Allowance for Loan Losses

Our provision for credit 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. See Note 2, “Significant Accounting Policies — Allowance for Private Education Loan Losses and — Allowance for FFELP Loan Losses” for a more detailed discussion.

Allowance for Loan Losses Metrics



	Allowance for Loan Losses
	Year Ended December 31, 2015
	FFELP Loans			Private Education Loans			Total
Allowance for Loan Losses
Beginning balance	$	5,268		$	78,574		$	83,842
Total provision	1,005			87,344			88,349
Net charge-offs:
Charge-offs	(2,582		)	(55,357		)	(57,939		)
Recoveries	—			5,820			5,820
Net charge-offs	(2,582		)	(49,537		)	(52,119		)
Loan sales⁽¹⁾	—			(7,565		)	(7,565		)
Ending Balance	$	3,691		$	108,816		$	112,507
Allowance:
Ending balance: individually evaluated for impairment	$	—		$	43,480		$	43,480
Ending balance: collectively evaluated for impairment	$	3,691		$	65,336		$	69,027
Loans:
Ending balance: individually evaluated for impairment	$	—		$	265,831		$	265,831
Ending balance: collectively evaluated for impairment	$	1,115,663		$	10,330,606		$	11,446,269
Net charge-offs as a percentage of average loans in repayment⁽²⁾	0.30		%	0.82		%
Allowance as a percentage of the ending total loan balance	0.33		%	1.03		%
Allowance as a percentage of the ending loans in repayment⁽²⁾	0.45		%	1.57		%
Allowance coverage of net charge-offs	1.43			2.20
Ending total loans, gross	$	1,115,663		$	10,596,437
Average loans in repayment⁽²⁾	$	857,359		$	6,031,741
Ending loans in repayment⁽²⁾	$	813,815		$	6,927,266

____________

⁽¹⁾ Represents fair value adjustments on loans sold.

⁽²⁾ Loans in repayment include loans on which borrowers are making interest only and fixed payments as well as loans that have entered full principal and interest repayment status.



	Allowance for Loan Losses
	Year Ended December 31, 2014
	FFELP Loans			Private Education Loans			Total
Allowance for Loan Losses
Beginning balance	$	6,318		$	61,763		$	68,081
Total provision	1,946			83,583			85,529
Net charge-offs:
Charge-offs⁽¹⁾	(2,996		)	(14,442		)	(17,438		)
Recoveries	—			1,155			1,155
Net charge-offs	(2,996		)	(13,287		)	(16,283		)
Loan sales⁽²⁾	—			(53,485		)	(53,485		)
Ending Balance	$	5,268		$	78,574		$	83,842
Allowance:
Ending balance: individually evaluated for impairment	$	—		$	9,815		$	9,815
Ending balance: collectively evaluated for impairment	$	5,268		$	68,759		$	74,027
Loans:
Ending balance: individually evaluated for impairment	$	—		$	59,402		$	59,402
Ending balance: collectively evaluated for impairment	$	1,264,807		$	8,251,974		$	9,516,781
Net charge-offs as a percentage of average loans in repayment⁽³⁾	0.31		%	0.30		%
Allowance as a percentage of the ending total loan balance	0.42		%	0.95		%
Allowance as a percentage of the ending loans in repayment⁽³⁾	0.57		%	1.53		%
Allowance coverage of net charge-offs	1.76			5.91
Ending total loans, gross	$	1,264,807		$	8,311,376
Average loans in repayment⁽³⁾	$	972,390		$	4,495,709
Ending loans in repayment⁽³⁾	$	926,891		$	5,149,215

____________


⁽¹⁾	Prior to the Spin-Off, we sold all loans greater than 90 days delinquent to an entity that is now a subsidiary of Navient Corporation, prior to being charged-off. Consequently, many of the pre-Spin-Off, historical credit indicators and period-over-period trends are not comparable and may not be indicative of future performance.


⁽²⁾	Represents fair value adjustments on loans sold.


⁽³⁾	Loans in repayment include loans on which borrowers are making interest only and fixed payments as well as loans that have entered full principal and interest repayment status.



	Allowance for Loan Losses
	Year Ended December 31, 2013
	FFELP Loans			Private Education Loans			Total
Allowance for Loan Losses
Beginning balance	$	3,971		$	65,218		$	69,189
Total provision	4,384			64,955			69,339
Net charge-offs:
Charge-offs⁽¹⁾	(2,037		)	—			(2,037		)
Recoveries	—			—			—
Net charge-offs	(2,037		)	—			(2,037		)
Loan sales⁽²⁾	—			(68,410		)	(68,410		)
Ending Balance	$	6,318		$	61,763		$	68,081
Allowance:
Ending balance: individually evaluated for impairment	$	—		$	—		$	—
Ending balance: collectively evaluated for impairment	$	6,318		$	61,763		$	68,081
Loans:
Ending balance: individually evaluated for impairment	$	—		$	—		$	—
Ending balance: collectively evaluated for impairment	$	1,426,972		$	6,563,342		$	7,990,314
Net charge-offs as a percentage of average loans in repayment⁽³⁾	0.23		%	—		%
Allowance as a percentage of the ending total loan balance	0.44		%	0.94		%
Allowance as a percentage of the ending loans in repayment⁽³⁾	0.62		%	1.55		%
Allowance coverage of net charge-offs	3.10			—
Ending total loans, gross	$	1,426,972		$	6,563,342
Average loans in repayment⁽³⁾	$	870,460		$	3,509,502
Ending loans in repayment⁽³⁾	$	1,023,471		$	3,972,317

____________


⁽¹⁾	Prior to the Spin-Off, we sold all loans greater than 90 days delinquent to an entity that is now a subsidiary of Navient Corporation, prior to being charged-off. Consequently, many of the pre-Spin-Off, historical credit indicators and period-over-period trends are not comparable and may not be indicative of future performance.


⁽²⁾	Represents fair value adjustments on loans sold.


⁽³⁾	Loans in repayment include loans on which borrowers are making interest only and fixed payments as well as loans that have entered full principal and interest repayment status.

Troubled Debt Restructurings

All of our loans are collectively assessed for impairment, except for loans classified as TDRs (where we conduct individual assessments of impairment). We modify the terms of loans for certain borrowers when we believe such modifications may increase the ability and willingness of a borrower to make payments and thus increase the ultimate overall amount collected on a loan. These modifications generally take the form of a forbearance, a temporary interest rate reduction or an extended repayment plan. In the first nine months after a loan enters full principal and interest repayment, the loan may be in forbearance for up to six months without it being classified as a TDR. Once the initial nine-month period described above is over, however, any loan that receives more than three months of forbearance in a twenty-four month period is classified as a TDR. Also, a loan becomes a TDR when it is modified to reduce the interest rate on the loan (regardless of when such modification occurs and/or whether such interest rate reduction is temporary). 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. Once a loan qualifies for TDR status, it remains a TDR for allowance purposes for the remainder of its life. Approximately 23 percent and 10 percent of the loans granted forbearance as of December 31, 2015 and 2014, respectively, have been classified as TDRs due to their forbearance status.

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 $307.2 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 (which would include life-of-loan default and recovery assumptions) 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 continue to accrue interest through the date of claim.

At December 31, 2015 and 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

December 31, 2015
TDR Loans	$	269,628	$	265,831	$	43,480

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.



	Years Ended December 31,
	2015				2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

TDR Loans	$	174,087	$	14,081	$	23,290	$	1,105

The following table provides information regarding the loan status and aging of TDR loans.



	December 31,				December 31,
	2015				2014
	Balance		%		Balance		%
TDR loans in in-school/grace/deferment⁽¹⁾	$	6,869			$	2,915
TDR loans in forbearance⁽²⁾	43,756				18,620
TDR loans in repayment⁽³⁾ and percentage of each status:
Loans current	185,936		86.4	%	34,554		91.2	%
Loans delinquent 31-60 days⁽⁴⁾	14,948		6.9		1,953		5.2
Loans delinquent 61-90 days⁽⁴⁾	9,239		4.3		983		2.6
Loans delinquent greater than 90 days⁽⁴⁾	5,083		2.4		377		1.0
Total TDR loans in repayment	215,206		100.0	%	37,867		100.0	%
Total TDR loans, gross	$	265,831			$	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⁾	Loans in repayment include loans on which borrowers are making interest only and fixed payments as well as loans that have entered full principal and interest repayment status.


⁽⁴⁾	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 (which includes forbearance and reductions in interest rates) that became TDRs in the periods presented. Additionally, for the periods presented, the table summarizes charge-offs occurring in the TDR portfolio, as well as TDRs for which a payment default occurred in the relevant period presented and within 12 months of the loan first being designated as a TDR. We define payment default as 60 days past due for this disclosure.



	Years Ended December 31,
	2015						2014
	Modified Loans⁽¹⁾		Charge-offs		Payment-Default		Modified Loans⁽¹⁾		Charge-offs		Payment-Default

TDR Loans	$	244,890	$	10,877	$	51,602	$	59,402	$	948	$	325

_______

(1) Represents the principal balance of loans that have been modified during the period and resulted in a TDR.

Key Credit Quality Indicators

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.

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 periodically refreshed/updated 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.



	December 31, 2015				December 31, 2014
Credit Quality Indicators:	Balance⁽¹⁾		% of Balance		Balance⁽¹⁾		% of Balance

Cosigners:
With cosigner	$	9,515,136	90	%	$	7,465,339	90	%
Without cosigner	1,081,301		10		846,037		10
Total	$	10,596,437	100	%	$	8,311,376	100	%

FICO at Origination:
Less than 670	$	700,779	7	%	$	558,801	7	%
670-699	1,554,959		15		1,227,860		15
700-749	3,403,823		32		2,626,238		32
Greater than or equal to 750	4,936,876		46		3,898,477		46
Total	$	10,596,437	100	%	$	8,311,376	100	%

Seasoning⁽²⁾:
1-12 payments	$	3,059,901	29	%	$	2,373,117	29	%
13-24 payments	2,096,412		20		1,532,042		18
25-36 payments	1,084,818		10		755,143		9
37-48 payments	513,125		5		411,493		5
More than 48 payments	414,217		4		212,438		3
Not yet in repayment	3,427,964		32		3,027,143		36
Total	$	10,596,437	100	%	$	8,311,376	100	%

^___________


⁽¹⁾	Balance represents gross Private Education Loans.


⁽²⁾	Number of months in active repayment (whether interest only payment, fixed payment, or full principal and interest payment status) for which a scheduled payment was due.

The following table provides information regarding the loan status of our Private Education Loans and the aging of our past due Private Education Loans. Loans in repayment include loans on which borrowers are making interest only and fixed payments as well as loans that have entered full principal and interest repayment status.



	Private Education Loan Delinquencies
	December 31,
	2015					2014					2013
	Balance			%		Balance			%		Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	3,427,964				$	3,027,143				$	2,574,711
Loans in forbearance⁽²⁾	241,207					135,018					16,314
Loans in repayment and percentage of each status:
Loans current	6,773,095			97.8	%	5,045,600			98.0	%	3,933,143			99.0	%
Loans delinquent 31-60 days⁽³⁾	91,129			1.3		63,873			1.2		28,854			0.7
Loans delinquent 61-90 days⁽³⁾	42,048			0.6		29,041			0.6		10,280			0.3
Loans delinquent greater than 90 days⁽³⁾	20,994			0.3		10,701			0.2		40			—
Total Private Education Loans in repayment	6,927,266			100.0	%	5,149,215			100.0	%	3,972,317			100.0	%
Total Private Education Loans, gross	10,596,437					8,311,376					6,563,342
Private Education Loans deferred origination costs	27,884					13,845					5,063
Total Private Education Loans	10,624,321					8,325,221					6,568,405
Private Education Loans allowance for losses	(108,816		)			(78,574		)			(61,763		)
Private Education Loans, net	$	10,515,505				$	8,246,647				$	6,506,642
Percentage of Private Education Loans in repayment⁽⁴⁾				65.4	%				62.0	%				60.5	%
Delinquencies as a percentage of Private Education Loans in repayment⁽⁴⁾				2.2	%				2.0	%				1.0	%
Loans in forbearance as a percentage of loans in repayment and forbearance⁽⁴⁾				3.4	%				2.6	%				0.4	%


⁽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 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.


⁽⁴⁾	Loans in repayment include loans on which borrowers are making interest only and fixed payments as well as loans that have entered full principal and interest repayment status.

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

December 31, 2015	$	542,919	$	791	$	3,332
December 31, 2014	$	445,710	$	443	$	3,517