounting Policies — Basis of Presentation.”

We currently do not intend to initiate a publicly announced share repurchase program. We only expect to repurchase
common stock acquired in connection with taxes withheld resulting from award exercises and vesting under our employee
stock-based compensation plans. The following table summarizes our common share repurchases and issuances associated
with these programs.

(Shares and per share amounts in actuals)
Shares repurchased related to employee stock-based
compensation plans(1) ..............................................................
Average purchase price per share.............................................. $
Common shares issued(2) .........................................................

Years Ended December 31,

2016

2015

2014

3,354,730

3,008,913

7.83 $

9.65 $

5,955,045

5,873,309

1,365,277
8.93
2,013,805

(1) 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.

(2) Common shares issued under our various compensation and benefit plans.

The closing price of our common stock on December 30, 2016 was $11.02.

F-50

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

13. Earnings per Common Share

Basic earnings per common share (“EPS”) are calculated using the weighted average number of shares of common stock
outstanding during each period. The determination of the weighted-average shares and diluted potential common shares for pre-
Spin-Off periods are based on the activity at pre-Spin-Off SLM. A reconciliation of the numerators and denominators of the
basic and diluted EPS calculations follows.

(In thousands, except per share data)

Years Ended December 31,

2016

2015

2014

Numerator:
Net income attributable to SLM Corporation .............................................. $
Preferred stock dividends ..........................................................................
Net income attributable to SLM Corporation common stock ......................... $

Denominator:
Weighted average shares used to compute basic EPS ...................................

250,327 $
21,204
229,123 $

274,284 $
19,595
254,689 $

194,219
12,933
181,286

427,876

425,574

423,970

Effect of dilutive securities:

Dilutive effect of stock options, restricted stock, restricted stock units
and Employee Stock Purchase Plan (“ESPP”) (1)(2) ..................................
Weighted average shares used to compute diluted EPS .................................

5,043
432,919

6,660
432,234

8,299
432,269

Basic earnings per common share attributable to SLM Corporation ....... $

0.54 $

0.60 $

0.43

Diluted earnings per common share attributable to SLM Corporation .... $

0.53 $

0.59 $

0.42

__________

(1) Includes the potential dilutive effect of additional common shares that are issuable upon exercise of outstanding stock options,

restricted stock, restricted stock units, and the outstanding commitment to issue shares under the ESPP, determined by the treasury
stock method.

(2) For the years ended December 31, 2016, 2015 and 2014, securities covering approximately 1 million, 2 million and 3 million shares,
respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive.

F-51

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

14. Stock-Based Compensation Plans and Arrangements

Plan Summaries

As of December 31, 2016, we had one active stock-based compensation plan that provides for grants of equity awards to

our employees and non-employee directors. We also maintained an Employee Stock Purchase Plan (“ESPP”). Shares issued
under these stock-based compensation plans may be either shares reacquired by us or shares that are authorized but unissued.

The SLM Corporation 2012 Omnibus Incentive Plan was approved by shareholders on May 24, 2012. At December 31,

2016, 25 million shares, as adjusted to reflect the effects of the Spin-Off, were authorized to be issued from this plan.

An amendment to our ESPP was approved by our shareholders on May 24, 2012 that authorized the issuance of 6 million
shares under the plan and kept the terms of the plan substantially the same. The number of shares authorized under the plan was
subsequently adjusted to 15 million shares on June 25, 2014, to reflect the effects of the Spin-Off.

Stock-Based Compensation

The total stock-based compensation cost recognized in the consolidated statements of income for the years ended

December 31, 2016, 2015 and 2014 was $22.9 million, $21.6 million and $25.0 million, respectively. As of December 31, 2016,
there was $14.8 million of total unrecognized compensation expense related to unvested stock awards net of estimated
forfeitures, which is expected to be recognized over a weighted average period of 1.4 years. We amortize compensation expense
on a straight-line basis over the related vesting periods of each tranche of each award.

Stock Options

Stock options granted prior to 2012 expire 10 years after the grant date, and those granted since 2012 expire in 5 years.
The exercise price must be equal to or greater than the market price of our common stock on the grant date. We have granted
time-vested, price-vested and performance-vested options to our employees and non-employee directors. Time-vested options
granted to management and non-management employees generally vest over three years. Price-vested options granted to
management employees vest upon our common stock reaching a targeted closing price for a set number of days. Performance-
vested options granted to management employees vest one-third per year for three years based on corporate earnings-related
performance targets. Options granted to non-employee directors vest upon the director’s election to the Board.

There were no options granted in the years ended December 31, 2016 and 2015. The fair values of the options granted in

the year ended December 31, 2014 were estimated as of the grant date using a Black-Scholes option pricing model with the
following weighted average assumptions:

(Dollars per share)
Risk-free interest rate ...................................................
Expected volatility .......................................................
Expected dividend rate .................................................
Expected life of the option ............................................
Weighted average fair value of options granted ............... $

Year Ended
December 31,

2014

0.76 %

26 %

2.48 %

2.9 years
3.48

The expected life of the options is based on observed historical exercise patterns. Groups of employees (and non-
employee directors) that have received similar option grant terms are considered separately for valuation purposes. The
expected volatility is based on implied volatility from publicly traded options on our stock at the grant date and historical

F-52

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

14. Stock-Based Compensation Plans and Arrangements (Continued)

volatility of our stock consistent with the expected life of the option. The risk-free interest rate is based on the U.S. Treasury
spot rate at the grant date consistent with the expected life of the option. The dividend yield is based on the projected annual
dividend payment per share based on the dividend amount at the grant date, divided by the stock price at the grant date.

The following table summarizes stock option activity for the year ended December 31, 2016.

(Dollars in thousands, except per share data)
Outstanding at December 31, 2015 ..................

Granted ........................................................
Exercised(2)(3) ................................................
Canceled ......................................................
Outstanding at December 31, 2016(4) ...............

Exercisable at December 31, 2016 ...................

Number of
Options
11,910,976 $

—
(3,000,047 )
(1,315,870 )
7,595,059 $
7,589,682 $

Weighted
Average
Exercise
Price per
Share

Weighted
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
Value(1)

10.08
—
5.74
18.56
10.43
6.13

1.8 $
1.8 $

39,357
39,344

(1)

(2)

The aggregate intrinsic value represents the total intrinsic value (the aggregate difference between our closing
stock price on December 31, 2016 and the exercise price of in-the-money options) that would have been received
by the option holders if all in-the-money options had been exercised on December 31, 2016.

The total intrinsic value of options exercised was $9.3 million, $13.7 million, and $11.4 million for the years
ended December 31, 2016, 2015 and 2014, respectively.

(3) Cash of $0.2 million was received from option exercises for the year ended December 31, 2016. The actual tax

benefit realized for the tax deductions from option exercises totaled $3.4 million for the year ended December 31,
2016.

(4)

For net-settled options, gross number is reflected.

F-53

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

14. Stock-Based Compensation Plans and Arrangements (Continued)

Restricted Stock

Restricted stock awards generally vest over one year and in some cases based on corporate earnings-related performance
targets. Outstanding restricted stock is entitled to dividend equivalent units that vest subject to the same vesting requirements or
lapse of transfer restrictions, as applicable, as the underlying restricted stock award. The fair value of restricted stock awards is
based on our stock price at the grant date.

The following table summarizes restricted stock activity for the year ended December 31, 2016.

(Amounts in thousands, except per share data)

Non-vested at December 31, 2015 .....................

Granted ...........................................................

Vested(1) ..........................................................

Canceled .........................................................

Non-vested at December 31, 2016(2)...................

Number of
Shares

Weighted
Average Grant
Date
Fair Value

86,174 $
120,879
(86,174 )
—
120,879 $

8.94
6.37
8.94
—
6.37

(1) The total fair value of shares that vested during the years ended December 31, 2016, 2015 and 2014

was $0.8 million, $0.5 million and $0.4 million, respectively.

(2) As of December 31, 2016, there was $0.4 million of unrecognized compensation cost related to
restricted stock net of estimated forfeitures, which is expected to be recognized over a weighted
average period of 0.5 years.

F-54

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

14. Stock-Based Compensation Plans and Arrangements (Continued)

Restricted Stock Units and Performance Stock Units

Restricted stock units (“RSUs”) and performance stock units (“PSUs”) are equity awards granted to employees that
entitle the holder to shares of our common stock when the award vests. RSUs may be time-vested over three years or vested at
grant but subject to transfer restrictions, while PSUs vest based on corporate performance targets over a three-year period.

Outstanding RSUs are entitled to dividend equivalent units that vest subject to the same vesting requirements or lapse of

transfer restrictions, as applicable, as the underlying award. The fair value of RSUs is based on our stock price at the grant date.

The following table summarizes RSU and PSU activity for the year ended December 31, 2016.

(Amounts in thousands, except per share data)

Outstanding at December 31, 2015 ......................

Granted ............................................................
Vested and converted to common stock(1) .............

Canceled ...........................................................

Outstanding at December 31, 2016(2) ...................

Number of
RSUs/
PSUs
5,840,388 $
4,508,818
(2,798,828 )
(63,768 )
7,486,610 $

Weighted
Average Grant
Date
Fair Value

8.52
5.95
7.92
7.02
7.21

(1)

The total fair value of RSUs/PSUs that vested and converted to common stock during the
years ended December 31, 2016, 2015 and 2014 was $22.2 million, $18.9 million and
$12.6 million, respectively.

(2) As of December 31, 2016, there was $14.3 million of unrecognized compensation cost

related to RSUs/PSUs net of estimated forfeitures, which is expected to be recognized over
a weighted average period of 1.4 years.

Employee Stock Purchase Plan

Employees may purchase shares of our common stock at the end of a 12-month offering period at a price equal to the
share price at the beginning of the 12-month period, less 15 percent, up to a maximum purchase price of $7,500 (whole dollars).
The purchase price for each offering is determined at the beginning of the offering period on August 1.

The fair values of the stock purchase rights of the ESPP offerings were calculated using a Black-Scholes option pricing

model with the following weighted average assumptions:

(Dollars per share)

Risk-free interest rate .................................................

Expected volatility .....................................................

Expected dividend rate ...............................................

Expected life of the option ..........................................
Weighted average fair value of stock purchase rights ..... $

Years Ended December 31,

2016

2015

2014

0.50 %
32 %
— %
1 year
1.53

0.33 %
27 %
— %
1 year
1.74

0.13 %

25 %

— %

1 year
1.66

The expected volatility is based on implied volatility from publicly traded options on our stock at the grant date and

historical volatility of our stock consistent with the expected life. The risk-free interest rate is based on the U.S. Treasury bill

F-55

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

14. Stock-Based Compensation Plans and Arrangements (Continued)

rate at the grant date consistent with the expected life. The dividend yield is zero, as we have not paid dividends nor do we
anticipate paying dividends on our common stock in 2017.

The fair values were amortized to compensation cost on a straight-line basis over a one-year vesting period. As of
December 31, 2016, there was $0.2 million of unrecognized compensation cost related to the ESPP, net of estimated forfeitures,
which is expected to be recognized by July 2017.

No shares were purchased for the year ended December 31, 2016, as our stock price on July 31, 2016 was less than the

offering price for the ESPP plan. During the year ended December 31, 2015, plan participants purchased 163,136 shares of our
common stock. As our ESPP resumed in late 2014, no shares were purchased for the year ended December 31, 2014.

15. Fair Value Measurements

We use estimates of fair value in applying various accounting standards for the consolidated financial statements.

We categorize our fair value estimates based on a hierarchal framework associated with three levels of price transparency
utilized in measuring financial instruments at fair value. For additional information regarding our policies for determining fair
value and the hierarchical framework, see Note 2, “Significant Accounting Policies — Fair Value Measurement.”

The following table summarizes the valuation of our financial instruments that are marked-to-fair value on a recurring

basis.

Assets

Fair Value Measurements on a Recurring Basis

December 31, 2016

December 31, 2015

Level 1

Level 2

Level 3

Total

Level 1 Level 2

Level 3

Total

Available-for-sale
investments ..........................

Derivative instruments ...........

—
—

Total

Liabilities

— $

208,603
7,808
216,411 $

—
—
— $

208,603
7,808
216,411 $

$ 195,391
15,314

—
—
— $ 210,705 $

—
—
— $

195,391
15,314
210,705

Derivative instruments ...........

Total

— $
— $

(25,937 ) $

— $
— $

(25,937 ) $

— $ (30,497 ) $
— $ (30,497 ) $

— $
— $

(30,497 )

F-56

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

15. Fair Value Measurements (Continued)

The following table summarizes the fair values of our financial assets and liabilities, including derivative financial

instruments.

December 31, 2016

December 31, 2015

Fair
Value

Carrying
Value

Difference

Fair
Value

Carrying
Value

Difference

—
—
—
—
—

1,918,793
208,603
766,106
259,532
7,808

Earning assets
Loans held for investment, net .......... $ 16,520,786 $ 15,137,922 $ 1,382,864 $ 12,343,726 $ 11,630,591 $ 713,135
—
1,918,793
Cash and cash equivalents ................
—
208,603
Available-for-sale investments ..........
—
766,106
Accrued interest receivable ...............
—
259,532
Tax indemnification receivable .........
—
7,808
Derivative instruments .....................
Total earning assets .......................... $ 19,681,628 $ 18,298,764 $ 1,382,864 $ 15,721,222 $ 15,008,087 $ 713,135
Interest-bearing liabilities
7,963,925 $
Money-market and savings accounts . $
5,471,065
Certificates of deposit ......................
—
Short-term borrowings .....................
2,167,979
Long-term borrowings .....................
21,058
Accrued interest payable ..................
25,937
Derivative instruments .....................
Total interest-bearing liabilities ......... $ 15,681,529 $ 15,649,964

5,928,450
500,175
567,468
16,385
30,497
(31,565 ) $ 12,599,229 $ 12,613,865 $

7,963,925 $
5,510,504
—
2,160,105
21,058
25,937

2,416,219
195,391
564,496
186,076
15,314

5,931,453
500,175
579,101
16,385
30,497

2,416,219
195,391
564,496
186,076
15,314

—
3,003
—
11,633
—
—
14,636

(39,439 )
—
7,874
—
—

— $ 5,556,254 $ 5,556,254 $

Excess of net asset fair value over
carrying value ................................

$ 1,351,299

$ 727,771

The methods and assumptions used to estimate the fair value of each class of financial instruments are as follows:

Cash and Cash Equivalents

Cash and cash equivalents are carried at cost. Carrying value approximated fair value for disclosure purposes. These are

level 1 valuations.

Investments

Investments are classified as available-for-sale and are carried at fair value in the consolidated financial statements.
Investments in mortgage-backed securities are valued using observable market prices of similar assets. As such, these are level
2 valuations.

F-57

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

15. Fair Value Measurements (Continued)

Loans Held For Investment

Our Private Education Loans and FFELP Loans are accounted for at cost or at the lower of cost or market if the loan is

held-for-sale. For both Private Education Loans and FFELP Loans, fair value was determined by modeling expected loan level
cash flows using stated terms of the assets and internally developed assumptions to determine aggregate portfolio yield, net
present value and average life. The significant assumptions used to determine fair value are prepayment speeds, default rates,
cost of funds and required return on equity. Significant inputs into the model are not observable. However, we do calibrate the
model based on market transactions when appropriate. As such, these are level 3 valuations.

Accrued Interest Receivable

Accrued interest receivable is carried at cost. The carrying value approximates fair value due to its short-term nature. This

is a level 1 valuation.

Tax Indemnification Receivable

Tax indemnification receivable is carried at cost. The carrying value approximates fair value. This is a level 2 valuation.

Money Market and Savings Accounts

The fair value of money market and savings accounts equal the amounts payable on demand at the balance sheet date and

are reported at their carrying value. These are level 1 valuations.

Certificates of Deposit

The fair values of CDs are estimated using discounted cash flows based on rates currently offered for deposits of similar

remaining maturities. These are level 2 valuations.

Accrued Interest Payable

Accrued interest payable is carried at cost. The carrying value approximates fair value due to its short-term nature. This is

a level 1 valuation.

Borrowings

Borrowings are accounted for at cost in the consolidated financial statements. The carrying value of short-term

borrowings approximated fair value for disclosure purposes, due to the short-term nature of those borrowings. This is a level 1
valuation. The fair value of long-term borrowings is estimated using current market prices. This is a level 2 valuation.

Derivatives

All derivatives are accounted for at fair value in the consolidated financial statements. The fair value of derivative
financial instruments was determined by a standard derivative pricing and option model using the stated terms of the contracts
and observable market inputs. It is our policy to compare the derivative fair values to those received from our counterparties in
order to evaluate the model’s outputs.

When determining the fair value of derivatives, we take into account counterparty credit risk for positions where we are
exposed to the counterparty on a net basis by assessing exposure net of collateral held. When the counterparty has exposure to
us under derivative contracts with the Company, we fully collateralize the exposure (subject to certain thresholds).

F-58

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

15. Fair Value Measurements (Continued)

Interest rate swaps are valued using a standard derivative cash flow model with a LIBOR swap yield curve, which is an

observable input from an active market. These derivatives are level 2 fair value estimates in the hierarchy.

The carrying value of borrowings designated as the hedged item in a fair value hedge is adjusted for changes in fair value

due to changes in the benchmark interest rate (one-month LIBOR). These valuations are determined through standard pricing
models using the stated terms of the borrowings and observable yield curves.

16. Arrangements with Navient Corporation

In connection with the Spin-Off, we entered into a Separation and Distribution Agreement with Navient (the “Separation
and Distribution Agreement”). We also entered into various other ancillary agreements with Navient to effect the Spin-Off and
provide a framework for our relationship with Navient thereafter, such as a transition services agreement, a tax sharing
agreement, an employee matters agreement, a loan servicing and administration agreement, a joint marketing agreement, a key
services agreement, a data sharing agreement and a master sublease agreement. The majority of these agreements are
transitional in nature with most having terms that have expired or will expire within the next two to three years.

We continue to have exposure to risks related to Navient’s creditworthiness. If we are unable to obtain indemnification

payments from Navient, our results of operations and financial condition could be materially and adversely affected.

Separation and Distribution Agreement

The Separation and Distribution Agreement addresses, among other things, the following ongoing activities:

•

the allocation among the parties of rights and obligations under insurance policies;

F-59

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

16. Arrangements with Navient Corporation (Continued)

•

The Separation and Distribution Agreement provides specific processes and procedures pursuant to which we may submit

Indemnification Obligations

Navient is responsible for, and has agreed to indemnify us against, all claims, actions, damages, losses or expenses that
may arise from the conduct of all activities of pre-Spin-Off SLM occurring prior to the Spin-Off other than those specifically
excluded in the Separation and Distribution Agreement. Some significant examples of the types of indemnification obligations
Navient has under the Separation and Distribution Agreement and related ancillary agreements include:

• Navient will indemnify the Company and the Bank for any liabilities, costs or expenses they may incur arising from

• At the time of this filing, the Bank remains subject to a Consent Order, Order to Pay Restitution and Order to Pay Civil

Money Penalty dated May 13, 2014 issued by the FDIC (the “FDIC Consent Order”) and a Consent Order (the “DOJ
Consent Order”) issued by the Department of Justice (the “DOJ”). Under the terms of the Separation and Distribution
Agreement, Navient is responsible for funding all liabilities under the regulatory orders and, as of the date hereof, has
funded all liabilities other than fines directly levied against the Bank in connection with these matters which the Bank
is required to pay.

• Pursuant to a tax sharing agreement, Navient has agreed to indemnify us for $283 million in deferred taxes that the
Company will be legally responsible for but that relate to gains recognized by the Company’s predecessor on debt
repurchases made prior to the Spin-Off. The remaining amount of this indemnification at December 31, 2016 was $116
million. In connection with the Spin-Off, we also recorded a liability related to uncertain tax positions of $27 million
for which we are indemnified by Navient. As of December 31, 2016, the remaining balance of the indemnification
receivable related to those uncertain tax positions was $28 million. In addition, we believe we are indemnified by
Navient for uncertain tax positions relating to historical transactions among entities that are now subsidiaries of
Navient that should have been recorded at the time of the Spin-Off. The remaining balance of the indemnification
receivable related to these uncertain tax positions also was $116 million at December 31, 2016. See Note 2,
“Significant Accounting Policies — Correction Recorded in the Current Period” and “—Income Taxes,” for additional
details.

F-60

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

16. Arrangements with Navient Corporation (Continued)

Long-Term Arrangements

The loan servicing and administration agreement governs the terms by which Navient provides servicing, administration

The data sharing agreement states we will continue to have the right to obtain from Navient certain post-Spin-Off

performance data relating to Private Education Loans owned or serviced by Navient to support and facilitate ongoing
underwriting, originations, forecasting, performance and reserve analyses.

Amended Loan Participation and Purchase Agreement

F-61

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

17. Regulatory Capital

The Bank is subject to various regulatory capital requirements administered by the FDIC and UDFI. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material adverse effect on our business, results of operations and financial condition. Under the
FDIC’s regulations implementing the Basel III capital framework (“U.S. Basel III”) and the regulatory framework for prompt
corrective action, the Bank must meet specific capital standards that involve quantitative measures of its assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and its
classification under the prompt corrective action framework are also subject to qualitative judgments by the regulators about
components of capital, risk weightings and other factors.

The Bank is required to report regulatory capital and ratios in accordance with U.S. Basel III. Among other things, U.S.

Basel III establishes Common Equity Tier 1 as a new tier of capital, modifies methods for calculating risk-weighted assets,
introduces a new capital conservation buffer (which is being phased in over several years), and revises the capital thresholds of
the prompt corrective action framework, including the “well capitalized” standard.

Actual

“Well Capitalized”
Regulatory Requirements

Amount

Ratio

Amount

Ratio

As of December 31, 2016:
Common Equity Tier 1 Capital (to Risk-Weighted Assets) .... $
Tier 1 Capital (to Risk-Weighted Assets) ............................ $
Total Capital (to Risk-Weighted Assets) .............................. $
Tier 1 Capital (to Average Assets) ...................................... $

2,011,583
2,011,583
2,197,997
2,011,583

12.6 %
12.6 %
13.8 %
11.1 %

$ 1,038,638 >
$ 1,278,323 >
$ 1,597,904 >
907,565 >
$

As of December 31, 2015:
Common Equity Tier 1 Capital (to Risk-Weighted Assets) .... $
Tier 1 Capital (to Risk-Weighted Assets) ............................ $
Total Capital (to Risk-Weighted Assets) .............................. $
Tier 1 Capital (to Average Assets) ...................................... $

1,734,315
1,734,315
1,848,528
1,734,315

14.4 %
14.4 %
15.4 %
12.3 %

781,638 >
962,017 >
$
$ 1,202,521 >
704,979 >
$

6.5 %

8.0 %

10.0 %

5.0 %

6.5 %

8.0 %

10.0 %

5.0 %

Bank Dividends

The Bank is chartered under the laws of the State of Utah and its deposits are insured by the FDIC. The Bank’s ability to
pay dividends is subject to the laws of Utah and the regulations of the FDIC. Generally, under Utah’s industrial bank laws and
regulations as well as FDIC regulations, the Bank may pay dividends from its net profits without regulatory approval if,
following the payment of the dividend, the Bank’s capital and surplus would not be impaired. The Bank paid no dividends on
its common stock for the years ended December 31, 2016, 2015 and 2014, respectively. For the foreseeable future, we expect

F-62

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

17. Regulatory Capital (Continued)

the Bank to only pay dividends to the Company as may be necessary to provide for regularly scheduled dividends payable on
the Company’s Series A and Series B Preferred Stock.

18. Defined Contribution Plans

We participate in a defined contribution plan which is intended to qualify under section 401(k) of the Internal Revenue

Code. The Sallie Mae 401(k) Savings Plan covers substantially all employees. After six months of service, we match 100
percent of the first three percent of contributions and match 50 percent of the next two percent of contributions for eligible
employees. After one month of service, eligible employees receive a one percent core employer contribution. For the years
ended December 31, 2016, 2015 and 2014, we contributed $4.4 million, $3.8 million and $3.1 million, respectively, to this plan.

19. Commitments, Contingencies and Guarantees

Commitments

When we approve a Private Education Loan at the beginning of an academic year, that approval may cover the borrowing

for the entire academic year. As such, we do not always disburse the full amount of the loan at the time of such approval, but
instead have a commitment to fund a portion of the loan at a later date (usually at the start of the second semester or subsequent
trimesters). At December 31, 2016, we had $1.7 billion of outstanding contractual loan commitments which we expect to fund
during the remainder of the 2016/2017 academic year. At December 31, 2016, we had a $1.7 million reserve recorded in “Other
Liabilities” to cover expected losses that may occur during the one year loss emergence period on these unfunded
commitments.

Regulatory Matters

At the time of this filing, the Bank remains subject to the FDIC Consent Order and the DOJ Consent Order. The FDIC

Consent Order replaces a prior cease and desist order jointly issued in August 2008 by the FDIC and the UDFI which was
terminated on July 15, 2014. On May 13, 2014, the Bank reached a settlement with the DOJ, and agreed to the DOJ Consent
Order, regarding compliance issues with the SCRA. At the same time, the Bank reached a settlement with the FDIC regarding
disclosures and assessments of certain late fees, as well as compliance with the SCRA. Under the FDIC Consent Order, the
Bank agreed to pay $3.3 million in fines and oversee the refund of up to $30 million in late fees assessed on loans owned or
originated by the Bank since its inception in November 2005. The DOJ Consent Order was approved by the U.S. District Court
for the District of Delaware on September 29, 2014. Under the terms of the Separation and Distribution Agreement, Navient is
responsible for funding all liabilities under the regulatory orders and, as of the date hereof, has funded all liabilities other than
fines directly levied against the Bank in connection with these matters which the Bank is required to pay.

We believe the Bank has complied with all the requirements of the FDIC Consent Order and the DOJ Consent Order. This

F-63

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

19. Commitments, Contingencies and Guarantees (Continued)

the inquiry over time. To the extent requested, the Bank has been cooperating fully with the CFPB and the attorneys general but
is not in a position at this time to predict the duration or outcome of these matters. Given the timeframe covered by the CIDs
and the focus on practices and procedures previously conducted by Navient and its servicing subsidiaries prior to the Spin-Off,
as contemplated by the Separation and Distribution Agreement relating to, and the structure of, the Spin-Off, Navient is leading
the response to these investigations, is legally responsible for, and has accepted responsibility to indemnify the Company
against all costs, expenses, losses and remediation that may arise from these matters. Additionally, on January 18, 2017, the
Illinois Attorney General filed a separate lawsuit against Navient - its subsidiaries Navient Solutions, Inc., Pioneer Credit
Recovery, Inc., and General Revenue Corporation - and the Bank arising out of the aforementioned multi-state investigation of
various lending, servicing, and collection practices. As contemplated by the Separation and Distribution Agreement relating to,
and the structure of, the Spin-Off, Navient is legally responsible for, and has accepted responsibility to indemnify the Company
against, all costs, expenses, losses and remediation that may arise from these matters.

Contingencies

In the ordinary course of business, we and our subsidiaries are routinely 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 may be asserted against us and our subsidiaries.

It is common for the Company, our subsidiaries and affiliates to receive information and document requests and

investigative demands from state attorneys general, legislative committees, and administrative agencies. These requests may be
for informational or regulatory purposes and may relate to our business practices, the industries in which we operate, or other
companies with whom we conduct business. Our practice has been and continues to be to cooperate with these bodies and be
responsive to any such requests.

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.

Based on current knowledge, management does not believe there are loss contingencies, if any, arising from pending

investigations, litigation or regulatory matters for which reserves should be established.

F-64

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

20. 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,

2016

2015

2014

Statutory rate .............................................
State tax, net of federal benefit ....................
Impact of state rate change on net deferred
tax liabilities, net of federal benefit ..............
State, valuation allowance adjustments on
net operating losses ....................................
Unrecognized tax benefits, U.S. federal and
state, net of federal benefit ..........................
Other, net ..................................................
Effective tax rate ........................................

35.0 %
3.1

(0.5 )

1.0

1.6

(0.6 )

39.6 %

35.0 %
3.0

0.5

(0.2 )

(0.5 )

(0.3 )

37.5 %

35.0 %
2.9

4.4

(4.0 )

4.8

(1.2 )

41.9 %

The effective tax rate varies from the statutory U.S. federal rate of 35 percent primarily due to the impact of state taxes,

net of federal benefit, for the years ended December 31, 2016, 2015 and 2014.

Income tax expense consists of:

Current provision:

Federal ..........................................................

State .............................................................
Total current provision ......................................

Deferred (benefit)/provision:

Federal ..........................................................

State .............................................................
Total deferred (benefit)/provision .......................
Provision for income tax expense .......................

December 31,

2016

2015

2014

228,505 $
24,336
252,841

(89,518 )
786
(88,732 )
164,109 $

215,950 $
26,057
242,007

(69,546 )

(7,681 )

(77,227 )
164,780 $

137,573
43,282
180,855

(40,370 )

(518 )

(40,888 )
139,967

F-65

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

20. Income Taxes (Continued)

The tax effect of temporary differences that give rise to deferred tax assets and liabilities include the following:

Deferred tax assets:
Loan reserves .................................................................. $
Stock-based compensation plans........................................
Deferred revenue .............................................................
Operating loss and credit carryovers ..................................
Unrealized losses .............................................................
Accrued expenses not currently deductible .........................
Unrecorded tax benefits ....................................................
Other ..............................................................................
Total deferred tax assets ....................................................
Deferred tax liabilities:
Gains on repurchased debt ................................................
Fixed assets .....................................................................
Acquired intangible assets ................................................
Other ..............................................................................
Total deferred tax liabilities ...............................................
Net deferred tax liabilities ................................................. $

December 31,

2016

2015

72,125 $
16,471
793
8,371
5,364
13,605
5,702
10,844
133,275

126,403
6,831
6,288
2,933
142,455

45,082
16,939
209
16,106
9,949
10,696
15,251
9,871
124,103

190,936
6,237
6,724
1,794
205,691

(9,180 ) $

(81,588 )

Included in operating loss carryovers is a valuation allowance of $88.4 million and $83.7 million as of December 31,
2016 and 2015, respectively, against a portion of our state net operating loss carryovers that management believes is more likely
than not to expire prior to being realized. As of December 31, 2016, we have apportioned state net operating loss carryforwards
of $12.9 million which begin to expire in 2029.

Accounting for Uncertainty in Income Taxes

The following table summarizes changes in unrecognized tax benefits:

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 .......................
Reductions related to the lapse of statute of limitations ........................
Unrecognized tax benefits at end of year......................................... $

December 31,

2016

2015

2014

47,109 $
110,894
(3,285 )
817
(123 )

(2,831 )
152,581 $

59,405 $
3,456
(10,121 )
3,447
(7,481 )

(1,597 )
47,109 $

7,344
45,184
—
7,713

(236 )

(600 )
59,405

F-66

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

20. Income Taxes (Continued)

As of December 31, 2016, the gross unrecognized tax benefits are $152.6 million. Included in the $152.6 million are

$120.0 million of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate. As a part of the
Spin-Off, the Company recorded a liability related to uncertain tax positions for which it is indemnified by Navient. In addition,
we believe we are indemnified by Navient for uncertain tax positions relating to historical transactions among entities that are
now subsidiaries of Navient that should have been recorded at the time of the Spin-Off. See Note 2, “Significant Accounting
Policies — Correction Recorded in the Current Period” and “—Income Taxes,” for additional details.

Tax related interest and penalty expense is reported as a component of income tax expense. As of December 31, 2016,
2015 and 2014, the total amount of income tax-related accrued interest and penalties, net of related benefit, recognized in the
consolidated balance sheets was $20.2 million, $7.0 million and $5.9 million, respectively.

For the years ended December 31, 2016, 2015 and 2014, the total amount of income tax-related accrued interest, net of

related tax benefit, recognized in the consolidated statements of income was $5.1 million, $1.4 million and $2.3 million,
respectively.

The Company or one of its subsidiaries files income tax returns at the U.S. federal level and in most U.S. states. U.S.

federal income tax returns filed for years 2012 and prior are no longer subject to examination. 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.

F-67

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

21. Concentrations of Risk

Our business is primarily focused on helping students and their families save, plan and pay for college. We primarily
originate, service and/or collect loans made to students and their families to finance the cost of their education. We provide
funding, delivery and servicing support for education loans in the United States through our Private Education Loan program.
Because of this concentration in one industry, we are exposed to credit, legislative, operational, regulatory, and liquidity risks
associated with the student loan industry.

Concentration Risk in the Revenues Associated with Private Education Loans

We compete in the Private Education Loan market with banks and other consumer lending institutions, some with strong

consumer brand name recognition and greater financial resources. We compete based on our products, origination capability
and customer service. To the extent our competitors compete aggressively or more effectively, we could lose market share to
them or subject our existing loans to refinancing risk. Our product offerings may not prove to be profitable and may result in
higher than expected losses.

We are a leading provider of saving- and paying-for-college products and programs. This concentration gives us a

competitive advantage in the marketplace. This concentration also creates risks in our business, particularly in light of our
concentrations as a Private Education Loan lender. If population demographics result in a decrease in college-age individuals, if
demand for higher education decreases, if the cost of attendance of higher education decreases, if public resistance to higher
education costs strengthens, or if the demand for higher education loans decreases, our consumer lending business could be
negatively affected. In addition, the federal government, through the DSLP, poses significant competition to our private credit
loan products. If loan limits under the DSLP increase, DSLP loans could be more widely available to students and their families
and DSLP loans could increase, resulting in further decreases in the size of the Private Education Loan market and demand for
our Private Education Loan products.

F-68

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

22. Parent Only Statements

The following parent company-only financial information should be read in conjunction with the other notes to the
consolidated financial statements. The accounting policies for the parent company-only financial statements are the same as
those used in the presentation of the consolidated financial statements other than the parent company-only financial statements
account for the parent company’s investments in its subsidiaries under the equity method.

Parent Only Condensed Balance Sheets

Assets
Cash and cash equivalents ............................................................... $
Total investments in subsidiaries (primarily Sallie Mae Bank) ...............
Tax indemnification receivable ........................................................
Due from subsidiaries, net ...............................................................
Other assets ..................................................................................
Total assets ................................................................................... $

December 31,

2016

2015

292,277 $
2,042,015
259,532
31,834
1,561
2,627,219 $

282,036
1,810,567
186,076
21,396
1,352
2,301,427

Liabilities and Equity

Liabilities
Income taxes payable, net ............................................................... $
Payable due to Navient ...................................................................
Other liabilities .............................................................................
Total liabilities ..............................................................................

256,556 $
2,823
20,782
280,161

189,215
1,990
13,899
205,104

Equity

Preferred stock, par value $0.20 per share, 20 million shares authorized:

Series A: 3.3 million and 3.3 million shares issued, respectively, at
stated value of $50 per share .........................................................
Series B: 4 million and 4 million shares issued, respectively, at stated
value of $100 per share ................................................................

Common stock, par value $0.20 per share, 1.125 billion shares
authorized: 436.6 million and 430.7 million shares issued, respectively ...
Additional paid-in capital ................................................................
Accumulated other comprehensive loss (net of tax benefit of $5,364
and $9,949, respectively) ................................................................
Retained earnings ..........................................................................
Total SLM Corporation stockholders’ equity before treasury stock .........
Less: Common stock held in treasury at cost: 7.7 million and 4.4
million shares, respectively .............................................................
Total equity ..................................................................................
Total liabilities and equity ............................................................... $

165,000

400,000

87,327
1,175,564

(8,671 )
595,322
2,414,542

(67,484 )
2,347,058
2,627,219 $

86,136
1,135,860

(16,059 )
366,609
2,137,546

(41,223 )
2,096,323
2,301,427

F-69

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

22. Parent Only Statements (Continued)

Parent Only Condensed Statements of Income

Years Ended December 31,

2016

2015

2014

Interest income ........................................................ $
Interest expense .......................................................
Net interest income ..................................................

Other income (loss) ..................................................
Operating expenses ..................................................

Loss before income tax benefit and equity in net
income from subsidiaries ..........................................
Income tax benefit....................................................
Equity in net income from subsidiaries (primarily
Sallie Mae Bank) .....................................................
Net income ..............................................................
Preferred stock dividends ..........................................
Net income attributable to common stock ................... $

5,367 $
—
5,367
9,396
32,553

6,414 $
—
6,414

(239 )
36,141

(17,790 )
(2,839 )

(29,966 )
(8,612 )

265,278
250,327
21,204
229,123 $

295,638
274,284
19,595
254,689 $

4,980
—
4,980
1,097
36,967

(30,890 )

(13,196 )

211,479
193,785
12,933
180,852

F-70

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

22. Parent Only Statements (Continued)

Parent Only Condensed Statements of Cash Flows

Years Ended December 31,

2016

2015

2014

Cash flows from operating activities:
Net income .................................................................. $
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Undistributed earnings of subsidiaries ............................
Interest income on tax indemnification receivable ...........
Decrease (increase) in investment in subsidiaries, net ......
Decrease in tax indemnification receivable .....................
(Increase) decrease in due from subsidiaries, net .............
Increase in other assets .................................................
Decrease in income taxes payable, net ............................
Increase (decrease) in payable due to entity that is a
subsidiary of Navient ...................................................
Increase in other liabilities ............................................
Total adjustments .........................................................
Net cash provided by (used in) operating activities ..........

250,327 $

274,284 $

193,785

(265,278 )
(12,283 )
63,222
59,633
(10,438 )
(8,972 )
(53,465 )

553
8,856
(218,172 )
32,155

(295,638 )
(5,398 )
(103,602 )
59,633
11,012
(14,366 )
(54,907 )

(6,774 )
1,402
(408,638 )
(134,354 )

(211,479 )

(5,904 )
278,365
44,724
(32,408 )

(5,447 )

(312,770 )

8,764
14,398
(221,757 )

(27,972 )

Cash flows from investing activities:
Net cash provided by (used in) investing activities...........

—

Cash flows from financing activities:
Special cash contribution from Navient ..........................
Excess tax (expense) benefit from exercise of stock-
based awards ...............................................................
Preferred stock dividends paid .......................................
Net cash (used in) provided by financing activities ..........
Net increase (decrease) in cash and cash equivalents ........
Cash and cash equivalents at beginning of year ...............
Cash and cash equivalents at end of year ........................ $

—

472,718

(710 )
(21,204 )
(21,914 )
10,241
282,036
292,277 $

1,740
(19,595 )
(17,855 )
(152,209 )
434,245
282,036 $

2,432

(12,933 )
462,217
434,245
—
434,245

F-71

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

23. Selected Quarterly Financial Information (unaudited)

2016

First

Quarter

Third
Quarter

Second
Quarter

Fourth
Quarter
(Dollars in thousands, except per share data)
Net interest income ....................................................... $ 209,863 $ 212,766 $ 223,275 $ 245,434
43,226
Less: provisions for credit losses ....................................
202,208
Net interest income after provisions for credit losses .........
230
Gains on sales of loans, net ............................................
(Losses) gains on derivative and hedging activities, net .....
(4,114 )
13,235
Other income ................................................................
98,036
Total operating expenses ................................................
159
Acquired intangible asset amortization expense ................
43,122
Income tax expense .......................................................
70,242
Net income ..................................................................
5,506
Preferred stock dividends ...............................................
Net income attributable to SLM Corporation common
stock ............................................................................ $

41,793
170,973
—
2,142
13,683
94,777
261
34,555
57,205
5,243

32,602
177,261
—
(354 )
21,028
92,885
260
38,875
65,915
5,139

41,784
181,491
—
1,368
21,598
99,709
226
47,557
56,965
5,316

60,776

64,736

51,649

51,962

Basic earnings per common share attributable to SLM
Corporation(1) ............................................................... $
Diluted earnings per common share attributable to SLM
Corporation(1) ............................................................... $

0.14

0.12

0.15

0.14

0.12

0.15

_____

(1) Basic and diluted earnings per common share attributable to SLM Corporation are computed independently for each of the quarters

presented. Therefore, the sum of quarterly basic and diluted earnings per common share information may not equal annual basic and diluted
earnings per common share.

F-72

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

23. Selected Quarterly Financial Information (unaudited) (Continued)

2015

First

Quarter

Third
Quarter

Second
Quarter

Fourth
Quarter
(Dollars in thousands, except per share data)
Net interest income ....................................................... $ 170,954 $ 168,257 $ 175,442 $ 187,846
30,382
Less: provisions for credit losses ....................................
157,464
Net interest income after provisions for credit losses ........
58,484
Gains on sales of loans, net ............................................
953
Gains (losses) on derivative and hedging activities, net .....
12,561
Other income................................................................
85,245
Total operating expenses ................................................
370
Acquired intangible asset amortization expense ...............
Restructuring and other reorganization expenses ..............
(913 )
54,915
Income tax expense .......................................................
89,845
Net income ..................................................................
4,989
Preferred stock dividends...............................................
Net income attributable to SLM Corporation common
stock............................................................................ $

15,558
152,699
76,874
1,602
10,912
89,799
370
744
60,158
91,016
4,870

16,618
154,336
—
3,292
8,007
81,187
370
4,657
31,722
47,699
4,823

27,497
147,945
—
(547 )
10,455
92,864
370
910
17,985
45,724
4,913

42,876

84,856

86,146

40,811

Basic earnings per common share attributable to SLM
Corporation(1) ............................................................... $

Diluted earnings per common share attributable to SLM
Corporation(1) ............................................................... $

0.10

0.20

0.10

0.20

0.10

0.20

0.09

0.20

_____

(1) Basic and diluted earnings per common share attributable to SLM Corporation are computed independently for each of the quarters

presented. Therefore, the sum of quarterly basic and diluted earnings per common share information may not equal annual basic and diluted
earnings per common share.

F-73

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

24. Subsequent Events

2017 Securitization

On February 8, 2017, we executed our $772 million SMB Private Education Loan Trust 2017-A term ABS transaction,
which will be accounted for as a secured financing. We sold $772 million of notes to third parties and retained a 100 percent
interest in the residual certificates issued in the securitization, raising approximately $768 million of gross proceeds. This
transaction will be reflected in our first quarter 2017 consolidated financial statements.

Amendment to the ABCP Facility

On February 22, 2017, we amended and extended the maturity of the ABCP Facility, discussed in Note 9, “Borrowings.”

The amended ABCP Facility is a $750 million ABCP Facility, under which the full $750 million is available for us to
draw. Under the amended ABCP Facility, we incur financing costs of between 0.35 percent and 0.45 percent on unused
borrowing capacity and approximately 3-month LIBOR plus 0.90 percent on outstandings. The amended ABCP Facility extends
the revolving period, during which we may borrow, repay and reborrow funds, until February 22, 2018. The scheduled
amortization period, during which amounts outstanding under the ABCP Facility must be repaid, ends on February 22, 2019 (or
earlier, if certain material adverse events occur).

F-74