Loans Held for Investment

Loans Held for Investment consist of Private Education Loans, FFELP Loans and Personal Loans.

Our Private Education Loans are made largely to bridge the gap between the cost of higher education and the amount funded through financial aid, government loans and customers’ resources. Private Education Loans bear the full credit risk of the customer. We manage this risk through risk-performance underwriting strategies and qualified cosigners. Private Education Loans may be fixed rate or may carry a variable rate indexed to LIBOR. As of December 31, 2017 and 2016, 77 percent and 81 percent, respectively, of our Private Education Loans were indexed to LIBOR. We provide incentives for customers to include a cosigner on the loan, and the vast majority of loans in our portfolio are cosigned. We also encourage customers to make payments while in school.

FFELP Loans are insured as to their principal and accrued interest in the event of default, subject to a risk-sharing level based on the date of loan disbursement. These insurance obligations are supported by contractual rights against the United States. For loans disbursed on or after July 1, 2006, we receive 97 percent reimbursement on all qualifying claims. For loans disbursed after October 1, 1993, and before July 1, 2006, we receive 98 percent reimbursement. For loans disbursed prior to October 1, 1993, we receive 100 percent reimbursement.

Loans held for investment are summarized as follows:



	December 31,
	2017			2016
Private Education Loans	$	17,432,167		$	14,251,675
Deferred origination costs	56,378			44,206
Allowance for loan losses	(243,715		)	(182,472		)
Total Private Education Loans, net	17,244,830			14,113,409

FFELP Loans	927,660			1,010,908
Unamortized acquisition costs, net	2,631			2,941
Allowance for loan losses	(1,132		)	(2,171		)
Total FFELP Loans, net	929,159			1,011,678

Personal Loans	400,280			12,893
Allowance for loan losses	(6,628		)	(58		)
Total Personal Loans, net	393,652			12,835

Loans held for investment, net	$	18,567,641		$	15,137,922

The estimated weighted average life of education loans in our portfolio was approximately 5.5 years and 6.0 years at December 31, 2017 and 2016, respectively.

The average balance and the respective weighted average interest rates of loans in our portfolio are summarized as follows:



	Years Ended December 31,
	2017				2016				2015
	Average Balance		Weighted Average Interest Rate		Average Balance		Weighted Average Interest Rate		Average Balance		Weighted Average Interest Rate
Private Education Loans	$	16,176,351	8.43	%	$	12,747,756	8.02	%	$	9,819,053	7.93	%
FFELP Loans	970,738		3.91		1,063,325		3.53		1,179,723		3.26
Personal Loans	112,644		9.90		710		8.53		—		—
Total portfolio	$	17,259,733			$	13,811,791			$	10,998,776

Certain Collection Tools — Private Education Loans

Forbearance involves granting the customer a temporary cessation of payments (or temporary acceptance of smaller than scheduled payments) for a specified period of time. Using forbearance extends the original term of the loan. Forbearance does not grant any reduction in the total repayment obligation (principal or interest). While in forbearance status, interest continues to accrue and is capitalized to principal when the loan re-enters repayment status. Our forbearance policies include limits on the number of forbearance months granted consecutively and the total number of forbearance months granted over the life of the loan. We grant forbearance in our servicing centers if a borrower who is current requests it for increments of three months at a time, for up to twelve months. Forbearance as a collection tool is used most effectively when applied based on a customer’s unique situation, including historical information and judgments. We leverage updated customer information and other decision support tools to best determine who will be granted forbearance based on our expectations as to a customer’s ability and willingness to repay their obligation. This strategy is aimed at mitigating the overall risk of the portfolio as well as encouraging cash resolution of delinquent loans. In some instances, we require good-faith payments before granting forbearance. Exceptions to forbearance policies are permitted when such exceptions are judged to increase the likelihood of collection of the loan.

Forbearance may be granted to customers who are exiting their grace period to provide additional time to obtain employment and income to support their obligations, or to current customers who are faced with a hardship and request forbearance time to provide temporary payment relief. In these circumstances, a customer’s loan is placed into a forbearance status in limited monthly increments and is reflected in the forbearance status at month-end during this time. At the end of the granted forbearance period, the customer will enter repayment status as current and is expected to begin making scheduled monthly payments on a go-forward basis.

Forbearance may also be granted to customers who are delinquent in their payments. If specific requirements are met, the forbearance can cure the delinquency and the customer is returned to a current repayment status. In more limited instances, delinquent customers will also be granted additional forbearance time.

We also have an interest rate reduction program to assist customers in repaying their Private Education Loans through reduced payments, while continuing to reduce their outstanding principal balance. This program is offered in situations where the potential for principal recovery, through an interest rate reduction that results in a lower monthly payment amount, is more suitable than other alternatives currently available. As part of demonstrating the ability and willingness to pay, the customer must make three consecutive monthly payments at the reduced rate to qualify for the program. Once the customer has made the initial three payments, the loan’s status is returned to current and the interest rate is reduced for a twenty-four month period.

The period of delinquency for loans is based on the number of days scheduled payments are contractually past due. As of December 31, 2017 and 2016, we had $66.9 million and $67.5 million, respectively, of FFELP Loans and $37.6 million and $24.2 million, respectively, of Private Education Loans held for investment which were more than 90 days delinquent that continue to accrue interest. At December 31, 2017 and 2016, we had no loans in nonaccrual status.

Borrower-in-Custody Arrangements

We maintain Borrower-in-Custody arrangements with the FRB. Under these arrangements, we can pledge FFELP consolidation loans or Private Education Loans to the FRB to secure any advances and accrued interest generated under the Primary Credit program at the FRB. As of December 31, 2017 and 2016, we had $2.7 billion and $2.7 billion, respectively, of Private Education Loans pledged to this borrowing facility, as discussed further in Note 9, “Borrowings.”

Loans Held for Investment by Region

At December 31, 2017, 40.4 percent of total education loans were concentrated in the following states:



	2017
New York	10.5	%
California	9.3
Pennsylvania	8.5
New Jersey	6.9
Illinois	5.2
	40.4	%

At December 31, 2016, 40.3 percent of total education loans were concentrated in the following states:



	2016
New York	10.3	%
California	9.4
Pennsylvania	8.4
New Jersey	6.9
Illinois	5.3
	40.3	%

No other state had a concentration of total education loans in excess of 5 percent of the aggregate outstanding education loans held for investment.