Fair Value Measurements

12 Months Ended

Dec. 31, 2024

Fair Value Disclosures [Abstract]

Fair Value Measurements

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 hierarchical 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” in this Form 10-K.

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
	2024								2023
As of December 31, (dollars in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Trading investments	$	—	$	—	$	53,262	$	53,262	$	—	$	—	$	54,481	$	54,481
Available-for-sale investments	—		1,930,537		2,689		1,933,226		—		2,411,622		—		2,411,622
Derivative instruments	—		—		—		—		—		—		—		—
Total	$	—	$	1,930,537	$	55,951	$	1,986,488	$	—	$	2,411,622	$	54,481	$	2,466,103
Liabilities:
Derivative instruments	$	—	$	(40)	$	—	$	(40)	$	—	$	(370)	$	—	$	(370)
Total	$	—	$	(40)	$	—	$	(40)	$	—	$	(370)	$	—	$	(370)

The following table summarizes the change in balance sheet carrying value associated with level 3 financial instruments carried at fair value on a recurring basis.

	2024						2023
	Investments						Investments
Years ended December 31, (dollars in thousands)	Available For Sale - Debt Securities		Trading - Residual Interests		Total		Available For Sale - Debt Securities		Trading - Residual Interests		Total
Balance, beginning of period	$	—	$	54,481	$	54,481	$	—	$	50,786	$	50,786
Total gains/(losses):
Included in earnings (or changes in net assets)(1)	20		478		498		—		2,721		2,721
Included in other comprehensive income	80		—		80		—		—		—
Settlements	2,589		(1,697)		892		—		974		974
Transfers into level 3	—		—		—		—		—		—
Transfers out of level 3	—		—		—		—		—		—
Balance, end of period	$	2,689	$	53,262	$	55,951	$	—	$	54,481	$	54,481
Change in unrealized gains (losses) for the period included in other comprehensive income for assets held at the end of the reporting period	$	80	$	—	$	80	$	—	$	—	$	—
Change in unrealized gains (losses) for the period included in earnings (or changes in net assets) for assets held at the end of the reporting period(2)	$	—	$	478	$	478	$	—	$	2,721	$	2,721

(1) Included in earnings (or changes in net assets) is comprised of the amounts recorded in the specified line item in the consolidated statements of income:

Years Ended December 31, (dollars in thousands)
	2024		2023
Interest Income - Investments	$	20	$	—
Gains (losses) on securities, net	478		2,721
Total	$	498	$	2,721

(2) Recorded in "gains (losses) on securities, net" in the consolidated statements of income.

The following table presents the significant unobservable inputs used in the recurring valuations of the level 3 financial instruments detailed above.

As of December 31, 2024 (dollars in thousands)	Fair Value		Valuation Technique	Unobservable Input	Range (Average)
Debt Securities	$	2,689	Discounted cash flow	Constant Prepayment Rate	6.9%-11.0% (8.3%)
				Probability of default	4.0%-17.0% (11.5%)
Residual Interests	53,262		Discounted cash flow	Constant Prepayment Rate	6.9%-11.0% (8.3%)
				Probability of default	4.0%-17.0% (11.5%)
Total	$	55,951

The significant inputs detailed in the above table would be expected to have the following impacts to the valuations:

•A decrease in CPR would result in a longer weighted average life of the trust, resulting in a decrease to the valuation due to the delay in residual cash flows with the increased term. The opposite is true for an increase in the CPR.

•A decrease in the probability of defaults means increased principal receipts, resulting in an increase to the valuation due to the increase in residual cash flow.

•Conversely, an increase in the probability of defaults means decreased principal receipts, resulting in a decrease to the valuation due to the decrease in residual cash flow.

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

As of December 31, (dollars in thousands)	2024						2023
	Fair Value		Carrying Value		Difference		Fair Value		Carrying Value		Difference
Earning assets:
Loans held for investment, net:
Private Education Loans	$	24,110,381	$	20,902,158	$	3,208,223	$	22,229,045	$	19,772,293	$	2,456,752
FFELP Loans	—		—		—		542,775		534,064		8,711
Cash and cash equivalents	4,700,366		4,700,366		—		4,149,838		4,149,838		—
Trading investments	53,262		53,262		—		54,481		54,481		—
Available-for-sale investments	1,933,226		1,933,226		—		2,411,622		2,411,622		—
Accrued interest receivable	1,663,474		1,546,590		116,884		1,448,766		1,379,904		68,862
Derivative instruments	—		—		—		—		—		—
Total earning assets	$	32,460,709	$	29,135,602	$	3,325,107	$	30,836,527	$	28,302,202	$	2,534,325
Interest-bearing liabilities:
Money-market and savings accounts	$	10,503,731	$	10,526,324	$	22,593	$	11,134,883	$	11,203,292	$	68,409
Certificates of deposit	10,593,666		10,540,428		(53,238)		10,380,684		10,448,365		67,681
Long-term borrowings	6,323,384		6,440,345		116,961		4,873,690		5,227,512		353,822
Accrued interest payable	108,488		108,488		—		105,066		105,066		—
Derivative instruments	40		40		—		370		370		—
Total interest-bearing liabilities	$	27,529,309	$	27,615,625	$	86,316	$	26,494,693	$	26,984,605	$	489,912
Excess of net asset fair value over carrying value					$	3,411,423					$	3,024,237

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

Trading

Investments classified as trading are carried at fair value in the consolidated financial statements. Investments in residual class interests are valued using observable inputs in the cash flow modeling where available, but many significant inputs are unobservable. Residual interests are not exchange traded nor do they have quoted market prices, as they are unique and do not actively trade. As such, these are level 3 valuations.

Available-for-Sale

Investments classified as available-for-sale are carried at fair value in the consolidated financial statements. Investments in mortgage-backed securities, U.S. government-sponsored enterprises and Treasury securities, and Utah Housing Corporation bonds are valued using observable market prices of similar assets. As such, these are level 2 valuations. The fair value of most of our non-residual vertical risk retention investments is estimated using pricing indications obtained from the investment bankers who participate in the asset-backed securities market. As such, these

are level 2 valuations. Where we are unable to obtain pricing indications for our non-residual vertical risk retention investments, we classify them as level 3 valuations.

Loans Held For Investment and Accrued Interest Receivable

Private Education Loans

For Private Education Loans, fair value was determined by using observable quoted prices for similar assets in our most recent market transactions. Adjustments were then made to account for the value of loans in our portfolio that have materially different characteristics than those included in the most recent market transaction. These are considered level 2 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.

FFELP Loans

During the third quarter of 2024, we transferred our FFELP Loan portfolio to loans held for sale as we planned to sell our FFELP Loan portfolio. At that time, we wrote down this loan portfolio to its estimated fair value through an adjustment to the allowance for credit losses of $8 million. We subsequently sold the FFELP Loan portfolio to a third party during the fourth quarter of 2024.

For FFELP Loans, the 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. 

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 secured borrowings is estimated using pricing indications obtained from the investment bankers who participate in the asset-backed securities market. The fair value of our long-term unsecured borrowings is sourced from a third-party pricing service.These are level 2 valuations.

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 SOFR 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 (SOFR). These valuations are determined through standard pricing models using the stated terms of the borrowings and observable yield curves.