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Loans Held for Sale | 12 Months Ended
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Dec. 31, 2023
Transfers and Servicing [Abstract] |
Loans Held for Sale | Loans Held for Investment Loans held for investment consist of Private Education Loans and FFELP Loans. We use “Credit Cards” to refer to the suite of Credit Card loans that we previously held. At September 30, 2022, we transferred our Credit Card portfolio to loans held for sale and subsequently sold the Credit Card portfolio to a third party in May 2023. We recorded a loss of $4 million on the on the sale of the Credit Card portfolio in 2023. For additional information, see Note 6, “Loans Held for Sale” in this Form 10-K. 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 may be fixed-rate or may carry a variable interest rate indexed to SOFR, the Secured Overnight Financing Rate. As of December 31, 2023, 33 percent of all our Private Education Loans were indexed to SOFR. As of December 31, 2022, 45 percent of all our Private Education Loans were indexed to LIBOR or SOFR. We provide incentives for customers to include a cosigner on the loan, and the vast majority of Private Education 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 on all qualifying claims. For loans disbursed prior to October 1, 1993, we receive 100 percent reimbursement on all qualifying claims. In 2021, we recognized $548 million in gains from the sale of approximately $4.24 billion of our Private Education Loans, including $3.98 billion of principal and $264 million in capitalized interest, to unaffiliated third parties. In 2022, we recognized $328 million in gains from the sale of approximately $3.34 billion of our Private Education Loans, including $3.13 billion of principal and $217 million in capitalized interest, to unaffiliated third parties. In 2023, we recognized $164 million in gains from the sale of approximately $3.15 billion of our Private Education Loans, including $2.93 billion of principal and $226 million in capitalized interest, to an unaffliated third party. There were VIEs created in the execution of certain of these loan sales; however, based on our consolidation analysis, we are not the primary beneficiary of these VIEs. These transactions qualified for sale treatment and removed the balance of the loans from our balance sheet on the respective settlement dates. We remained the servicer of these loans pursuant to applicable servicing agreements executed in connection with the sales. For additional information, see Note 12, “Borrowings - Unconsolidated VIEs” in this Form 10-K. Loans held for investment are summarized as follows:
As of December 31, (dollars in thousands) |  | 2023 |  | 2022
Private Education Loans: |  |  |  |
Fixed-rate |  | $ | 13,985,791 |  |  | $ | 11,108,079 |
Variable-rate |  | 7,040,053 |  |  | 9,195,609 |
Total Private Education Loans, gross |  | 21,025,844 |  |  | 20,303,688 |
Deferred origination costs and unamortized premium/ (discount) |  | 81,554 |  |  | 69,656 |
Allowance for credit losses |  | (1,335,105) |  |  | (1,353,631) |
Total Private Education Loans, net |  | 19,772,293 |  |  | 19,019,713 |
FFELP Loans |  | 537,401 |  |  | 609,050 |
Deferred origination costs and unamortized premium/ (discount) |  | 1,330 |  |  | 1,549 |
Allowance for credit losses |  | (4,667) |  |  | (3,444) |
Total FFELP Loans, net |  | 534,064 |  |  | 607,155 |
Loans held for investment, net |  | $ | 20,306,357 |  |  | $ | 19,626,868 |
The estimated weighted average life of education loans in our portfolio was approximately 5.0 years at both December 31, 2023 and 2022. The average balance and the respective weighted average interest rates of loans in our portfolio (net of unamortized premium/discount) are summarized as follows:
|  | 2023 |  | 2022 |  | 2021
Years ended December 31, (dollars in thousands) |  | Average Balance |  | Weighted Average Interest Rate |  | Average Balance |  | Weighted Average Interest Rate |  | Average Balance |  | Weighted Average Interest Rate
Private Education Loans |  | $ | 21,039,701 |  |  | 10.86 | % |  | $ | 20,576,737 |  |  | 9.14 | % |  | $ | 20,968,061 |  |  | 8.25 | %
FFELP Loans |  | 574,218 |  |  | 7.19 |  |  | 662,194 |  |  | 4.62 |  |  | 718,186 |  |  | 3.43 |
Credit Cards(1) |  | — |  |  | — |  |  | — |  |  | — |  |  | 14,982 |  |  | 4.67 |
Total portfolio |  | $ | 21,613,919 |  |  |  |  | $ | 21,238,931 |  |  |  |  | $ | 21,701,229 |  |  |
(1) Credit Card loans were transferred to loans held for sale at September 30, 2022 and were subsequently sold to a third party in May 2023. Certain Collection Tools — Private Education Loans We adjust the terms of loans for certain borrowers when we believe such changes will help our customers manage their student loan obligations and achieve better student outcomes, and increase the collectability of the loans. These changes generally take the form of a temporary forbearance of payments, a temporary or permanent interest rate reduction, a temporary or permanent interest rate reduction with a permanent extension of the loan term, and/or a short-term extended repayment alternative. Forbearance is granted prospectively for borrowers who are current in their payments and may be granted retroactively for certain delinquent borrowers. Forbearance allows a borrower to not make scheduled payments for a specified period of time. Using forbearance extends the original term of the loan by the term of forbearance taken. Forbearance does not grant any reduction in the total principal or interest repayment obligation. While a loan is in forbearance status, interest continues to accrue and is capitalized (added to principal) at the end of the forbearance. Interest will not capitalize at the end of certain types of forbearance, such as disaster forbearance, however. We grant forbearance through our servicing centers to borrowers who are current in their payments and through our collections centers to certain borrowers who are delinquent. Our forbearance policies and practices vary depending upon whether a borrower is current or delinquent at the time forbearance is requested, generally with stricter payment requirements for delinquent borrowers. We view the population of borrowers that use forbearance positively because the borrowers are either proactively reaching out to us to obtain assistance in managing their obligations or are working with our collections center to bring their loans current. Forbearance may be granted through our servicing centers to customers who are exiting their grace period, and to other customers who are current in their payments, 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 forbearance period, the customer will enter repayment status as current and is expected to begin making scheduled monthly payments. Forbearance may also be granted through our collections centers to customers who are delinquent in their payments. If specific payment requirements are met, the forbearance can cure the delinquency and the customer is returned to a current repayment status. Forbearance as a collection tool is used most effectively when applying historical experience and our judgment to a customer’s unique situation. 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 assisting customers while mitigating the risks of delinquency and default as well as encouraging resolution of delinquent loans. In most instances, we require one payment, as an indication of a customer’s willingness and ability to repay, before granting forbearance to delinquent borrowers. Historically, we have utilized disaster forbearance to assist borrowers affected by material events, typically federally-declared disasters, including hurricanes, wildfires, floods, and the COVID-19 pandemic. We typically grant disaster forbearance to affected borrowers in increments of up to three months at a time, but the disaster forbearance granted generally does not apply toward the 12-month forbearance limit described below. Management continually monitors our credit administration practices and may periodically modify these practices based upon performance, industry conventions, and/or regulatory feedback. In light of these considerations, we previously announced certain changes to our credit administration practices, including the imposition of limits on the number of forbearance months granted consecutively and the number of times certain extended or reduced repayment alternatives may be granted. Currently, we generally grant forbearance in increments of one to two months at a time, for up to 12 months over the life of the loan, although disaster forbearance and certain assistance we grant to borrowers who are still in school do not apply toward the 12-month limit. We also currently require 12 months of positive payment performance by a borrower (meaning the borrower must make payment in a cumulative amount equivalent to 12 monthly required payments under the loan) between successive grants of forbearance and between forbearance grants and certain other repayment alternatives. This required period of positive payment performance does not apply, however, to forbearances granted during the first six months following a borrower’s grace period and is not required for a borrower to receive a contractual interest rate reduction. In addition, we currently limit the participation of delinquent borrowers in certain short-term extended or interest-only repayment alternatives to once in 12 months and twice in five years. We also now count the number of months a borrower receives a short-term extended repayment alternative toward the 12-month forbearance limit described above. We also offer rate and term modifications to customers experiencing more severe hardship. In the fourth quarter of 2023, we developed additional modification programs tailored to the financial condition of individual borrowers. Pursuant to these additional modification programs, for our borrowers experiencing the most severe financial conditions, we currently may reduce the contractual interest rate on a loan to as low as 2.0 percent for the remaining life of the loan and also permanently extend the final maturity of the loan. Other borrowers experiencing severe hardship may not require as much assistance, however, given their circumstances. In those instances, we may reduce the contractual interest rate on a loan to a rate greater than 2.0 percent, and up to 8.0 percent, for a temporary period of up to two to four years, and in some instances may also permanently extend the final maturity of the loan. When we give a borrower facing financial difficulty an interest rate reduction under our programs, we evaluate their ability to pay and provide customized repayment terms based upon their financial condition. As part of demonstrating the ability and willingness to pay, the customer must make three consecutive monthly payments at the reduced payment to qualify for the program. We believe by tailoring the modification programs to the borrower’s current financial condition and not having a one size fits all approach, we increase the likelihood the borrower will be able to make the modified payments and avoid default. This approach of giving different interest rate reductions to different borrowers experiencing more severe hardship also helps us better manage the overall assistance we provide to borrowers. We currently limit the granting of a permanent extension of the final maturity date of a loan under our loan modification programs to one time over the life of the loan. We also currently permit two consecutive rate reductions so long as the borrower qualifies and makes three consecutive monthly payments at the reduced payment in connection with each rate reduction. We also now limit the number of interest rate reductions to twice over the life of the loan. While there are limitations to our estimate of the future impact of the various credit administration practices changes we have implemented, we expect that the credit administration practices described above, including the changes we implemented in 2021, will accelerate periodic defaults and will increase periodic defaults in our Private Education Loan held for investment portfolio. For 2021, we increased our allowance for credit losses as a result of the new credit administration practices. In 2022, we further increased our allowance for credit losses to reflect higher expected future periodic defaults in both the near term (reasonable and supportable period) and long term. This change reflected our estimate that the elevated default rates experienced in the latter half of 2022 that continued into 2023 would eventually decline over time. Among the measures that we have implemented and may modify further and expect may partly offset or moderate any acceleration of or increase in defaults will be greater focus on the risk assessment process to ensure borrowers are mapped to the appropriate program, better utilization of existing loss mitigation programs (e.g., Graduated Repayment Period program (“GRP”) and rate modifications), the use of a program offering short-term payment reductions (permitting interest-only payments for up to six months) for certain early-stage delinquencies, and implementation of potential new risk mitigation and collection strategies. We expect to learn more about how our borrowers are reacting to these changes to our credit administration practices and, as we analyze such reactions, we will continue to refine our estimates of the impact of those changes on our allowance for credit losses. As discussed above, we will continue to monitor our credit administration practices and may modify them further from time to time based upon performance, industry conventions, and/or regulatory feedback. The period of delinquency for loans is based on the number of days scheduled payments are contractually past due. As of December 31, 2023 and 2022, we had $151 million and $135 million, respectively, of Private Education Loans held for investment and $45 million and $68 million, respectively, of FFELP Loans held for investment which were more than 90 days delinquent that continue to accrue interest. At December 31, 2023, we had an immaterial amount of loans in nonaccrual status. At December 31, 2022, 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 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, 2023 and 2022, we had $1.4 billion and $2.7 billion, respectively, of Private Education Loans pledged to this borrowing facility, as discussed further in Note 12, “Borrowings” in this Form 10-K. We did not have any FFELP Loans pledged at December 31, 2023 or 2022. Loans Held for Investment by Region At December 31, 2023 and 2022, 43.5 percent and 43.1 percent, respectively, of total education loans were concentrated in the following states:
As of December 31, |  | 2023 |  | 2022
California |  | 10.1 | % |  | 9.8 | %
New York |  | 9.0 |  |  | 9.1 |
Pennsylvania |  | 7.2 |  |  | 7.4 |
Texas |  | 6.3 |  |  | 6.0 |
New Jersey |  | 5.6 |  |  | 5.8 |
Florida |  | 5.3 |  |  | 5.0 |
|  | 43.5 | % |  | 43.1 | %
No other state had a concentration of total education loans in excess of 5 percent of the aggregate outstanding education loans held for investment. Loans Held for SaleWe had no loans held for sale at December 31, 2023 and $29 million in loans held for sale at December 31, 2022. The balance at December 31, 2022 was comprised of our Credit Card loan portfolio. At September 30, 2022, when the loans were transferred to held for sale, we reversed $2.4 million through the provisions for credit losses for the allowance related to these loans. At September 30, 2022, we wrote down this loan portfolio to its estimated fair value through a charge-off to the allowance for credit losses of $1.5 million. In May 2023, we sold our Credit Card loan portfolio to a third party. This transaction qualified for sale treatment and removed the balance of the loans from our balance sheet on the settlement date. We recorded a loss of $4 million related to the sale in the second quarter of 2023.

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