Allowance for Loan Losses

Our provision for loan 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.

Allowance for Loan Losses Metrics



	Allowance for Loan Losses
	Three Months Ended March 31, 2015
	FFELP Loans			Private Education Loans			Total
Allowance for Loan Losses
Beginning balance	$	5,268		$	78,574		$	83,842
Total provision	435			16,183			16,618
Net charge-offs:
Charge-offs	(1,134		)	(8,727		)	(9,861		)
Recoveries	—			1,387			1,387
Net charge-offs	(1,134		)	(7,340		)	(8,474		)
Loan sales⁽¹⁾	—			(2,181		)	(2,181		)
Ending Balance	$	4,569		$	85,236		$	89,805
Allowance:
Ending balance: individually evaluated for impairment	$	—		$	20,105		$	20,105
Ending balance: collectively evaluated for impairment	$	4,569		$	65,131		$	69,700
Loans:
Ending balance: individually evaluated for impairment	$	—		$	122,120		$	122,120
Ending balance: collectively evaluated for impairment	$	1,208,977		$	9,646,641		$	10,855,618
Net charge-offs as a percentage of average loans in repayment (annualized)⁽²⁾	0.50		%	0.51		%
Allowance as a percentage of the ending total loan balance	0.38		%	0.87		%
Allowance as a percentage of the ending loans in repayment⁽²⁾	0.52		%	1.42		%
Allowance coverage of net charge-offs (annualized)	1.01			2.90
Ending total loans, gross	$	1,208,977		$	9,768,761
Average loans in repayment⁽²⁾	$	898,360		$	5,705,067
Ending loans in repayment⁽²⁾	$	872,579		$	5,995,121

____________

⁽¹⁾ Represents fair value write-downs on loans sold.

⁽²⁾ Loans in repayment includes in-school loans making interest only and fixed payments as well as loans that have entered full principal and interest repayment status after any applicable grace period.



	Allowance for Loan Losses
	Three Months Ended March 31, 2014
	FFELP Loans			Private Education Loans			Total
Allowance for Loan Losses
Beginning balance	$	6,318		$	61,763		$	68,081
Total provision	506			38,653			39,159
Charge-offs⁽¹⁾	(643		)	—			(643		)
Loan sales⁽²⁾	—			(28,963		)	(28,963		)
Ending Balance	$	6,181		$	71,453		$	77,634
Allowance:
Ending balance: individually evaluated for impairment	$	—		$	—		$	—
Ending balance: collectively evaluated for impairment	$	6,181		$	71,453		$	77,634
Loans:
Ending balance: individually evaluated for impairment	$	—		$	—		$	—
Ending balance: collectively evaluated for impairment	$	1,396,776		$	7,274,718		$	8,671,494
Charge-offs as a percentage of average loans in repayment (annualized)⁽³⁾	0.25		%	—		%
Allowance as a percentage of the ending total loan balance	0.44		%	0.98		%
Allowance as a percentage of the ending loans in repayment⁽³⁾	0.62		%	1.67		%
Allowance coverage of charge-offs (annualized)	2.40			—
Ending total loans, gross	$	1,396,776		$	7,274,718
Average loans in repayment⁽³⁾	$	1,023,329		$	4,329,157
Ending loans in repayment⁽³⁾	$	997,538		$	4,278,969

____________

⁽¹⁾ Prior to the Spin-Off, Private Education Loans were sold to an entity that is now a subsidiary of Navient prior to being charged-off.

⁽²⁾ Represents fair value write-downs on loans sold.

⁽³⁾ Loans in repayment includes in-school loans making interest only and fixed payments as well as loans that have entered full principal and interest repayment status after any applicable grace period.

Troubled Debt Restructurings (“TDRs”)

All of our loans are collectively assessed for impairment, except for loans classified as TDRs. 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 $122.1 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 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 we continue to accrue interest on those loans through the date of claim.

At March 31, 2015 and December 31, 2014, 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

March 31, 2015
TDR Loans	$	123,702	$	122,120	$	20,105

December 31, 2014
TDR Loans	$	60,278	$	59,402	$	9,815

The following table provides the average recorded investment and interest income recognized for our TDR loans.



	Three Months Ended
	March 31, 2015
	Average Recorded Investment		Interest Income Recognized

TDR Loans	$	88,120	$	2,396

The following table provides information regarding the loan status of TDR loans and the aging of TDR loans that are past due.



	March 31,				December 31,
	2015				2014
	Balance		%		Balance		%
TDR loans in in-school/grace/deferment⁽¹⁾	$	1,481			$	2,915
TDR loans in forbearance⁽²⁾	40,128				18,620
TDR loans in repayment and percentage of each status:
Loans current	73,944		91.8	%	34,554		91.2	%
Loans delinquent 31-60 days⁽³⁾	3,921		4.9		1,953		5.2
Loans delinquent 61-90 days⁽³⁾	1,873		2.3		983		2.6
Loans delinquent greater than 90 days⁽³⁾	773		1.0		377		1.0
Total TDR loans in repayment	80,511		100.0	%	37,867		100.0	%
Total TDR loans, gross	$	122,120			$	59,402

_____


⁽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.

The following table provides the amount of modified loans that resulted in a TDR in the periods presented. Additionally, the table summarizes charge-offs occurring in the TDR portfolio, as well as TDRs for which a payment default occurred in the current period and within 12 months of the loan first being designated as a TDR. We define payment default as 60 day past due for this disclosure. 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.



	Three Months Ended
	March 31, 2015
	Modified Loans		Charge-offs		Payment-Default

TDR Loans	$	122,120	$	930	$	4,785

Key Credit Quality Indicators

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 origination and maintained 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.



	Private Education Loans
	Credit Quality Indicators
	March 31, 2015				December 31, 2014
Credit Quality Indicators:	Balance⁽¹⁾		% of Balance		Balance⁽¹⁾		% of Balance

Cosigners:
With cosigner	$	8,804,812	90	%	$	7,465,339	90	%
Without cosigner	963,949		10		846,037		10
Total	$	9,768,761	100	%	$	8,311,376	100	%

FICO at Origination:
Less than 670	$	638,195	6	%	$	558,801	7	%
670-699	1,431,436		15		1,227,860		15
700-749	3,103,824		32		2,626,238		32
Greater than or equal to 750	4,595,306		47		3,898,477		46
Total	$	9,768,761	100	%	$	8,311,376	100	%

Seasoning⁽²⁾:
1-12 payments	$	3,031,655	31	%	$	2,373,117	29	%
13-24 payments	1,650,103		17		1,532,042		18
25-36 payments	812,674		8		755,143		9
37-48 payments	412,865		4		411,493		5
More than 48 payments	257,986		3		212,438		3
Not yet in repayment	3,603,478		37		3,027,143		36
Total	$	9,768,761	100	%	$	8,311,376	100	%


⁽¹⁾	Balance represents gross Private Education Loans.


⁽²⁾	Number of months in active repayment for which a scheduled payment was due.

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. Included within our FFELP portfolio as of March 31, 2015 are $741 million of FFELP rehabilitation loans. These loans have previously defaulted but have subsequently been brought current according to a loan rehabilitation agreement. The credit performance on rehabilitation loans is worse than the remainder of our FFELP portfolio. At March 31, 2015 and December 31, 2014, 61.3 percent and 62.1 percent, respectively, of our FFELP portfolio consisted of rehabilitation loans.

The following tables provide information regarding the loan status of our Private Education Loans and the aging of our past due Private Education Loans. Loans in repayment includes in-school loans making interest only and fixed payments as well as loans that have entered full principal and interest repayment status after any applicable grace period.



	Private Education Loans
	March 31,					December 31,
	2015					2014
	Balance			%		Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	3,603,478				$	3,027,143
Loans in forbearance⁽²⁾	170,162					135,018
Loans in repayment and percentage of each status:
Loans current	5,896,132			98.4	%	5,045,600			98.0	%
Loans delinquent 31-60 days⁽³⁾	54,883			0.9		63,873			1.2
Loans delinquent 61-90 days⁽³⁾	31,202			0.5		29,041			0.6
Loans delinquent greater than 90 days⁽³⁾	12,904			0.2		10,701			0.2
Total loans in repayment	5,995,121			100.0	%	5,149,215			100.0	%
Total loans, gross	9,768,761					8,311,376
Deferred origination costs	17,627					13,845
Total loans	9,786,388					8,325,221
Allowance for loan losses	(85,236		)			(78,574		)
Total loans, net	$	9,701,152				$	8,246,647
Percentage of loans in repayment				61.4	%				62.0	%
Delinquencies as a percentage of loans in repayment				1.7	%				2.0	%
Loans in forbearance as a percentage of loans in repayment and forbearance				2.8	%				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.

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
	Total Interest Receivable		Greater than 90 days Past Due		Allowance for Uncollectible Interest

March 31, 2015	$	512,501	$	473	$	2,634
December 31, 2014	$	445,710	$	443	$	3,517