Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

13. 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,
	2023			2022			2021
Statutory rate		21.0	%		21.0	%		21.0	%
Non-deductible regulatory-related expenses (1)		—			—			1.4
Unrecognized tax benefits, state, net of federal benefit		.8			(1.3	)		.2
Valuation allowance on disallowed interest expense    carryovers, state, net of federal benefit		6.6			1.0			.7
State tax, net of federal benefit		(1.9	)		1.2			.2
Other, net		.6			.1			(.1	)
Effective tax rate		27.1	%		22.0	%		23.4	%

(1)Regulatory expenses for 2021 include $205 million related to the resolution of State Attorneys General litigation and investigations, of which approximately $50.7 million is non-deductible for income tax purposes. See "Note 12 — Commitments, Contingencies and Guarantees" for further discussion.

Income tax expense consists of:

	December 31,
(Dollars in millions)	2023			2022			2021
Current provision/(benefit):
Federal	$	63		$	(2	)	$	147
State		24			(25	)		19
Foreign		—			1			—
Total current provision/(benefit)		87			(26	)		166
Deferred provision/(benefit):
Federal		—			173			56
State		(2	)		35			(3	)
Foreign		—			—			—
Total deferred provision/(benefit)		(2	)		208			53
Provision for income tax expense/(benefit)	$	85		$	182		$	219

13. Income Taxes (Continued)

The tax effect of temporary differences that give rise to deferred tax assets and liabilities include the following:

	December 31,
(Dollars in millions)	2023		2022
Deferred tax assets:
Loan reserves	$	237	$	297
Accrued expenses not currently deductible		39		33
Education loan premiums and discounts, net		32		41
Operating loss and credit carryovers		11		12
Stock-based compensation plans		5		5
Other		18		19
Total deferred tax assets		342		407
Deferred tax liabilities:
Market value adjustments on education    loans, investments and derivatives		114		201
Acquired intangible assets		23		22
Original issue discount on borrowings		13		13
Other		7		11
Total deferred tax liabilities		157		247
Net deferred tax assets	$	185	$	160

Included in operating loss and credit carryovers is a valuation allowance of $98 million and $79 million as of December 31, 2023 and 2022, respectively, against a portion of the Company’s federal and state deferred tax assets. The valuation allowance is primarily attributable to deferred tax assets for federal and state net operating loss carryovers and state IRC § 163(j) disallowed interest expense carryovers that management believes it is more likely than not will expire prior to being realized. 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. Factors generally considered by management include (but are not limited to): any changes in economic conditions, the scheduled reversals of deferred tax liabilities, and the history of positive taxable income in evaluating the realizability of the deferred tax assets.

The operating loss and credit carryovers consist of:

	December 31, 2023
(Dollars in millions)	Gross		Tax-Effected		Expiration	Corresponding Valuation Allowance(1)		Operating Loss and Credit Carryovers
Federal operating loss carryovers	$	34	$	7	Begins in 2032	$	1	$	6
State operating loss carryovers		559		37	Began in 2023		32		5
State IRC § 163(j) disallowed    interest expense carryovers		4,173		65	Indefinite		65		—
			$	109		$	98	$	11

(1)The valuation allowance attributable to deferred tax assets for federal and state net operating loss carryovers, and state IRC § 163(j) disallowed interest expense carryovers, are amounts that management believes more likely than not will expire prior to being realized.

13. Income Taxes (Continued)

Accounting for Uncertainty in Income Taxes

The following table summarizes changes in unrecognized tax benefits:

	December 31,
(Dollars in millions)	2023			2022			2021
Unrecognized tax benefits at beginning of year	$	50.7		$	58.8		$	57.9
Increases resulting from tax positions taken during a prior period		3.8			10.8			6.4
Decreases resulting from tax positions taken during a prior period		(4.5	)		(18.6	)		(4.2	)
Increases resulting from tax positions taken during the current period		7.4			6.7			6.4
Decreases related to settlements with taxing authorities		(3.8	)		(1.0	)		(.3	)
Increases related to settlements with taxing authorities		—			—			—
Reductions related to the lapse of statute of limitations		(5.1	)		(6.0	)		(7.4	)
Unrecognized tax benefits at end of year (1)	$	48.5		$	50.7		$	58.8

(1)Included in the $48.5 million of gross unrecognized tax benefits at December 31, 2023 are $38.3 million of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate.

The Company or one of its subsidiaries files income tax returns at the U.S. federal level, in most U.S. states, and various foreign jurisdictions. All periods prior to 2020 are closed for federal examinations purposes. Various combinations of subsidiaries, tax years, and jurisdictions remain open for review, subject to statute of limitations periods (typically 3 to 4 prior years). We do not expect the resolution of open audits to have a material impact on our unrecognized tax benefits.