Allowance for Credit Losses and Recorded Investments in Loans

Allowance for Loan Losses Metrics

	Three Months Ended September 30, 2022
(Dollars in millions)	FFELP Loans			Private Education Loans			Total
Beginning balance	$	245		$	921		$	1,166
Total provision		—			28			28
Charge-offs:
Gross charge-offs		(12	)		(118	)		(130	)
Expected future recoveries on current period gross charge-offs		—			19			19
Total⁽¹⁾		(12	)		(99	)		(111	)
Adjustment resulting from the change in charge-off rate⁽²⁾		—			(30	)		(30	)
Net charge-offs		(12	)		(129	)		(141	)
Decrease in expected future recoveries on previously fully charged-off loans⁽³⁾		—			32			32
Allowance at end of period	$	233		$	852		$	1,085
Net charge-offs as a percentage of average loans in repayment, excluding the net adjustment resulting from the change in charge-off rate (annualized) ⁽²⁾		.12	%		2.01	%
Net adjustment resulting from the change in charge-off rate as a percentage of average loans in repayment (annualized)⁽²⁾		—	%		.60	%
Net charge-offs as a percentage of average loans in repayment (annualized)		.12	%		2.61	%
Ending total loans	$	47,124		$	20,003
Average loans in repayment	$	39,573		$	19,628
Ending loans in repayment	$	37,731		$	19,284

⁽¹⁾

Charge-offs are reported net of expected recoveries. For Private Education Loans we charge off the estimated loss of a defaulted loan balance by charging off the entire defaulted loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as “expected future recoveries on previously fully charged-off loans.” For FFELP Loans, the recovery is received at the time of charge-off.

⁽²⁾	In third-quarter 2022, the net charge-off rate on defaulted Private Education Loans increased from 81.7% to 81.9%. This change resulted in a $30 million reduction to the balance of the expected future recoveries on previously fully charged-off loans.

⁽³⁾

At the end of each month, for Private Education Loans that are 212 days past due, we charge off the estimated loss of a defaulted loan balance by charging off the entire loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as “expected future recoveries on previously fully charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately reflected as a reduction to expected future recoveries on previously fully 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 previously fully charged-off loans:

	Three Months Ended September 30,
(Dollars in millions)	2022
Beginning of period expected future recoveries on previously fully charged-off loans	$	312
Expected future recoveries of current period defaults		19
Recoveries (cash collected)		(14	)
Charge-offs (as a result of lower recovery expectations)		(37	)
End of period expected future recoveries on previously fully charged-off loans	$	280
Change in balance during period	$	(32	)

2. Allowance for Loan Losses (Continued)

	Three Months Ended September 30, 2021
(Dollars in millions)	FFELP Loans			Private Education Loans			Total
Beginning balance	$	277		$	976		$	1,253
Total provision		—			22			22
Charge-offs:
Gross charge-offs		(8	)		(45	)		(53	)
Expected future recoveries on current period gross charge-offs		—			6			6
Total⁽¹⁾		(8	)		(39	)		(47	)
Adjustment resulting from the change in charge-off rate⁽²⁾		—			(16	)		(16	)
Net charge-offs		(8	)		(55	)		(63	)
Decrease in expected future recoveries on previously fully charged-off loans⁽³⁾		—			37			37
Allowance at end of period	$	269		$	980		$	1,249
Net charge-offs as a percentage of average loans in repayment, excluding the net adjustment resulting from the change in charge-off rate (annualized)⁽²⁾		.07	%		.77	%
Net adjustment resulting from the change in charge-off rate as a percentage of average loans in repayment (annualized)⁽²⁾		—	%		.33	%
Net charge-offs as a percentage of average loans in repayment (annualized)		.07	%		1.10	%
Ending total loans	$	54,619		$	20,998
Average loans in repayment	$	45,201		$	19,894
Ending loans in repayment	$	44,160		$	19,795

⁽¹⁾

Charge-offs are reported net of expected recoveries. For Private Education Loans we charge off the estimated loss of a defaulted loan balance by charging off the entire defaulted loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as “expected future recoveries on previously fully charged-off loans.” For FFELP Loans, the recovery is received at the time of charge-off.

⁽²⁾	In third-quarter 2021, the net charge-off rate on defaulted Private Education Loans increased from 81.4% to 81.7%. This change resulted in a $16 million reduction to the balance of the expected future recoveries on previously fully charged-off loans.

⁽³⁾

At the end of each month, for Private Education Loans that are 212 days past due, we charge off the estimated loss of a defaulted loan balance by charging off the entire loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as “expected future recoveries on previously fully charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately reflected as a reduction to expected future recoveries on previously fully 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 previously fully charged-off loans:

	Three Months Ended September 30,
(Dollars in millions)	2021
Beginning of period expected future recoveries on previously fully charged-off loans	$	434
Expected future recoveries of current period defaults		6
Recoveries (cash collected)		(22	)
Charge-offs (as a result of lower recovery expectations)		(21	)
End of period expected future recoveries on previously fully charged-off loans	$	397
Change in balance during period	$	(37	)

2. Allowance for Loan Losses (Continued)

	Nine Months Ended September 30, 2022
(Dollars in millions)	FFELP Loans			Private Education Loans			Total
Beginning balance	$	262		$	1,009		$	1,271
Total provision		—			62			62
Charge-offs:
Gross charge-offs		(29	)		(281	)		(310	)
Expected future recoveries on current period gross charge-offs		—			43			43
Total⁽¹⁾		(29	)		(238	)		(267	)
Adjustment resulting from the change in charge-off rate⁽²⁾		—			(30	)		(30	)
Net charge-offs		(29	)		(268	)		(297	)
Decrease in expected future recoveries on previously fully charged-off loans⁽³⁾		—			49			49
Allowance at end of period	$	233		$	852		$	1,085
Net charge-offs as a percentage of average loans in repayment, excluding the net adjustment resulting from the change in charge-off rate (annualized)⁽²⁾		.09	%		1.59	%
Net adjustment resulting from the change in charge-off rate as a percentage of average loans in repayment (annualized)⁽²⁾		—	%		.20	%
Net charge-offs as a percentage of average loans in repayment (annualized)		.09	%		1.79	%
Ending total loans	$	47,124		$	20,003
Average loans in repayment	$	41,793		$	20,056
Ending loans in repayment	$	37,731		$	19,284

⁽¹⁾

Charge-offs are reported net of expected recoveries. For Private Education Loans we charge off the estimated loss of a defaulted loan balance by charging off the entire defaulted loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as “expected future recoveries on previously fully charged-off loans.” For FFELP Loans, the recovery is received at the time of charge-off.

⁽²⁾	In third-quarter 2022, the net charge-off rate on defaulted Private Education Loans increased from 81.7% to 81.9%. This change resulted in a $30 million reduction to the balance of the expected future recoveries on previously fully charged-off loans.

⁽³⁾

At the end of each month, for Private Education Loans that are 212 days past due, we charge off the estimated loss of a defaulted loan balance by charging off the entire loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as “expected future recoveries on previously fully charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately reflected as a reduction to expected future recoveries on previously fully 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 previously fully charged-off loans:

	Nine Months Ended September 30,
(Dollars in millions)	2022
Beginning of period expected future recoveries on previously fully charged-off loans	$	329
Expected future recoveries of current period defaults		43
Recoveries (cash collected)		(43	)
Charge-offs (as a result of lower recovery expectations)		(49	)
End of period expected future recoveries on previously fully charged-off loans	$	280
Change in balance during period	$	(49	)

2. Allowance for Loan Losses (Continued)

	Nine Months Ended September 30, 2021
(Dollars in millions)	FFELP Loans			Private Education Loans			Other Loans
Beginning balance	$	288		$	1,089		$	1,377
Provision:
Reversal of allowance related to loan sales⁽¹⁾		—			(107	)		(107	)
Remaining provision		—			41			41
Total provision		—			(66	)		(66	)
Charge-offs:
Gross charge-offs		(19	)		(125	)		(144	)
Expected future recoveries on current period gross charge-offs		—			16			16
Total⁽²⁾		(19	)		(109	)		(128	)
Adjustment resulting from the change in charge-off rate⁽³⁾		—			(16	)		(16	)
Net charge-offs		(19	)		(125	)		(144	)
Decrease in expected future recoveries on previously fully charged-off loans⁽⁴⁾		—			82			82
Allowance at end of period	$	269		$	980		$	1,249
Net charge-offs as a percentage of average loans in repayment, excluding the net adjustment resulting from the change in charge-off rate (annualized)⁽³⁾		.06	%		.72	%
Net adjustment resulting from the change in charge-off rate as a percentage of average loans in repayment (annualized)⁽³⁾		—	%		.11	%
Net charge-offs as a percentage of average loans in repayment (annualized)		.06	%		.83	%
Ending total loans	$	54,619		$	20,998
Average loans in repayment	$	46,191		$	20,145
Ending loans in repayment	$	44,160		$	19,795

⁽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 we charge off the estimated loss of a defaulted loan balance by charging off the entire defaulted loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as “expected future recoveries on previously fully charged-off loans.” For FFELP Loans, the recovery is received at the time of charge-off.

⁽³⁾	In third-quarter 2021, the net charge-off rate on defaulted Private Education Loans increased from 81.4% to 81.7%. This change resulted in a $16 million reduction to the balance of the expected future recoveries on previously fully charged-off loans.

⁽⁴⁾

At the end of each month, for Private Education Loans that are 212 days past due, we charge off the estimated loss of a defaulted loan balance by charging off the entire loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as “expected future recoveries on previously fully charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately reflected as a reduction to expected future recoveries on previously fully 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 previously fully charged-off loans:

	Nine Months Ended September 30,
(Dollars in millions)	2021
Beginning of period expected future recoveries on previously fully charged-off loans	$	479
Expected future recoveries of current period defaults		16
Recoveries (cash collected)		(69	)
Charge-offs (as a result of lower recovery expectations)		(29	)
End of period expected future recoveries on previously fully charged-off loans	$	397
Change in balance during period	$	(82	)

Age Analysis of Past Due Loans Delinquencies

	FFELP Loan Delinquencies
	September 30, 2022						December 31, 2021						September 30, 2021
(Dollars in millions)	Balance			%			Balance			%			Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	1,983					$	2,220					$	2,430
Loans in forbearance⁽²⁾		7,410						6,292						8,029
Loans in repayment and percentage of each status:
Loans current		30,720			81.4	%		39,679			89.4	%		40,404			91.5	%
Loans delinquent 31-60 days⁽³⁾		1,917			5.1			1,696			3.8			1,181			2.7
Loans delinquent 61-90 days⁽³⁾		1,291			3.4			904			2.0			665			1.5
Loans delinquent greater than 90 days⁽³⁾		3,803			10.1			2,112			4.8			1,910			4.3
Total FFELP Loans in repayment		37,731			100	%		44,391			100	%		44,160			100	%
Total FFELP Loans		47,124						52,903						54,619
FFELP Loan allowance for losses		(233	)					(262	)					(269	)
FFELP Loans, net	$	46,891					$	52,641					$	54,350
Percentage of FFELP Loans in repayment					80.1	%					83.9	%					80.9	%
Delinquencies as a percentage of FFELP Loans in repayment					18.6	%					10.6	%					8.5	%
FFELP Loans in forbearance as a percentage of loans in repayment and forbearance					16.4	%					12.4	%					15.4	%

⁽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
	September 30, 2022						December 31, 2021						September 30, 2021
(Dollars in millions)	Balance			%			Balance			%			Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	164					$	194					$	210
Loans in forbearance⁽²⁾		284						446						667
Loans in repayment and percentage of each status:
Loans current		5,573			87.8	%		6,023			91.0	%		5,988			91.6	%
Loans delinquent 31-60 days⁽³⁾		269			4.2			199			3.0			224			3.5
Loans delinquent 61-90 days⁽³⁾		143			2.3			120			1.8			124			1.9
Loans delinquent greater than 90 days⁽³⁾		363			5.7			274			4.2			198			3.0
Total TDR loans in repayment		6,348			100	%		6,616			100	%		6,534			100	%
Total TDR loans		6,796						7,256						7,411
TDR loans allowance for losses		(666	)					(829	)					(814	)
TDR loans, net	$	6,130					$	6,427					$	6,597
Percentage of TDR loans in repayment					93.4	%					91.2	%					88.2	%
Delinquencies as a percentage of TDR loans in repayment					12.2	%					9.0	%					8.4	%
Loans in forbearance as a percentage of TDR loans in repayment and forbearance					4.3	%					6.3	%					9.3	%

⁽¹⁾

Loans for customers who are attending school or are in other permitted educational activities and are not yet required to make payments on their loans, e.g., internship periods, as well as loans for customers who have requested and qualify for other permitted program deferments such as various military eligible deferments.

⁽²⁾

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

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

2. Allowance for Loan Losses (Continued)

	Private Education Loan Delinquencies
	Non-TDRs
	September 30, 2022						December 31, 2021						September 30, 2021
(Dollars in millions)	Balance			%			Balance			%			Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	184					$	167					$	179
Loans in forbearance⁽²⁾		87						89						147
Loans in repayment and percentage of each status:
Loans current		12,853			99.4	%		13,611			99.6	%		13,208			99.6	%
Loans delinquent 31-60 days⁽³⁾		36			.3			23			.2			23			.2
Loans delinquent 61-90 days⁽³⁾		16			.1			11			.1			12			.1
Loans delinquent greater than 90 days⁽³⁾		31			.2			23			.1			18			.1
Total non-TDR loans in repayment		12,936			100	%		13,668			100	%		13,261			100	%
Total non-TDR loans		13,207						13,924						13,587
Non-TDR loans allowance for losses		(186	)					(180	)					(166	)
Non-TDR loans, net	$	13,021					$	13,744					$	13,421
Percentage of non-TDR loans in repayment					97.9	%					98.2	%					97.6	%
Delinquencies as a percentage of non-TDR loans in repayment					.6	%					.4	%					.4	%
Loans in forbearance as a percentage of non-TDR loans in repayment and forbearance					.7	%					.6	%					1.1	%

⁽¹⁾

Loans for customers who are attending school or are in other permitted educational activities and are not yet required to make payments on their loans, e.g., internship periods, as well as loans for customers who have requested and qualify for other permitted program deferments such as various military eligible deferments.

⁽²⁾

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

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

Private Education Loan Portfolio Stratified by Key Credit Quality Indicators

	Private Education Loan Credit Quality Indicators by Origination Year
	September 30, 2022
(Dollars in millions)	September 30, 2022		2021		2020		2019		2018		Prior		Total			% of Total
Credit Quality Indicators
FICO Scores:
640 and above	$	1,503	$	4,708	$	1,593	$	1,502	$	556	$	8,485	$	18,347			92	%
Below 640		17		64		19		37		20		1,499		1,656			8
Total	$	1,520	$	4,772	$	1,612	$	1,539	$	576	$	9,984	$	20,003			100	%
Loan Status:
In-school/grace/ deferment/forbearance	$	31	$	88	$	28	$	34	$	13	$	525	$	719			4	%
Current/90 days or less delinquent		1,488		4,678		1,582		1,499		560		9,083		18,890			94
Greater than 90 days delinquent		1		6		2		6		3		376		394			2
Total	$	1,520	$	4,772	$	1,612	$	1,539	$	576	$	9,984	$	20,003			100	%
Seasoning⁽¹⁾:
1-12 payments	$	1,499	$	2,186	$	14	$	10	$	2	$	95	$	3,806			19	%
13-24 payments		—		2,534		736		39		8		102		3,419		17
25-36 payments		—		—		846		968		19		177		2,010			10
37-48 payments		—		—		—		503		287		293		1,083		5
More than 48 payments		—		—		—		—		254		9,083		9,337			47
Loans in-school/ grace/deferment		21		52		16		19		6		234		348		2
Total	$	1,520	$	4,772	$	1,612	$	1,539	$	576	$	9,984	$	20,003			100	%
TDR Status:
TDR	$	6	$	48	$	28	$	62	$	35	$	6,617	$	6,796			34	%
Non-TDR		1,514		4,724		1,584		1,477		541		3,367		13,207			66
Total	$	1,520	$	4,772	$	1,612	$	1,539	$	576	$	9,984	$	20,003			100	%
Cosigners:
With cosigner⁽²⁾	$	24	$	109	$	28	$	11	$	—	$	6,425	$	6,597			33	%
Without cosigner		1,496		4,663		1,584		1,528		576		3,559		13,406			67
Total	$	1,520	$	4,772	$	1,612	$	1,539	$	576	$	9,984	$	20,003			100	%
School Type:
Not-for-profit	$	1,427	$	4,496	$	1,541	$	1,434	$	529	$	8,338	$	17,765			89	%
For-profit		93		276		71		105		47		1,646		2,238			11
Total	$	1,520	$	4,772	$	1,612	$	1,539	$	576	$	9,984	$	20,003			100	%
Allowance for loan losses														(852	)
Total loans, net													$	19,151

⁽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 September 30, 2022.

2. Allowance for Loan Losses (Continued)

	Private Education Loan Credit Quality Indicators by Origination Year
	September 30, 2021
(Dollars in millions)	September 30, 2021		2020		2019		2018		2017		Prior		Total			% of Total
Credit Quality Indicators
FICO Scores:
640 and above	$	4,049	$	2,228	$	2,064	$	762	$	233	$	10,021	$	19,357			92	%
Below 640		28		10		33		20		8		1,542		1,641			8
Total	$	4,077	$	2,238	$	2,097	$	782	$	241	$	11,563	$	20,998			100	%
Loan Status:
In-school/grace/ deferment/forbearance	$	32	$	34	$	45	$	19	$	8	$	1,065	$	1,203			6	%
Current/90 days or less delinquent		4,044		2,203		2,049		762		232		10,289		19,579			93
Greater than 90 days delinquent		1		1		3		1		1		209		216			1
Total	$	4,077	$	2,238	$	2,097	$	782	$	241	$	11,563	$	20,998			100	%
Seasoning⁽¹⁾:
1-12 payments	$	4,058	$	1,017	$	37	$	5	$	1	$	142	$	5,260			25	%
13-24 payments		—		1,201		1,330		20		4		167		2,722		13
25-36 payments		—		—		709		385		12		273		1,379			7
37-48 payments		—		—		—		364		133		417		914		4
More than 48 payments		—		—		—		—		89		10,245		10,334			49
Loans in-school/ grace/deferment		19		20		21		8		2		319		389		2
Total	$	4,077	$	2,238	$	2,097	$	782	$	241	$	11,563	$	20,998			100	%
TDR Status:
TDR	$	1	$	5	$	26	$	27	$	30	$	7,323	$	7,412			35	%
Non-TDR		4,076		2,233		2,071		755		211		4,240		13,586			65
Total	$	4,077	$	2,238	$	2,097	$	782	$	241	$	11,563	$	20,998			100	%
Cosigners:
With cosigner⁽²⁾	$	12	$	34	$	13	$	—	$	37	$	7,560	$	7,656			36	%
Without cosigner		4,065		2,204		2,084		782		204		4,003		13,342			64
Total	$	4,077	$	2,238	$	2,097	$	782	$	241	$	11,563	$	20,998			100	%
School Type:
Not-for-profit	$	3,850	$	2,137	$	1,957	$	721	$	231	$	9,607	$	18,503			88	%
For-profit		227		101		140		61		10		1,956		2,495			12
Total	$	4,077	$	2,238	$	2,097	$	782	$	241	$	11,563	$	20,998			100	%
Allowance for loan losses														(980	)
Total loans, net													$	20,018

⁽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 September 30, 2021.