Fair Value Measurements

We use estimates of fair value in applying various accounting standards for the consolidated financial statements.

We categorize our fair value estimates based on a hierarchal framework associated with three levels of price transparency utilized in measuring financial instruments at fair value. For additional information regarding our policies for determining fair value and the hierarchical framework, see Note 2, “Significant Accounting Policies — Fair Value Measurement.”

The following table summarizes the valuation of our financial instruments that are marked-to-fair value on a recurring basis.



	Fair Value Measurements on a Recurring Basis
	December 31, 2018										December 31, 2017
	Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
Assets

Available-for-sale investments	$	—	$	176,245		$	—	$	176,245		$	—	$	244,088		$	—	$	244,088
Derivative instruments	—		2,090			—		2,090			—		812			—		812
Total	$	—	$	178,335		$	—	$	178,335		$	—	$	244,900		$	—	$	244,900

Liabilities
Derivative instruments	$	—	$	(2,032	)	$	—	$	(2,032	)	$	—	$	(2,584	)	$	—	$	(2,584	)
Total	$	—	$	(2,032	)	$	—	$	(2,032	)	$	—	$	(2,584	)	$	—	$	(2,584	)

The following table summarizes the fair values of our financial assets and liabilities, including derivative financial instruments.



	December 31, 2018						December 31, 2017
	Fair Value		Carrying Value		Difference		Fair Value		Carrying Value		Difference
Earning assets:
Loans held for investment, net:
Private Education Loans	$	22,313,419	$	20,294,843	$	2,018,576	$	19,327,044	$	17,244,830	$	2,082,214
FFELP Loans	859,185		847,889		11,296		946,213		929,159		17,054
Personal Loans	1,156,531		1,128,187		28,344		399,879		393,652		6,227
Cash and cash equivalents	2,559,106		2,559,106		—		1,534,339		1,534,339		—
Available-for-sale investments	176,245		176,245		—		244,088		244,088		—
Accrued interest receivable	1,285,842		1,191,981		93,861		967,482		967,482		—
Tax indemnification receivable	39,207		39,207		—		168,011		168,011		—
Derivative instruments	2,090		2,090		—		812		812		—
Total earning assets	$	28,391,625	$	26,239,548	$	2,152,077	$	23,587,868	$	21,482,373	$	2,105,495
Interest-bearing liabilities:
Money-market and savings accounts	$	9,370,957	$	9,390,108	$	19,151	$	8,470,209	$	8,470,209	$	—
Certificates of deposit	9,513,194		9,551,974		38,780		7,044,208		7,034,121		(10,087		)
Short-term borrowings	—		—		—		—		—		—
Long-term borrowings	4,278,931		4,284,304		5,373		3,299,871		3,275,270		(24,601		)
Accrued interest payable	61,341		61,341		—		35,363		35,363		—
Derivative instruments	2,032		2,032		—		2,584		2,584		—
Total interest-bearing liabilities	$	23,226,455	$	23,289,759	$	63,304	$	18,852,235	$	18,817,547	$	(34,688	)

Excess of net asset fair value over carrying value					$	2,215,381					$	2,070,807

The methods and assumptions used to estimate the fair value of each class of financial instruments are as follows:

Cash and Cash Equivalents

Cash and cash equivalents are carried at cost. Carrying value approximated fair value for disclosure purposes. These are level 1 valuations.

Investments

Investments are classified as available-for-sale and are carried at fair value in the consolidated financial statements. Investments in mortgage-backed securities and Utah Housing Corporation bonds are valued using observable market prices of similar assets. As such, these are level 2 valuations.

Loans Held For Investment and Accrued Interest Receivable

Our Private Education Loans, FFELP Loans and Personal Loans are accounted for at cost or at the lower of cost or market if the loan is held-for-sale. For both Private Education Loans and FFELP Loans, fair value was determined by modeling expected loan level cash flows using stated terms of the assets and internally developed assumptions to determine aggregate portfolio yield, net present value and average life. The significant assumptions used to determine fair value are prepayment speeds, default rates, cost of funds and required return on equity. Significant inputs into the model are not observable. However, we do calibrate the model based on market transactions when appropriate. As such, these are level 3 valuations. A portion of the fair value that has been modeled is attributable to accrued interest receivable that has not yet been capitalized, and has been allocated to the accrued interest receivable line item. The remaining accrued interest receivable that will not be capitalized into the principal balance of the loan is carried at cost.

Tax Indemnification Receivable

Tax indemnification receivable is carried at cost. The carrying value approximates fair value. This is a level 2 valuation.

Money Market and Savings Accounts

Some of our MMDAs are fixed-rate deposits that are subject to minimum balances for a specified period of time. The fair values of these deposits are estimated using discounted cash flows based on rates currently offered for deposits of similar maturities. These are level 2 valuations. The fair values of our remaining money market and savings accounts equal the amounts payable on demand at the balance sheet date and are reported at their carrying value. These are level 1 valuations.

Certificates of Deposit

The fair values of CDs are estimated using discounted cash flows based on rates currently offered for deposits of similar remaining maturities. These are level 2 valuations.

Accrued Interest Payable

Accrued interest payable is carried at cost. The carrying value approximates fair value due to its short-term nature. This is a level 1 valuation.

Borrowings

Borrowings are accounted for at cost in the consolidated financial statements. The carrying value of short-term borrowings approximated fair value for disclosure purposes, due to the short-term nature of those borrowings. This is a level 1 valuation. The fair value of long-term borrowings is estimated using current market prices. This is a level 2 valuation.

Derivatives

All derivatives are accounted for at fair value in the consolidated financial statements. The fair value of derivative financial instruments was determined by a standard derivative pricing and option model using the stated terms of the contracts and observable market inputs. It is our policy to compare the derivative fair values to those received from our counterparties in order to evaluate the model’s outputs.

When determining the fair value of derivatives, we take into account counterparty credit risk for positions where we are exposed to the counterparty on a net basis by assessing exposure net of collateral held. When the counterparty has exposure to us under derivative contracts with the Company, we fully collateralize the exposure (subject to certain thresholds).

Interest rate swaps are valued using a standard derivative cash flow model with a LIBOR swap yield curve, which is an observable input from an active market. These derivatives are level 2 fair value estimates in the hierarchy.

The carrying value of borrowings designated as the hedged item in a fair value hedge is adjusted for changes in fair value due to changes in the benchmark interest rate (one-month LIBOR). These valuations are determined through standard pricing models using the stated terms of the borrowings and observable yield curves.