Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Reconciliations of the statutory U.S. federal income tax rates to our effective tax rate for continuing operations follow:

 

Years ended December 31,	2024		2023		2022
Statutory rate	21.0	%	21.0	%	21.0	%
State tax, net of federal benefit	2.3		3.8		4.1
Business credits	(2.0)		(1.3)		(1.5)
Other, net	2.5		1.8		2.0
Effective tax rate	23.8	%	25.3	%	25.6	%

The effective tax rate varies from the statutory U.S. federal rate of 21 percent primarily due to business tax credits and the impact of state taxes, net of federal benefit, for the years ended December 31, 2024, 2023, and 2022.

Income tax expense consists of:

 

As of December 31, (dollars in thousands)	2024		2023		2022
Current provision (benefit):
Federal	$	181,132	$	175,977	$	205,954
State	43,506		44,152		49,427
Total current provision (benefit)	224,638		220,129		255,381
Deferred provision (benefit):
Federal	(19,032)		(20,687)		(75,978)
State	(15,295)		(2,537)		(17,692)
Total deferred provision (benefit)	(34,327)		(23,224)		(93,670)
Provision for income tax expense	$	190,311	$	196,905	$	161,711

The tax effect of temporary differences that give rise to deferred tax assets and liabilities is summarized below.

As of December 31, (dollars in thousands)	2024		2023
Deferred tax assets:
Loan reserves	$	376,029	$	354,412
Net unrealized losses	21,209		24,176
Accrued expenses not currently deductible	19,841		16,297
Unrecorded tax benefits	12,008		11,568
Research and development costs	38,119		26,519
Stock-based compensation plans	12,885		10,847
Acquired intangible assets	16,394		14,536
Operating loss carryovers	—		26
Other	1,785		1,426
Total deferred tax assets	498,270		459,807
Deferred tax liabilities:
Student loan premiums and discounts, net	22,873		15,908
Fixed assets	7,708		8,533
Federal deferred for state receivable	1,908		1,171
Other	402		614
Total deferred tax liabilities	32,891		26,226
Net deferred tax assets	$	465,379	$	433,581

Included in operating loss carryovers are state net operating losses of $234 million and $223 million as of December 31, 2024 and 2023, respectively. The Company has recorded a valuation allowance against these net operating losses of $234 million and $223 million, respectively. Also included in operating loss carryovers is a capital loss of $23 million and $18 million as of December 31, 2024 and 2023, respectively. The Company has recorded a full valuation allowance against this capital loss. The valuation allowance is primarily attributable to deferred tax assets for state net operating losses and capital losses that management believes are more likely than not to expire prior to being realized. Included in net unrealized losses is a valuation allowance of $5 million and $4 million, respectively.

The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income of the appropriate character (i.e., capital or ordinary) during the period in which the temporary differences become deductible. Management considers, among other things, the scheduled reversals of deferred tax liabilities and the history of positive taxable income in evaluating the realizability of the deferred tax assets. Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize our deferred tax assets (other than state net operating loss, net unrealized losses and capital loss carryovers as outlined above).

As of December 31, 2024, the state net operating loss carryforwards will begin to expire in 2029 and the capital losses will begin to expire in 2025.

Accounting for Uncertainty in Income Taxes

The following table summarizes changes in unrecognized tax benefits:

 

As of December 31, (dollars in thousands)	2024		2023		2022
Unrecognized tax benefits at beginning of year	$	68,123	$	79,366	$	75,328
Increases resulting from tax positions taken during a prior period	1,232		1,204		6,049
Decreases resulting from tax positions taken during a prior period	(1,890)		(250)		(1,327)
Increases resulting from tax positions taken during the current period	3,218		2,711		11,032
Decreases related to settlements with taxing authorities	(18,349)		(10,089)		(4,666)
Reductions related to the lapse of statute of limitations	(3,927)		(4,819)		(7,050)
Unrecognized tax benefits at end of year	$	48,407	$	68,123	$	79,366

As of December 31, 2024, the gross unrecognized tax benefits are $48 million. Included in the $48 million are $39 million of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate.

Tax-related interest and penalty expense is reported as a component of income tax expense. As of December 31, 2024, 2023, and 2022, the total amount of income tax-related accrued interest and penalties, net of related benefit, recognized in the consolidated balance sheets was $11 million, $8 million, and $8 million, respectively.

For the years ended December 31, 2024, 2023, and 2022, the total amount of income tax-related accrued interest, net of related tax benefit, recognized in the consolidated statements of income was $3 million, $2 million, and $(2) million, respectively.

The Company or one of its subsidiaries files income tax returns at the U.S. federal level and in most U.S. states. U.S. federal income tax returns filed for years 2020 and prior are no longer subject to examination. Various combinations of subsidiaries, tax years, and jurisdictions remain open for review, subject to statute of limitations periods (typically three to four prior years). We do not expect the resolution of open audits to have a material impact on our unrecognized tax benefits.

It is reasonably possible that the uncertain tax position reserve may decrease by as much as $11 million during the next 12 months due to the expiration of statutes of limitations. The reduction in the uncertain tax position reserve would be reflected as a tax benefit.