Loans Held for Investment

6 Months Ended

Jun. 30, 2019

Loans held for investment consist of Private Education Loans, FFELP Loans and Personal Loans. We use “Private Education Loans” to mean education loans to students or their families that are not made, insured or guaranteed by any state or federal government. Private Education Loans do not include loans insured or guaranteed under the previously existing Federal Family Education Loan Program (“FFELP”). We use “Personal Loans” to mean those unsecured loans to individuals that may be used for non-educational purposes.

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 interest rate indexed to LIBOR. As of June 30, 2019 and December 31, 2018, 62 percent and 67 percent, respectively, of all 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 Private Education 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 on all qualifying claims. For loans disbursed prior to October 1, 1993, we receive 100 percent reimbursement on all qualifying claims.

Prior to July 2018, we acquired Personal Loans from a marketplace lender. In 2018, we began to originate and service Personal Loans.

Loans held for investment are summarized as follows:



	June 30,			December 31,
	2019			2018
Private Education Loans:
Fixed-rate	$	8,231,177		$	6,759,019
Variable-rate	13,397,670			13,745,446
Total Private Education Loans, gross	21,628,847			20,504,465
Deferred origination costs and unamortized premium/(discount)	73,902			68,321
Allowance for loan losses	(307,968		)	(277,943		)
Total Private Education Loans, net	21,394,781			20,294,843

FFELP Loans	812,500			846,487
Deferred origination costs and unamortized premium/(discount)	2,262			2,379
Allowance for loan losses	(1,734		)	(977		)
Total FFELP Loans, net	813,028			847,889

Personal Loans (fixed-rate)	1,134,637			1,190,091
Deferred origination costs and unamortized premium/(discount)	495			297
Allowance for loan losses	(74,295		)	(62,201		)
Total Personal Loans, net	1,060,837			1,128,187

Loans held for investment, net	$	23,268,646		$	22,270,919

The estimated weighted average life of education loans in our portfolio was approximately 5.3 years and 5.4 years at June 30, 2019 and December 31, 2018, respectively.

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



	Three Months Ended
	June 30,
	2019				2018
	Average Balance		Weighted Average Interest Rate		Average Balance		Weighted Average Interest Rate
Private Education Loans	$	21,748,247	9.39	%	$	18,764,768	9.03	%
FFELP Loans	821,138		5.01		898,095		4.51
Personal Loans	1,149,247		12.00		815,356		10.65
Total portfolio	$	23,718,632			$	20,478,219



	Six Months Ended
	June 30,
	2019				2018
	Average Balance		Weighted Average Interest Rate		Average Balance		Weighted Average Interest Rate
Private Education Loans	$	21,740,579	9.44	%	$	18,712,533	8.93	%
FFELP Loans	829,497		4.98		908,846		4.38
Personal Loans	1,162,782		11.90		672,792		10.65
Total portfolio	$	23,732,858			$	20,294,171

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 12 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 review our forbearance policies and practices from time to time and update them as circumstances warrant.

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 (currently, to 4.0 percent; previously to 2.0 percent or 4.0 percent) for a 24 month period and, in the vast majority of cases, the final maturity date of the loan is permanently extended.