Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2017

Valuation of Financial Instruments that are Marked-to-Market on Recurring Basis

The following table summarizes the valuation of our financial instruments that are marked-to-market on a recurring basis.


	Fair Value Measurements on a Recurring Basis
	March 31, 2017											December 31, 2016
(Dollars in millions)	Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3			Total
Assets
Available-for-sale investments:
Agency residential mortgage-backed securities	$	—	$	1		$	—		$	1		$	—	$	1		$	—		$	1
Other		—		2			—			2			—		2			—			2

Total available-for-sale investments		—		3			—			3			—		3			—			3
Derivative instruments:⁽¹⁾
Interest rate swaps		—		467			4			471			—		553			12			565
Cross-currency interest rate swaps		—		—			—			—			—		—			—			—
Other		—		—			—			—			—		—			—			—

Total derivative assets⁽²⁾		—		467			4			471			—		553			12			565

Total	$	—	$	470		$	4		$	474		$	—	$	556		$	12		$	568

Liabilities⁽³⁾
Derivative instruments⁽¹⁾
Interest rate swaps	$	—	$	(148	)	$	(46	)	$	(194	)	$	—	$	(150	)	$	(58	)	$	(208	)
Floor Income Contracts		—		(164	)		—			(164	)		—		(184	)		—			(184	)
Cross-currency interest rate swaps		—		(41	)		(1,125	)		(1,166	)		—		(53	)		(1,243	)		(1,296	)
Other		—		—			(16	)		(16	)		—		—			(13	)		(13	)

Total derivative liabilities⁽²⁾		—		(353	)		(1,187	)		(1,540	)		—		(387	)		(1,314	)		(1,701	)

Total	$	—	$	(353	)	$	(1,187	)	$	(1,540	)	$	—	$	(387	)	$	(1,314	)	$	(1,701	)

⁽¹⁾	Fair value of derivative instruments excludes accrued interest and the value of collateral.

⁽²⁾	See “Note 4 — Derivative Financial Instruments” for a reconciliation of gross positions without the impact of master netting agreements to the balance sheet classification.

⁽³⁾	Borrowings which are the hedged items in a fair value hedge relationship and which are adjusted for changes in value due to benchmark interest rates only are not carried at full fair value and are not reflected in this table.

Change in Balance Sheet Carrying Value Associated with Level 3 Financial Instruments Carried at Fair Value on Recurring Basis

The following tables summarize the change in balance sheet carrying value associated with level 3 financial instruments carried at fair value on a recurring basis.


	Three Months Ended March 31,
	2017												2016
	Derivative instruments												Derivative instruments
(Dollars in millions)	Interest Rate Swaps			Cross Currency Interest Rate Swaps			Other			Total Derivative Instruments			Interest Rate Swaps			Cross Currency Interest Rate Swaps			Other			Total Derivative Instruments
Balance, beginning of period	$	(46	)	$	(1,243	)	$	(13	)	$	(1,302	)	$	(44	)	$	(903	)	$	(2	)	$	(949	)
Total gains/(losses) (realized and unrealized):
Included in earnings(1)		2			89			(5	)		86			11			358			(2	)		367
Included in other comprehensive income		—			—			—			—			—			—			—			—
Settlements		2			29			2			33			1			17			—			18
Transfers in and/or out of level 3		—			—			—			—			—			—			—			—

Balance, end of period	$	(42	)	$	(1,125	)	$	(16	)	$	(1,183	)	$	(32	)	$	(528	)	$	(4	)	$	(564	)

Change in unrealized gains/(losses) relating to instruments still held at the reporting date⁽²⁾	$	4		$	57		$	(4	)	$	57		$	12		$	375		$	(2	)	$	385

⁽¹⁾	“Included in earnings” is comprised of the following amounts recorded in the specified line item in the consolidated statements of income:

Included in Earnings


	Three Months Ended March 31,
(Dollars in millions)	2017			2016
Gains (losses) on derivative and hedging activities, net	$	115		$	384
Interest expense		(29	)		(17	)

Total	$	86		$	367

⁽²⁾	Recorded in “gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.

Unobservable Data Used in Recurring Valuations of Level 3

The following table presents the significant inputs that are unobservable or from inactive markets used in the recurring valuations of the level 3 financial instruments detailed above.


(Dollars in millions)	Fair Value at March 31, 2017			Valuation Technique	Input	Range (Weighted Average)
Derivatives
Prime/LIBOR basis swaps	$	(42	)	Discounted cash flow	Constant prepayment rate		4.9%
					Bid/ask adjustment to discount rate		.05% — .05% (.05%)
Cross-currency interest rate swaps		(1,125	)	Discounted cash flow	Constant prepayment rate		3.3%
Other		(16	)

Total	$	(1,183	)

Fair Values of Financial Assets and Liabilities, Including Derivative Financial Instruments

The following table summarizes the fair values of our financial assets and liabilities, including derivative financial instruments.


	March 31, 2017									December 31, 2016
(Dollars in millions)	Fair Value			Carrying Value			Difference			Fair Value			Carrying Value			Difference
Earning assets
FFELP Loans	$	84,531		$	85,284		$	(753	)	$	86,626		$	87,730		$	(1,104	)
Private Education Loans		22,687			22,552			135			23,191			23,340			(149	)
Cash and investments⁽¹⁾		5,398			5,398			—			5,203			5,203			—

Total earning assets		112,616			113,234			(618	)		115,020			116,273			(1,253	)

Interest-bearing liabilities
Short-term borrowings		2,169			2,160			(9	)		2,346			2,334			(12	)
Long-term borrowings		107,743			109,586			1,843			109,826			112,368			2,542

Total interest-bearing liabilities		109,912			111,746			1,834			112,172			114,702			2,530

Derivative financial instruments
Floor Income Contracts		(164	)		(164	)		—			(184	)		(184	)		—
Interest rate swaps		277			277			—			357			357			—
Cross-currency interest rate swaps		(1,166	)		(1,166	)		—			(1,296	)		(1,296	)		—
Other		(16	)		(16	)		—			(13	)		(13	)		—

Excess of net asset fair value over carrying value							$	1,216								$	1,277

⁽¹⁾	“Cash and investments” includes available-for-sale investments whose cost basis is $3 million and $3 million at March 31, 2017 and December 31, 2016, respectively, versus a fair value of $3 million and $3 million at March 31, 2017 and December 31, 2016, respectively.