Loans Held for Investment

9 Months Ended

Sep. 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 September 30, 2019 and December 31, 2018, 59 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:



	September 30,			December 31,
	2019			2018
Private Education Loans:
Fixed-rate	$	9,551,114		$	6,759,019
Variable-rate	13,569,055			13,745,446
Total Private Education Loans, gross	23,120,169			20,504,465
Deferred origination costs and unamortized premium/(discount)	78,103			68,321
Allowance for loan losses	(342,544		)	(277,943		)
Total Private Education Loans, net	22,855,728			20,294,843

FFELP Loans	798,168			846,487
Deferred origination costs and unamortized premium/(discount)	2,203			2,379
Allowance for loan losses	(1,689		)	(977		)
Total FFELP Loans, net	798,682			847,889

Personal Loans (fixed-rate)	1,131,833			1,190,091
Deferred origination costs and unamortized premium/(discount)	594			297
Allowance for loan losses	(70,173		)	(62,201		)
Total Personal Loans, net	1,062,254			1,128,187

Loans held for investment, net	$	24,716,664		$	22,270,919

The estimated weighted average life of education loans in our portfolio was approximately 5.4 years at both September 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
	September 30,
	2019				2018
	Average Balance		Weighted Average Interest Rate		Average Balance		Weighted Average Interest Rate
Private Education Loans	$	22,202,420	9.30	%	$	19,295,318	9.16	%
FFELP Loans	806,865		4.54		877,279		4.65
Personal Loans	1,132,185		12.16		1,082,177		11.03
Total portfolio	$	24,141,470			$	21,254,774



	Nine Months Ended
	September 30,
	2019				2018
	Average Balance		Weighted Average Interest Rate		Average Balance		Weighted Average Interest Rate
Private Education Loans	$	21,896,218	9.40	%	$	18,908,929	9.01	%
FFELP Loans	821,870		4.83		898,208		4.47
Personal Loans	1,152,471		11.99		810,753		10.82
Total portfolio	$	23,870,559			$	20,617,890

Certain Collection Tools - Private Education Loans

We adjust the terms of loans for certain borrowers when we believe such changes will help our customers manage their student loan obligations, achieve better student outcomes, and increase the collectability of the loan. These changes generally take the form of a temporary forbearance of payments, a temporary interest rate reduction, a temporary interest rate reduction with a permanent extension of the loan term, and/or a short-term extended repayment alternative. Forbearance is granted prospectively for borrowers who are current in their payments and may be granted retroactively for certain delinquent borrowers. Of our loans that are considered TDRs (as hereinafter defined) at September 30, 2019, approximately one-half involve a temporary forbearance of payments and do not change the contractual interest rate of the loan, and the other half involve a temporary contractual interest rate reduction and permanent extension of the loan term.

Forbearance also allows a borrower to temporarily not make scheduled payments or to make smaller than scheduled payments, in each case for a specified period of time. Using forbearance extends the original term of the loan. Forbearance does not grant any reduction in the total principal or interest repayment obligation. While a loan is in forbearance status, interest continues to accrue and is capitalized to principal when the loan re-enters repayment status.

We also offer rate and term modifications to customers experiencing more severe hardship. Currently, we temporarily reduce the contractual interest rate on a loan to 4.0 percent (previously, to 2.0 percent) for a two-year period and, in the vast

majority of cases, permanently extend the final maturity date of the loan. As part of demonstrating the ability and willingness to pay, the customer must make three consecutive monthly payments at the reduced payment to qualify for the program. The combination of the rate reduction and maturity extension helps reduce the monthly payment due from the borrower and increases the likelihood the borrower will remain current during the interest rate modification period as well as when the loan returns to its original contractual interest rate.

Management continually monitors our credit administration practices and may periodically modify these practices based upon performance, industry conventions, and/or regulatory feedback.