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 September 30, 2016
	FFELP Loans			Private Education Loans			Total
Allowance for Loan Losses
Beginning balance	$	2,297		$	142,628		$	144,925
Total provision	268			40,502			40,770
Net charge-offs:
Charge-offs	(356		)	(22,072		)	(22,428		)
Recoveries	—			2,973			2,973
Net charge-offs	(356		)	(19,099		)	(19,455		)
Loan sales⁽¹⁾	—			(1,401		)	(1,401		)
Ending Balance	$	2,209		$	162,630		$	164,839
Allowance:
Ending balance: individually evaluated for impairment	$	—		$	77,521		$	77,521
Ending balance: collectively evaluated for impairment	$	2,209		$	85,109		$	87,318
Loans:
Ending balance: individually evaluated for impairment	$	—		$	503,632		$	503,632
Ending balance: collectively evaluated for impairment	$	1,033,929		$	13,344,630		$	14,378,559
Net charge-offs as a percentage of average loans in repayment (annualized)⁽²⁾	0.18		%	0.91		%
Allowance as a percentage of the ending total loan balance	0.21		%	1.17		%
Allowance as a percentage of the ending loans in repayment⁽²⁾	0.28		%	1.83		%
Allowance coverage of net charge-offs (annualized)	1.55			2.13
Ending total loans, gross	$	1,033,929		$	13,848,262
Average loans in repayment⁽²⁾	$	791,296		$	8,420,625
Ending loans in repayment⁽²⁾	$	795,665		$	8,905,812

____________

⁽¹⁾ Represents fair value adjustments on loans sold.

⁽²⁾ Loans in repayment include loans on which borrowers are making interest only or 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 September 30, 2015
	FFELP Loans			Private Education Loans			Total
Allowance for Loan Losses
Beginning balance	$	4,556		$	87,310		$	91,866
Total provision	143			27,354			27,497
Net charge-offs:
Charge-offs	(529		)	(14,121		)	(14,650		)
Recoveries	—			1,361			1,361
Net charge-offs	(529		)	(12,760		)	(13,289		)
Loan sales⁽¹⁾	—			(1,871		)	(1,871		)
Ending Balance	$	4,170		$	100,033		$	104,203
Allowance:
Ending balance: individually evaluated for impairment	$	—		$	43,001		$	43,001
Ending balance: collectively evaluated for impairment	$	4,170		$	57,032		$	61,202
Loans:
Ending balance: individually evaluated for impairment	$	—		$	231,286		$	231,286
Ending balance: collectively evaluated for impairment	$	1,143,595		$	10,608,975		$	11,752,570
Net charge-offs as a percentage of average loans in repayment (annualized)⁽²⁾	0.25		%	0.83		%
Allowance as a percentage of the ending total loan balance	0.36		%	0.92		%
Allowance as a percentage of the ending loans in repayment⁽²⁾	0.50		%	1.50		%
Allowance coverage of net charge-offs (annualized)	1.97			1.96
Ending total loans, gross	$	1,143,595		$	10,840,261
Average loans in repayment⁽²⁾	$	839,090		$	6,118,678
Ending loans in repayment⁽²⁾	$	836,585		$	6,657,228

____________

⁽¹⁾ Represents fair value adjustments on loans sold.



	Allowance for Loan Losses
	Nine Months Ended September 30, 2016
	FFELP Loans			Private Education Loans			Total
Allowance for Loan Losses
Beginning balance	$	3,691		$	108,816		$	112,507
Total provision	(396		)	116,703			116,307
Net charge-offs:
Charge-offs	(1,086		)	(64,979		)	(66,065		)
Recoveries	—			7,098			7,098
Net charge-offs	(1,086		)	(57,881		)	(58,967		)
Loan sales⁽¹⁾	—			(5,008		)	(5,008		)
Ending Balance	$	2,209		$	162,630		$	164,839
Allowance:
Ending balance: individually evaluated for impairment	$	—		$	77,521		$	77,521
Ending balance: collectively evaluated for impairment	$	2,209		$	85,109		$	87,318
Loans:
Ending balance: individually evaluated for impairment	$	—		$	503,632		$	503,632
Ending balance: collectively evaluated for impairment	$	1,033,929		$	13,344,630		$	14,378,559
Net charge-offs as a percentage of average loans in repayment (annualized)⁽²⁾	0.18		%	0.97		%
Allowance as a percentage of the ending total loan balance	0.21		%	1.17		%
Allowance as a percentage of the ending loans in repayment⁽²⁾	0.28		%	1.83		%
Allowance coverage of net charge-offs (annualized)	1.53			2.11
Ending total loans, gross	$	1,033,929		$	13,848,262
Average loans in repayment⁽²⁾	$	795,452		$	7,952,469
Ending loans in repayment⁽²⁾	$	795,665		$	8,905,812

____________

⁽¹⁾ Represents fair value adjustments on loans sold.



	Allowance for Loan Losses
	Nine Months Ended September 30, 2015
	FFELP Loans			Private Education Loans			Total
Allowance for Loan Losses
Beginning balance	$	5,268		$	78,574		$	83,842
Total provision	1,044			58,629			59,673
Net charge-offs:
Charge-offs	(2,142		)	(36,127		)	(38,269		)
Recoveries	—			4,529			4,529
Net charge-offs	(2,142		)	(31,598		)	(33,740		)
Loan sales⁽¹⁾	—			(5,572		)	(5,572		)
Ending Balance	$	4,170		$	100,033		$	104,203
Allowance:
Ending balance: individually evaluated for impairment	$	—		$	43,001		$	43,001
Ending balance: collectively evaluated for impairment	$	4,170		$	57,032		$	61,202
Loans:
Ending balance: individually evaluated for impairment	$	—		$	231,286		$	231,286
Ending balance: collectively evaluated for impairment	$	1,143,595		$	10,608,975		$	11,752,570
Net charge-offs as a percentage of average loans in repayment (annualized)⁽²⁾	0.33		%	0.72		%
Allowance as a percentage of the ending total loan balance	0.36		%	0.92		%
Allowance as a percentage of the ending loans in repayment⁽²⁾	0.50		%	1.50		%
Allowance coverage of net charge-offs (annualized)	1.46			2.37
Ending total loans, gross	$	1,143,595		$	10,840,261
Average loans in repayment⁽²⁾	$	868,649		$	5,848,345
Ending loans in repayment⁽²⁾	$	836,585		$	6,657,228

____________

⁽¹⁾ Represents fair value adjustments on loans sold.

Troubled Debt Restructurings (“TDRs”)

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. 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. Approximately 25 percent and 23 percent of the loans granted forbearance as of September 30, 2016 and December 31, 2015, respectively, have been classified as TDRs due to their forbearance status. For additional information, see Note 6, “Allowance for Loan Losses” in our 2015 Form 10-K.

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 perspective at any point in their life cycle prior to claim payment, and continue to accrue interest on those loans through the date of claim.

At September 30, 2016 and December 31, 2015, 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

September 30, 2016
TDR Loans	$	510,361	$	503,632	$	77,521

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

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



	Three Months Ended September 30,
	2016				2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

TDR Loans	$	454,395	$	8,116	$	210,039	$	4,198



	Nine Months Ended September 30,
	2016				2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

TDR Loans	$	373,747	$	20,396	$	150,240	$	9,314

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



	September 30,				December 31,
	2016				2015
	Balance		%		Balance		%
TDR loans in in-school/grace/deferment⁽¹⁾	$	22,544			$	6,869
TDR loans in forbearance⁽²⁾	72,386				43,756
TDR loans in repayment⁽³⁾ and percentage of each status:
Loans current	366,000		89.6	%	185,936		86.4	%
Loans delinquent 31-60 days⁽⁴⁾	21,781		5.3		14,948		6.9
Loans delinquent 61-90 days⁽⁴⁾	13,411		3.3		9,239		4.3
Loans delinquent greater than 90 days⁽⁴⁾	7,510		1.8		5,083		2.4
Total TDR loans in repayment	408,702		100.0	%	215,206		100.0	%
Total TDR loans, gross	$	503,632			$	265,831

_____


⁽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 or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.


⁽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.



	Three Months Ended September 30, 2016						Three Months Ended September 30, 2015
	Modified Loans⁽¹⁾		Charge-offs		Payment- Default		Modified Loans⁽¹⁾		Charge-offs		Payment- Default

TDR Loans	$	116,419	$	5,925	$	23,326	$	49,975	$	3,456	$	16,719



	Nine Months Ended September 30, 2016						Nine Months Ended September 30, 2015
	Modified Loans⁽¹⁾		Charge-offs		Payment- Default		Modified Loans⁽¹⁾		Charge-offs		Payment- Default

TDR Loans	$	270,266	$	16,357	$	70,401	$	189,066	$	5,845	$	29,895

_____


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

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 original approval 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.



	Private Education Loans
	Credit Quality Indicators
	September 30, 2016				December 31, 2015
Credit Quality Indicators:	Balance⁽¹⁾		% of Balance		Balance⁽¹⁾		% of Balance

Cosigners:
With cosigner	$	12,456,310	90	%	$	9,515,136	90	%
Without cosigner	1,391,952		10		1,081,301		10
Total	$	13,848,262	100	%	$	10,596,437	100	%

FICO at Original Approval:
Less than 670	$	889,151	6	%	$	700,779	7	%
670-699	2,025,444		15		1,554,959		15
700-749	4,492,235		32		3,403,823		32
Greater than or equal to 750	6,441,432		47		4,936,876		46
Total	$	13,848,262	100	%	$	10,596,437	100	%

Seasoning⁽²⁾:
1-12 payments	$	4,307,106	31	%	$	3,059,901	29	%
13-24 payments	2,398,396		17		2,096,412		20
25-36 payments	1,357,242		10		1,084,818		10
37-48 payments	630,420		4		513,125		5
More than 48 payments	492,157		4		414,217		4
Not yet in repayment	4,662,941		34		3,427,964		32
Total	$	13,848,262	100	%	$	10,596,437	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. Loans in repayment include loans making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.



	Private Education Loans
	September 30,					December 31,
	2016					2015
	Balance			%		Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	4,662,941				$	3,427,964
Loans in forbearance⁽²⁾	279,509					241,207
Loans in repayment and percentage of each status:
Loans current	8,724,365			98.0	%	6,773,095			97.8	%
Loans delinquent 31-60 days⁽³⁾	108,591			1.2		91,129			1.3
Loans delinquent 61-90 days⁽³⁾	51,029			0.6		42,048			0.6
Loans delinquent greater than 90 days⁽³⁾	21,827			0.2		20,994			0.3
Total Private Education Loans in repayment	8,905,812			100.0	%	6,927,266			100.0	%
Total Private Education loans, gross	13,848,262					10,596,437
Private Education Loans deferred origination costs	40,327					27,884
Total Private Education Loans	13,888,589					10,624,321
Private Education Loans allowance for losses	(162,630		)			(108,816		)
Private Education Loans, net	$	13,725,959				$	10,515,505
Percentage of Private Education Loans in repayment				64.3	%				65.4	%
Delinquencies as a percentage of Private Education Loans in repayment				2.0	%				2.2	%
Loans in forbearance as a percentage of Private Education Loans in repayment and forbearance				3.0	%				3.4	%


⁽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.

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 Private Education Loan portfolio for all periods presented.



	Private Education Loan
	Accrued Interest Receivable
	Total Interest Receivable		Greater Than 90 Days Past Due		Allowance for Uncollectible Interest

September 30, 2016	$	773,967	$	803	$	3,562
December 31, 2015	$	542,919	$	791	$	3,332