Allowance for Credit Losses and Recorded Investments in Loans

Allowance for Loan Losses Metrics

	Three Months Ended June 30, 2021
(Dollars in millions)	FFELP Loans			Private Education Loans			Total
Allowance at beginning of period	$	282		$	992		$	1,274
Provision:
Reversal of allowance related to loan sales⁽¹⁾		—			(5	)		(5	)
Remaining provision		—			4			4
Total provision		—			(1	)		(1	)
Charge-offs⁽²⁾		(5	)		(35	)		(40	)
Decrease in expected future recoveries on charged-off loans⁽³⁾		—			20			20
Allowance at end of period		277			976			1,253
Plus: expected future recoveries on charged-off loans⁽³⁾		—			434			434
Allowance at end of period excluding expected future recoveries on charged-off loans⁽⁴⁾	$	277		$	1,410		$	1,687
Charge-offs as a percentage of average loans in repayment (annualized)		.04	%		.71	%
Allowance coverage of charge-offs (annualized)⁽⁴⁾		15.5			10.0
Allowance as a percentage of the ending total loan balance⁽⁴⁾		.5	%		6.8	%
Allowance as a percentage of ending loans in repayment⁽⁴⁾		.6	%		7.2	%
Ending total loans	$	55,827		$	20,701
Average loans in repayment	$	46,348		$	19,667
Ending loans in repayment	$	45,854		$	19,692

⁽¹⁾	In connection with the sale of approximately $30 million of Private Education Loans.

⁽²⁾

Charge-offs are reported net of expected recoveries. For Private Education Loans, at the time of charge-off, the expected recovery amount is transferred from the education loan balance to the allowance for loan loss and is referred to as the expected future recoveries on charged-off loans. For FFELP Loans, the recovery is received at the time of charge-off.

⁽³⁾

At the end of each month, for Private Education Loans that are 212 or more days past due, we charge off the estimated loss of a defaulted loan balance. Actual recoveries are applied against the remaining loan balance that was not charged off. We refer to this as the “expected future recoveries on charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately charged off through the allowance for Private Education Loan losses with an offsetting reduction in the expected future recoveries for charged-off loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. The following table summarizes the activity in the expected future recoveries on charged-off loans:

	Three Months Ended June 30,
(Dollars in millions)	2021
Beginning of period expected recoveries	$	454
Expected future recoveries of current period defaults		5
Recoveries		(22	)
Charge-offs		(3	)
End of period expected recoveries	$	434
Change in balance during period	$	(20	)

⁽⁴⁾	The allowance used for these metrics excludes the expected future recoveries on charged-off loans to better reflect the current expected credit losses remaining in the portfolio.

2. Allowance for Loan Losses (Continued)

	Three Months Ended June 30, 2020
(Dollars in millions)	FFELP Loans			Private Education Loans			Other Loans
Allowance at beginning of period	$	311		$	1,083		$	1,394
Total provision		3			41			44
Charge-offs⁽¹⁾		(12	)		(48	)		(60	)
Decrease in expected future recoveries on charged-off loans⁽²⁾		—			22			22
Allowance at end of period		302			1,098			1,400
Plus: expected future recoveries on charged-off loans⁽²⁾		—			549			549
Allowance at end of period excluding expected future recoveries on charged-off loans⁽³⁾	$	302		$	1,647		$	1,949
Charge-offs as a percentage of average loans in repayment (annualized)		.11	%		.97	%
Allowance coverage of charge-offs (annualized)⁽³⁾		6.3			8.6
Allowance as a percentage of the ending total loan balance⁽³⁾		.5	%		7.3	%
Allowance as a percentage of ending loans in repayment⁽³⁾		.7	%		8.2	%
Ending total loans	$	61,223		$	22,560
Average loans in repayment	$	44,144		$	19,731
Ending loans in repayment	$	42,640		$	20,201

⁽¹⁾

Charge-offs are reported net of expected recoveries. For Private Education Loans, at the time of charge-off, the expected recovery amount is transferred from the education loan balance to the allowance for loan loss and is referred to as the expected future recoveries on charged-off loans. For FFELP Loans, the recovery is received at the time of charge-off.

⁽²⁾

At the end of each month, for Private Education Loans that are 212 or more days past due, we charge off the estimated loss of a defaulted loan balance. Actual recoveries are applied against the remaining loan balance that was not charged off. We refer to this as the “expected future recoveries on charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately charged off through the allowance for Private Education Loan losses with an offsetting reduction in the expected future recoveries for charged-off loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. The following table summarizes the activity in the expected future recoveries on charged-off loans:

	Three Months Ended June 30,
(Dollars in millions)	2020
Beginning of period expected recoveries	$	571
Expected future recoveries of current period defaults		9
Recoveries		(28	)
Charge-offs		(3	)
End of period expected recoveries	$	549
Change in balance during period	$	(22	)

⁽³⁾	The allowance used for these metrics excludes the expected future recoveries on charged-off loans to better reflect the current expected credit losses remaining in the portfolio.

2. Allowance for Loan Losses (Continued)

	Six Months Ended June 30, 2021
(Dollars in millions)	FFELP Loans			Private Education Loans			Total
Allowance at beginning of period	$	288		$	1,089		$	1,377
Provision:
Reversal of allowance related to loan sales⁽¹⁾		—			(107	)		(107	)
Remaining provision		—			19			19
Total provision		—			(88	)		(88	)
Charge-offs⁽²⁾		(11	)		(70	)		(81	)
Decrease in expected future recoveries on charged-off loans⁽³⁾		—			45			45
Allowance at end of period		277			976			1,253
Plus: expected future recoveries on charged-off loans⁽³⁾		—			434			434
Allowance at end of period excluding expected future recoveries on charged-off loans⁽⁴⁾	$	277		$	1,410		$	1,687
Charge-offs as a percentage of average loans in repayment (annualized)		.05	%		.70	%
Allowance coverage of charge-offs (annualized)⁽⁴⁾		12.5			10.0
Allowance as a percentage of the ending total loan balance⁽⁴⁾		.5	%		6.8	%
Allowance as a percentage of ending loans in repayment⁽⁴⁾		.6	%		7.2	%
Ending total loans	$	55,827		$	20,701
Average loans in repayment	$	46,694		$	20,272
Ending loans in repayment	$	45,854		$	19,692

⁽¹⁾	In connection with the sale of approximately $1.6 billion of Private Education Loans.

⁽²⁾

Charge-offs are reported net of expected recoveries. For Private Education Loans, at the time of charge-off, the expected recovery amount is transferred from the education loan balance to the allowance for loan loss and is referred to as the expected future recoveries on charged-off loans. For FFELP Loans, the recovery is received at the time of charge-off.

⁽³⁾

At the end of each month, for Private Education Loans that are 212 or more days past due, we charge off the estimated loss of a defaulted loan balance. Actual recoveries are applied against the remaining loan balance that was not charged off. We refer to this as the “expected future recoveries on charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately charged off through the allowance for Private Education Loan losses with an offsetting reduction in the expected future recoveries for charged-off loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. The following table summarizes the activity in the expected future recoveries on charged-off loans:

	Six Months Ended June 30,
(Dollars in millions)	2021
Beginning of period expected recoveries	$	479
Expected future recoveries of current period defaults		10
Recoveries		(47	)
Charge-offs		(8	)
End of period expected recoveries	$	434
Change in balance during period	$	(45	)

⁽⁴⁾	The allowance used for these metrics excludes the expected future recoveries on charged-off loans to better reflect the current expected credit losses remaining in the portfolio.

2. Allowance for Loan Losses (Continued)

	Six Months Ended June 30, 2020
(Dollars in millions)	FFELP Loans			Private Education Loans			Other Loans
Allowance as of December 31, 2019	$	64		$	1,048		$	1,112
Transition adjustment made under CECL on January 1, 2020⁽¹⁾		260			(3	)		257
Allowance as of January 1, 2020 after transition adjustment to CECL		324			1,045			1,369
Total provision		9			130			139
Charge-offs⁽²⁾		(31	)		(116	)		(147	)
Decrease in expected future recoveries on charged-off loans⁽³⁾		—			39			39
Allowance at end of period		302			1,098			1,400
Plus: expected future recoveries on charged-off loans⁽³⁾		—			549			549
Allowance at end of period excluding expected future recoveries on charged-off loans⁽⁴⁾	$	302		$	1,647		$	1,949
Charge-offs as a percentage of average loans in repayment (annualized)		.13	%		1.13	%
Allowance coverage of charge-offs (annualized)⁽⁴⁾		4.8			7.1
Allowance as a percentage of the ending total loan balance⁽⁴⁾		.5	%		7.3	%
Allowance as a percentage of ending loans in repayment⁽⁴⁾		.7	%		8.2	%
Ending total loans	$	61,223		$	22,560
Average loans in repayment	$	48,302		$	20,666
Ending loans in repayment	$	42,640		$	20,201

⁽¹⁾	For a further discussion of our adoption of CECL, see “Note 2 – Significant Accounting Policies” in our 2020 Annual Report on Form 10-K.

⁽²⁾

Charge-offs are reported net of expected recoveries. For Private Education Loans, at the time of charge-off, the expected recovery amount is transferred from the education loan balance to the allowance for loan loss and is referred to as the expected future recoveries on charged-off loans. For FFELP Loans, the recovery is received at the time of charge-off.

⁽³⁾

At the end of each month, for Private Education Loans that are 212 or more days past due, we charge off the estimated loss of a defaulted loan balance. Actual recoveries are applied against the remaining loan balance that was not charged off. We refer to this as the “expected future recoveries on charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately charged off through the allowance for Private Education Loan losses with an offsetting reduction in the expected future recoveries for charged-off loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. The following table summarizes the activity in the expected future recoveries on charged-off loans:

	Six Months Ended June 30,
(Dollars in millions)	2020
Beginning of period expected recoveries	$	588
Expected future recoveries of current period defaults		22
Recoveries		(57	)
Charge-offs		(4	)
End of period expected recoveries	$	549
Change in balance during period	$	(39	)

⁽⁴⁾	The allowance used for these metrics excludes the expected future recoveries on charged-off loans to better reflect the current expected credit losses remaining in the portfolio.

Age Analysis of Past Due Loans Delinquencies

	FFELP Loan Delinquencies
	June 30, 2021						December 31, 2020						June 30, 2020
(Dollars in millions)	Balance			%			Balance			%			Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	2,576					$	2,791					$	3,130
Loans in forbearance⁽²⁾		7,397						7,725						15,453
Loans in repayment and percentage of each status:
Loans current		42,026			91.7	%		43,623			90.8	%		39,152			91.8	%
Loans delinquent 31-60 days⁽³⁾		1,398			3.0			1,374			2.9			1,222			2.9
Loans delinquent 61-90 days⁽³⁾		685			1.5			836			1.7			657			1.5
Loans delinquent greater than 90 days⁽³⁾		1,745			3.8			2,223			4.6			1,609			3.8
Total FFELP Loans in repayment		45,854			100	%		48,056			100	%		42,640			100	%
Total FFELP Loans		55,827						58,572						61,223
FFELP Loan allowance for losses		(277	)					(288	)					(302	)
FFELP Loans, net	$	55,550					$	58,284					$	60,921
Percentage of FFELP Loans in repayment					82.1	%					82.0	%					69.6	%
Delinquencies as a percentage of FFELP Loans in repayment					8.3	%					9.2	%					8.2	%
FFELP Loans in forbearance as a percentage of loans in repayment and forbearance					13.9	%					13.8	%					26.6	%

⁽¹⁾

Loans for customers who may still be attending school or engaging in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation, as well as loans for customers who have requested and qualify for other permitted program deferments such as military, unemployment, or economic hardships.

⁽²⁾

Loans for customers who have used their allowable deferment time or do not qualify for deferment, that need additional time to obtain employment or who have temporarily ceased making full payments due to hardship or other factors such as disaster relief, including COVID-19 relief programs, consistent with established loan program servicing policies and procedures.

⁽³⁾	The period of delinquency is based on the number of days scheduled payments are contractually past due.

	Private Education Loan Delinquencies
	TDRs
	June 30, 2021						December 31, 2020						June 30, 2020
(Dollars in millions)	Balance			%			Balance			%			Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	220					$	280					$	293
Loans in forbearance⁽²⁾		517						703						1,253
Loans in repayment and percentage of each status:
Loans current		6,387			93.3	%		6,952			93.4	%		6,827			94.8	%
Loans delinquent 31-60 days⁽³⁾		186			2.7			185			2.5			110			1.5
Loans delinquent 61-90 days⁽³⁾		95			1.4			114			1.5			77			1.1
Loans delinquent greater than 90 days⁽³⁾		178			2.6			197			2.6			188			2.6
Total TDR loans in repayment		6,846			100	%		7,448			100	%		7,202			100	%
Total TDR loans		7,583						8,431						8,748
TDR loans allowance for losses		(826	)					(929	)					(933	)
TDR loans, net	$	6,757					$	7,502					$	7,815
Percentage of TDR loans in repayment					90.3	%					88.3	%					82.3	%
Delinquencies as a percentage of TDR loans in repayment					6.7	%					6.6	%					5.2	%
Loans in forbearance as a percentage of TDR loans in repayment and forbearance					7.0	%					8.6	%					14.8	%

⁽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⁾

Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors such as disaster relief, including COVID-19 relief programs, consistent with established loan program servicing policies and procedures.

⁽³⁾	The period of delinquency is based on the number of days scheduled payments are contractually past due.

2. Allowance for Loan Losses (Continued)

	Private Education Loan Delinquencies
	Non-TDRs
	June 30, 2021						December 31, 2020						June 30, 2020
(Dollars in millions)	Balance			%			Balance			%			Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	183					$	203					$	219
Loans in forbearance⁽²⁾		89						141						594
Loans in repayment and percentage of each status:
Loans current		12,800			99.6	%		13,335			99.6	%		12,948			99.6	%
Loans delinquent 31-60 days⁽³⁾		22			.2			26			.2			18			.1
Loans delinquent 61-90 days⁽³⁾		9			.1			12			.1			11			.1
Loans delinquent greater than 90 days⁽³⁾		15			.1			20			.1			22			.2
Total non-TDR loans in repayment		12,846			100	%		13,393			100	%		12,999			100	%
Total non-TDR loans		13,118						13,737						13,812
Non-TDR loans allowance for losses		(150	)					(160	)					(165	)
Non-TDR loans, net	$	12,968					$	13,577					$	13,647
Percentage of non-TDR loans in repayment					97.9	%					97.5	%					94.1	%
Delinquencies as a percentage of non-TDR loans in repayment					.4	%					.4	%					.4	%
Loans in forbearance as a percentage of non- TDR loans in repayment and forbearance					.7	%					1.0	%					4.4	%

⁽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⁾

Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors such as disaster relief, including COVID-19 relief programs, consistent with established loan program servicing policies and procedures.

⁽³⁾	The period of delinquency is based on the number of days scheduled payments are contractually past due.

Private Education Loan Portfolio Stratified by Key Credit Quality Indicators

	Private Education Loan Credit Quality Indicators by Origination Year
	June 30, 2021
(Dollars in millions)	June 30, 2021		2020		2019		2018		2017		Prior		Total			% of Total
Credit Quality Indicators
FICO Scores:
640 and above	$	2,713	$	2,517	$	2,291	$	839	$	259	$	10,467	$	19,086			92	%
Below 640		15		9		31		20		8		1,532	$	1,615			8
Total	$	2,728	$	2,526	$	2,322	$	859	$	267	$	11,999	$	20,701			100	%
Loan Status:
In-school/grace/ deferment/forbearance	$	12	$	29	$	37	$	19	$	7	$	905	$	1,009			5	%
Current/90 days or less delinquent		2,716		2,496		2,283		839		259		10,906		19,499			94
Greater than 90 days delinquent		—		1		2		1		1		188		193			1
Total	$	2,728	$	2,526	$	2,322	$	859	$	267	$	11,999	$	20,701			100	%
Seasoning⁽¹⁾:
1-12 payments	$	2,720	$	1,497	$	50	$	6	$	2	$	152	$	4,427			22	%
13-24 payments		—		1,010		1,869		27		4		181		3,091		15
25-36 payments		—		—		381		621		16		297		1,315			6
37-48 payments		—		—		—		195		197		463		855		4
More than 48 payments		—		—		—		—		46		10,564		10,610			51
Loans in-school/ grace/deferment		8		19		22		10		2		342		403		2
Total	$	2,728	$	2,526	$	2,322	$	859	$	267	$	11,999	$	20,701			100	%
TDR Status:
TDR	$	—	$	3	$	20	$	26	$	30	$	7,504	$	7,583			37	%
Non-TDR		2,728		2,523		2,302		833		237		4,495		13,118			63
Total	$	2,728	$	2,526	$	2,322	$	859	$	267	$	11,999	$	20,701			100	%
Cosigners:
With cosigner⁽²⁾	$	8	$	36	$	13	$	1	$	39	$	7,883	$	7,980			39	%
Without cosigner		2,720		2,490		2,309		858		228		4,116		12,721			61
Total	$	2,728	$	2,526	$	2,322	$	859	$	267	$	11,999	$	20,701			100	%
School Type:
Not-for-profit	$	2,583	$	2,412	$	2,166	$	792	$	256	$	9,960	$	18,169			88	%
For-profit		145		114		156		67		11		2,039		2,532			12
Total	$	2,728	$	2,526	$	2,322	$	859	$	267	$	11,999	$	20,701			100	%
Allowance for loan losses														(976	)
Total loans, net													$	19,725

⁽¹⁾	Number of months in active repayment for which a scheduled payment was received.

⁽²⁾	Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 65% for total loans at June 30, 2021.

2. Allowance for Loan Losses (Continued)

	Private Education Loan Credit Quality Indicators by Origination Year
	June 30, 2020
(Dollars in millions)	June 30, 2020		2019		2018		2017		2016		Prior		Total			% of Total
Credit Quality Indicators
FICO Scores:
640 and above	$	2,028	$	3,831	$	1,368	$	445	$	94	$	12,346	$	20,112			89	%
Below 640		8		40		27		11		3		2,359		2,448			11
Total	$	2,036	$	3,871	$	1,395	$	456	$	97	$	14,705	$	22,560			100	%
Loan Status:
In-school/grace/ deferment/forbearance	$	89	$	180	$	80	$	28	$	8	$	1,974	$	2,359			10	%
Current/90 days or less delinquent		1,947		3,690		1,313		427		89		12,525		19,991			89
Greater than 90 days delinquent		—		1		2		1		—		206		210			1
Total	$	2,036	$	3,871	$	1,395	$	456	$	97	$	14,705	$	22,560			100	%
Seasoning⁽¹⁾:
1-12 payments	$	2,032	$	3,203	$	14	$	2	$	—	$	214	$	5,465			24	%
13-24 payments		—		651		1,017		14		2		283		1,967		9
25-36 payments		—		—		352		350		6		465		1,173			5
37-48 payments		—		—		—		86		86		698		870		4
More than 48 payments		—		—		—		—		2		12,571		12,573			56
Loans in-school/ grace/deferment		4		17		12		4		1		474		512		2
Total	$	2,036	$	3,871	$	1,395	$	456	$	97	$	14,705	$	22,560			100	%
TDR Status:
TDR	$	—	$	5	$	21	$	31	$	12	$	8,679	$	8,748			39	%
Non-TDR		2,036		3,866		1,374		425		85		6,026		13,812			61
Total	$	2,036	$	3,871	$	1,395	$	456	$	97	$	14,705	$	22,560			100	%
Cosigners:
With cosigner⁽²⁾	$	2	$	14	$	1	$	58	$	26	$	9,641	$	9,742			43	%
Without cosigner		2,034		3,857		1,394		398		71		5,064		12,818			57
Total	$	2,036	$	3,871	$	1,395	$	456	$	97	$	14,705	$	22,560			100	%
School Type:
Not-for-profit	$	1,918	$	3,618	$	1,292	$	436	$	96	$	12,155	$	19,515			86	%
For-profit		118		253		103		20		1		2,550		3,045			14
Total	$	2,036	$	3,871	$	1,395	$	456	$	97	$	14,705	$	22,560			100	%
Allowance for loan losses														(1,098	)
Total loans, net													$	21,462

⁽¹⁾	Number of months in active repayment for which a scheduled payment was received.

⁽²⁾	Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 65% for total loans at June 30, 2020.