Loans Held for Investment

9 Months Ended

Sep. 30, 2022

Loans held for investment consist of Private Education Loans, FFELP Loans, and Credit Cards. 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 “Credit Cards” to refer to our suite of Credit Cards with bonus rewards. At September 30, 2022, we transferred our Credit Card portfolio to loans held for sale as we plan to sell our Credit Card portfolio. For additional information, see Notes to Consolidated Financial Statements, Note 4, “Loans Held for Sale.”

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, the London interbank offered rate, or SOFR, the Secured Overnight Financing Rate. As of September 30, 2022 and December 31, 2021, 47 percent and 52 percent, respectively, of all of our Private Education Loans were indexed to LIBOR or SOFR. 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.

In the first nine months of 2022, we recognized $325 million in gains from the sale of approximately $3.29 billion of our Private Education Loans, including $3.08 billion of principal and $213 million in capitalized interest, to unaffiliated third parties. In the first nine months of 2021, we recognized $403 million in gains from the sale of approximately $3.19 billion of our Private Education Loans, including $2.99 billion of principal and $195 million in capitalized interest, to an unaffiliated third party. There were VIEs created in the execution of certain of these loan sales; however, based on our consolidation analysis, we are not the primary beneficiary of these VIEs. These transactions qualified for sale treatment and removed the balance of the loans from our balance sheet on the respective settlement dates. We remained the servicer of these loans pursuant to applicable servicing agreements executed in connection with the sales. For additional information, see Notes to Consolidated Financial Statements, Note 9, “Borrowings - Unconsolidated VIEs.”

Loans held for investment are summarized as follows:


	September 30,		December 31,
(Dollars in thousands)	2022		2021
Private Education Loans:
Fixed-rate	$	10,693,123	$	9,920,547
Variable-rate	9,411,340		10,796,316
Total Private Education Loans, gross	20,104,463		20,716,863
Deferred origination costs and unamortized premium/(discount)	66,816		67,488
Allowance for credit losses	(1,190,427)		(1,158,977)
Total Private Education Loans, net	18,980,852		19,625,374

FFELP Loans	643,614		695,216
Deferred origination costs and unamortized premium/(discount)	1,647		1,815
Allowance for credit losses	(3,811)		(4,077)
Total FFELP Loans, net	641,450		692,954

Credit Cards (fixed-rate)	—		25,014
Deferred origination costs and unamortized premium/(discount)	—		222
Allowance for credit losses	—		(2,281)
Total Credit Cards, net	—		22,955
Loans held for investment, net	$	19,622,302	$	20,341,283

The estimated weighted average life of education loans in our portfolio was approximately 5.0 years and 4.7 years at September 30, 2022 and December 31, 2021, respectively.

The average balance (net of unamortized premium/discount) and the respective weighted average interest rates of loans held for investment in our portfolio are summarized as follows:


	2022				2021
Three Months Ended September 30, (dollars in thousands)	Average Balance		Weighted Average Interest Rate		Average Balance		Weighted Average Interest Rate
Private Education Loans	$	19,958,763	9.43	%	$	20,944,581	8.26	%
FFELP Loans	655,724		5.03		713,517		3.45
Credit Cards	—		—		14,894		6.95
Total portfolio	$	20,614,487			$	21,672,992


	2022				2021
Nine Months Ended September 30, (dollars in thousands)	Average Balance		Weighted Average Interest Rate		Average Balance		Weighted Average Interest Rate
Private Education Loans	$	20,685,372	8.82	%	$	20,860,973	8.23	%
FFELP Loans	673,654		4.18		723,656		3.43
Credit Cards	—		—		12,821		4.97
Total portfolio	$	21,359,026			$	21,597,450

Loans Held for SaleWe had $29 million in loans held for sale at September 30, 2022 and no loans held for sale at December 31, 2021. The balance at September 30, 2022 was comprised of our Credit Card loan portfolio. At September 30, 2022, we reversed $2.4 million through the provisions for credit losses for the allowance related to these loans, when the loans were transferred to held for sale. At September 30, 2022, we wrote down this loan portfolio to its estimated fair value through a charge-off to the allowance for credit losses of $1.5 million.