UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                

Commission File Number: 001-36228

Navient Corporation

(Exact name of registrant as specified in its charter)

Delaware	46-4054283
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
123 Justison Street, Wilmington, Delaware	19801
(Address of principal executive offices)	(Zip Code)

(302) 283-8000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☑        No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ☑	Accelerated filer  ☐
Non-accelerated filer  ☐	Smaller reporting company  ☐
(Do not check if a smaller reporting company)	Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☑        No  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐        No  ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Class	Outstanding at September 30, 2017
Common Stock, $0.01 par value	263,012,203 shares

NAVIENT CORPORATION

TABLE OF CONTENTS

Part I. Financial Information
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	93
Item 4.	Controls and Procedures	98
Part II. Other Information
Item 1.	Legal Proceedings	99
Item 1A.	Risk Factors	102
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	102
Item 3.	Defaults Upon Senior Securities	102
Item 4.	Mine Safety Disclosures	102
Item 5.	Other Information	102
Item 6.	Exhibits	103

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NAVIENT CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share amounts)

(Unaudited)

	September 30, 2017			December 31, 2016
Assets
FFELP Loans (net of allowance for losses of $61 and $67, respectively)	$	83,916		$	87,730
Private Education Loans (net of allowance for losses of $1,287 and $1,351 respectively)		23,424			23,340
Investments
Available-for-sale		3			3
Other		293			347
Total investments		296			350
Cash and cash equivalents		1,248			1,253
Restricted cash and investments		3,386			3,600
Goodwill and acquired intangible assets, net		727			670
Other assets		4,088			4,193
Total assets	$	117,085		$	121,136
Liabilities
Short-term borrowings	$	3,281		$	2,334
Long-term borrowings		108,557			112,368
Other liabilities		1,697			2,711
Total liabilities		113,535			117,413
Commitments and contingencies
Equity
Common stock, par value $0.01 per share, 1.125 billion shares authorized: 440 million and 436 million shares issued, respectively		4			4
Additional paid-in capital		3,067			3,022
Accumulated other comprehensive income (net of tax expense of $9 and $3, respectively)		16			6
Retained earnings		3,130			2,890
Total Navient Corporation stockholders’ equity before treasury stock		6,217			5,922
Less: Common stock held in treasury at cost: 177 million and 145 million shares, respectively		(2,691	)		(2,223	)
Total Navient Corporation stockholders’ equity		3,526			3,699
Noncontrolling interest		24			24
Total equity		3,550			3,723
Total liabilities and equity	$	117,085		$	121,136

Supplemental information — assets and liabilities of consolidated variable interest entities:

	September 30, 2017		December 31, 2016
FFELP Loans	$	79,942	$	83,429
Private Education Loans		20,835		20,500
Other loans		—		79
Restricted cash		3,235		3,434
Other assets, net		934		(11	)
Short-term borrowings		1,373		1,078
Long-term borrowings		92,903		95,492
Net assets of consolidated variable interest entities	$	10,670	$	10,861

See accompanying notes to consolidated financial statements.

1

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share amounts)

(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017			2016
Interest income:
FFELP Loans	$	681		$	631	$	1,979		$	1,883
Private Education Loans		445			401		1,204			1,213
Other loans		2			2		12			5
Cash and investments		12			5		29			17
Total interest income		1,140			1,039		3,224			3,118
Total interest expense		785			627		2,178			1,791
Net interest income		355			412		1,046			1,327
Less: provisions for loan losses		105			106		317			327
Net interest income after provisions for loan losses		250			306		729			1,000
Other income (loss):
Servicing revenue		75			76		221			230
Asset recovery and business processing revenue		157			97		367			288
Other income (loss)		4			—		3			(36	)
Gains on sales of loans and investments		3			—		3			—
Gains (losses) on debt repurchases		(1	)		1		(1	)		1
Gains (losses) on derivative and hedging activities, net		25			137		(16	)		111
Total other income		263			311		577			594
Expenses:
Salaries and benefits		128			122		381			379
Other operating expenses		110			106		326			327
Total operating expenses		238			228		707			706
Goodwill and acquired intangible asset impairment and amortization expense		6			12		17			22
Total expenses		244			240		724			728
Income before income tax expense		269			377		582			866
Income tax expense		93			147		206			331
Net income attributable to Navient Corporation	$	176		$	230	$	376		$	535
Basic earnings per common share attributable to Navient Corporation	$	.65		$	.74	$	1.35		$	1.65
Average common shares outstanding		269			310		279			324
Diluted earnings per common share attributable to Navient Corporation	$	.64		$	.73	$	1.32		$	1.63
Average common and common equivalent shares outstanding		274			316		285			329
Dividends per common share attributable to Navient Corporation	$	.16		$	.16	$	.48		$	.48

See accompanying notes to consolidated financial statements.

2

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net income	$	176		$	230		$	376		$	535
Other comprehensive income (loss):
Unrealized gains (losses) on derivatives:
Unrealized hedging gains (losses) on derivatives		15			74			16			(118	)
Reclassification adjustments for derivative (gains) losses included in net income (interest expense)		—			(1	)		—			(1	)
Total unrealized gains (losses) on derivatives		15			73			16			(119	)
Income tax (expense) benefit		(6	)		(28	)		(6	)		44
Other comprehensive income (loss), net of tax expense (benefit)		9			45			10			(75	)
Total comprehensive income attributable to Navient Corporation	$	185		$	275		$	386		$	460

See accompanying notes to consolidated financial statements.

3

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in millions, except share and per share amounts)

(Unaudited)

	Common Stock Shares								Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Stockholders’ Equity			Noncontrolling Interest		Total Equity
	Issued		Treasury			Outstanding
Balance at June 30, 2016		433,528,248		(116,495,242	)		317,033,006		$	4	$	2,985	$	(171	)	$	2,611		$	(1,816	)	$	3,613		$	24	$	3,637
Comprehensive income:
Net income (loss)		—		—			—			—		—		—			230			—			230			—		230
Other comprehensive income (loss), net of tax		—		—			—			—		—		45			—			—			45			—		45
Total comprehensive income		—		—			—			—		—		—			—			—			275			—		275
Cash dividends:							—
Common stock ($.16 per share)		—		—			—			—		—		—			(49	)		—			(49	)		—		(49	)
Issuance of common shares		1,558,455		—			1,558,455			—		17		—			—			—			17			—		17
Tax impact of employee stock-based compensation plans		—		—			—			—		—		—			—			—			—			—		—
Stock-based compensation expense		—		—			—			—		4		—			—			—			4			—		4
Common stock repurchased		—		(14,347,974	)		(14,347,974	)		—		—		—			—			(200	)		(200	)		—		(200	)
Shares repurchased related to employee stock-based compensation plans		—		(1,145,017	)		(1,145,017	)		—		—		—			—			(16	)		(16	)		—		(16	)
Balance at September 30, 2016		435,086,703		(131,988,233	)		303,098,470		$	4	$	3,006	$	(126	)	$	2,792		$	(2,032	)	$	3,644		$	24	$	3,668
Balance at June 30, 2017		439,187,978		(165,083,710	)		274,104,268		$	4	$	3,056	$	7		$	2,997		$	(2,524	)	$	3,540		$	24	$	3,564
Comprehensive income:
Net income (loss)		—		—			—			—		—		—			176			—			176			—		176
Other comprehensive income (loss), net of tax		—		—			—			—		—		9			—			—			9			—		9
Total comprehensive income		—		—			—			—		—		—			—			—			185			—		185
Cash dividends:
Common stock ($.16 per share)		—		—			—			—		—		—			(43	)		—			(43	)		—		(43	)
Issuance of common shares		385,676		—			385,676			—		4		—			—			—			4			—		4
Stock-based compensation expense		—		—			—			—		7		—			—			—			7			—		7
Common stock repurchased		—		(11,346,367	)		(11,346,367	)		—		—		—			—			(165	)		(165	)		—		(165	)
Shares repurchased related to employee stock-based compensation plans		—		(131,374	)		(131,374	)		—		—		—			—			(2	)		(2	)		—		(2	)
Balance at September 30, 2017		439,573,654		(176,561,451	)		263,012,203		$	4	$	3,067	$	16		$	3,130		$	(2,691	)	$	3,526		$	24	$	3,550

See accompanying notes to consolidated financial statements.

4

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in millions, except share and per share amounts)

(Unaudited)

	Common Stock Shares								Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Stockholders’ Equity			Noncontrollng Interest		Total Equity
	Issued		Treasury			Outstanding
Balance at December 31, 2015		430,561,656		(82,350,868	)		348,210,788		$	4	$	2,967		$	(51	)	$	2,414		$	(1,425	)	$	3,909		$	24	$	3,933
Comprehensive income:
Net income (loss)		—		—			—			—		—			—			535			—			535			—		535
Other comprehensive income (loss), net of tax		—		—			—			—		—			(75	)		—			—			(75	)		—		(75	)
Total comprehensive income		—		—			—			—		—			—			—			—			460			—		460
Cash dividends:
Common stock ($.48 per share)		—		—			—			—		—			—			(154	)		—			(154	)		—		(154	)
Dividend equivalent units related to employee stock-based compensation plans		—		—			—			—		—			—			(3	)		—			(3	)		—		(3	)
Issuance of common shares		4,525,047		—			4,525,047			—		25			—			—			—			25			—		25
Tax benefit related to employee stock-based compensation plans		—		—			—			—		(8	)		—			—			—			(8	)		—		(8	)
Stock-based compensation expense		—		—			—			—		22			—			—			—			22			—		22
Common stock repurchased		—		(47,137,636	)		(47,137,636	)		—		—			—			—			(575	)		(575	)		—		(575	)
Shares repurchased related to employee stock-based compensation plans		—		(2,499,729	)		(2,499,729	)		—		—			—			—			(32	)		(32	)		—		(32	)
Balance at September 30, 2016		435,086,703		(131,988,233	)		303,098,470		$	4	$	3,006		$	(126	)	$	2,792		$	(2,032	)	$	3,644		$	24	$	3,668
Balance at December 31, 2016		436,037,666		(145,173,548	)		290,864,118		$	4	$	3,022		$	6		$	2,890		$	(2,223	)	$	3,699		$	24	$	3,723
Comprehensive income:
Net income (loss)		—		—			—			—		—			—			376			—			376			—		376
Other comprehensive income (loss), net of tax		—		—			—			—		—			10			—			—			10			—		10
Total comprehensive income		—		—			—			—		—			—			—			—			386			—		386
Cash dividends:
Common stock ($.48 per share)		—		—			—			—		—			—			(133	)		—			(133	)		—		(133	)
Dividend equivalent units related to employee stock-based compensation plans		—		—			—			—		—			—			(3	)		—			(3	)		—		(3	)
Issuance of common shares		3,535,988		—			3,535,988			—		19			—			—			—			19			—		19
Stock-based compensation expense		—		—			—			—		26			—			—			—			26			—		26
Common stock repurchased		—		(29,646,374	)		(29,646,374	)		—		—			—			—			(440	)		(440	)		—		(440	)
Shares repurchased related to employee stock-based compensation plans		—		(1,741,529	)		(1,741,529	)		—		—			—			—			(28	)		(28	)		—		(28	)
Balance at September 30, 2017		439,573,654		(176,561,451	)		263,012,203		$	4	$	3,067		$	16		$	3,130		$	(2,691	)	$	3,526		$	24	$	3,550

See accompanying notes to consolidated financial statements.

5

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)

	Nine Months Ended September 30,
	2017			2016
Operating activities
Net income	$	376		$	535
Adjustments to reconcile net income to net cash provided by
Gains on sales of loans and investments		(3	)		—
Losses (gains) on debt repurchases		1			(1	)
Goodwill and acquired intangible asset impairment and amortization expense		17			22
Stock-based compensation expense		26			22
Unrealized gains on derivative and hedging activities		(25	)		(303	)
Provisions for loan losses		317			327
Decrease in accrued interest receivable		90			98
Decrease in accrued interest payable		(33	)		(159	)
Decrease in other assets		213			489
(Decrease) increase in other liabilities		(65	)		84
Total net cash provided by operating activities		914			1,114
Investing activities
Education loans acquired		(6,428	)		(2,845	)
Reduction of education loans:
Installment payments, claims and other		11,290			11,210
Other investing activities, net		(70	)		(4	)
Proceeds from maturities of available-for-sale securities		—			1
Purchases of other securities		(1	)		(44	)
Proceeds from maturities of other securities		19			44
Decrease in restricted cash — variable interest entities		344			136
Purchase of subsidiaries, net of cash acquired		(82	)		—
Total net cash provided by investing activities		5,072			8,498
Financing activities
Borrowings collateralized by loans in trust — issued		7,024			4,796
Borrowings collateralized by loans in trust — repaid		(10,929	)		(9,830	)
Asset-backed commercial paper conduits, net		(1,364	)		(3,011	)
Other short-term borrowings repaid		(25	)		—
Other long-term notes issued		1,353			1,231
Other long-term notes repaid		(1,342	)		(1,849	)
Other financing activities, net		(135	)		9
Common stock repurchased		(440	)		(575	)
Common dividends paid		(133	)		(154	)
Total net cash used in financing activities		(5,991	)		(9,383	)
Net (decrease) increase in cash and cash equivalents		(5	)		229
Cash and cash equivalents at beginning of period		1,253			1,594
Cash and cash equivalents at end of period	$	1,248		$	1,823
Cash disbursements made (refunds received) for:
Interest	$	2,121		$	1,683
Income taxes paid	$	107		$	164
Income taxes received	$	—		$	(2	)
Noncash activity:
Investing activity — Education loans and restricted cash acquired	$	1,552		$	—
Operating activity — Other assets acquired and other liabilities assumed, net	$	14		$	—
Financing activity — Borrowings assumed in acquisition of education loans and restricted cash	$	1,566		$	—

See accompanying notes to consolidated financial statements.

6

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited)

1. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited, consolidated financial statements of Navient have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. The consolidated financial statements include the accounts of Navient and its majority-owned and controlled subsidiaries and those Variable Interest Entities (“VIEs”) for which we are the primary beneficiary, after eliminating the effects of intercompany accounts and transactions. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results for the year ending December 31, 2017 or for any other period. These unaudited financial statements should be read in conjunction with the audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”). Definitions for certain capitalized terms used but not otherwise defined in this Quarterly Report on Form 10-Q can be found in our 2016 Form 10-K.

Reclassifications

Certain reclassifications have been made to the balances as of and for the three and nine months ended September 30, 2016 to be consistent with classifications adopted for 2017, and had no effect on net income, total assets, or total liabilities.

Education Loan Interest Income and Allowance for Loan Losses

In June 2017, Navient purchased education loans with an unpaid principal amount of $6.5 billion comprised of $3.5 billion in FFELP Loans and $3.0 billion in Private Education Loans.

Purchased Credit Impaired (“PCI”) Loans

Loans acquired with evidence of deterioration of credit quality since origination for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable are PCI loans accounted for under Accounting Standard Codification (“ASC”) 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” When considering whether evidence of credit quality deterioration exists as of the purchase date, the Company considers loan guarantees and the following credit attributes: delinquency status, use of forbearance, recent borrower FICO scores, use of loan modification programs, and borrowers who have filed for bankruptcy.

The Company aggregates loans with common risk characteristics into pools and accounts for each pool as a single asset with a single composite interest rate and an aggregate expectation of cash flows. The pools when formed are initially recorded at fair value. The Company recognizes interest income based on each pool’s effective interest rate which is based on our estimate of all cash flows expected to be received and includes an assumption about prepayment rates. The pools are tested quarterly for impairment by re-estimating the future cash flows to be received from the pools. If the new estimated cash flows result in a pool’s effective interest rate increasing, then this new yield is used prospectively over the remaining life of the pool. If the new estimated cash flows result in a pool’s effective interest rate decreasing, the pool is impaired and written down through a valuation allowance to maintain the effective interest rate.

7

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

1. Significant Accounting Policies (Continued)

Based on the credit attributes discussed above, we concluded that $261 million principal amount of Private Education Loans acquired in June 2017 are required to be accounted for as PCI loans with a fair value and resulting carry value of $101 million as of the acquisition date. As of acquisition, this portfolio’s contractually required payments receivable (the total undiscounted amount of all uncollected contractual principal and interest payments both past due and scheduled for the future, adjusted for prepayments) was $411 million with an estimated accretable yield (income expected to be recognized in future periods) of $108 million. As of September 30, 2017, the carrying amount was $100 million with no valuation allowance recorded.

Purchased Non-Credit Impaired Loans

Loans acquired that do not have evidence of credit deterioration since origination are recorded at fair value with no allowance for loan losses established at the acquisition date. Loan premiums and discounts are amortized as a part of interest income using the interest method under ASC 310-20, “Nonrefundable Fees and Other Costs.” An allowance for loan losses is established when incurred losses in the loans exceed the remaining unamortized discount recorded at the time of acquisition (i.e., the next two years of expected charge-offs as well as any additional TDR allowance required is greater than the remaining discount). As a result of this policy, to the extent that actual charge-offs exceed any related allowance for loan losses recognized post-acquisition, provision for loan losses is recorded when the loans are charged off. Charge-offs are recorded through the allowance for loan losses. In June 2017, we acquired Private Education Loans with unpaid principal balance of $2.8 billion at a discount of $424 million and FFELP Loans with unpaid principal balance of $3.5 billion at a discount of $47 million, that are accounted for under this policy. No allowance for loan losses has been established for these loans as of September 30, 2017.

Asset Recovery and Business Processing Revenue

In the third quarter of 2017, $47 million of previously deferred asset recovery revenue, net of a reserve, was recognized as revenue related to loans for which the Company performs default aversion services. In connection with providing these services, a fee is received when a loan is initially placed with us and we provide the services for the remaining life of the loan for no additional fee. As a result, in accordance with GAAP, the fee was deferred net of estimated rebates, and recognized as revenue as it was earned over the expected lives of the related loans. In the third quarter of 2017, the Company was notified that it would no longer perform these services after 2017 due to the termination of the related contract as of December 31, 2017. In accordance with GAAP, we recognized this previously deferred revenue during the three-month period ended September 30, 2017 to reflect a shortened period over which it is expected to be earned.

Recently Issued Accounting Pronouncements

Revenue Recognition

On May 28, 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The new guidance supersedes current U.S. GAAP guidance on revenue recognition and requires the use of more estimates and judgements than the current revenue standards. The new guidance does not apply to revenue associated with financial instruments, including loans, that are accounted for under other U.S. GAAP. Accordingly, we do not expect the new revenue recognition guidance to have a material impact on our consolidated results of operations associated with our loan portfolios including net interest income.

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NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

1. Significant Accounting Policies (Continued)

We will adopt the new standard as of January 1, 2018, the effective date. The new standard permits the use of either the retrospective or cumulative effect transition method. Our implementation efforts to date include the identification of revenue and review of related contracts within the scope of the new standard. We have not yet identified nor do we anticipate material changes in the timing of revenue recognition. However, our review is ongoing as we continue to evaluate both contract revenue and certain contract costs.

Classification and Measurement

On January 5, 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which reconsiders the classification and measurement of financial instruments. The new standard requires certain equity instruments be measured at fair value, with fair value changes recognized in earnings. In addition, the standard requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption. It will be effective for the Company as of January 1, 2018. We have concluded that adopting this new accounting standard will be immaterial to our consolidated financial statements and footnote disclosures.

Leases

On February 25, 2016, the FASB issued ASU No. 2016-02, “Leases,” which requires the identification of arrangements that should be accounted for as leases by lessees. In general, for lease arrangements exceeding a twelve-month term, these arrangements must be recognized as assets and liabilities on the balance sheet of the lessee. A right-of-use asset and lease obligation will be recorded for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of adoption must be calculated using the applicable incremental borrowing rate at the date of adoption. The standard requires the use of the modified retrospective transition method, which will require adjustment to all comparative periods presented. It will be effective for the Company as of January 1, 2019. Early adoption is permitted. We are currently assessing the impact that adopting this new accounting standard will have on our consolidated financial statements and footnote disclosures, but expect it to be immaterial.

Stock Compensation

On March 30, 2016, the FASB issued ASU No. 2016-09, “Compensation — Stock Compensation,” which identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The new standard also requires that all excess tax benefits and tax deficiencies that pertain to employee stock-based incentive payments be recognized within income tax expense in the consolidated statements of income, rather than as previously reported within additional paid-in capital. The new standard was adopted on January 1, 2017 and is expected to have an immaterial impact on our consolidated financial statements and footnote disclosures. In the nine months ended September 30, 2017, this new standard resulted in a $5 million reduction to income tax expense.

Allowance for Loan Losses

On June 16, 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses,” which requires measurement and recognition of an allowance for loan loss that estimates remaining expected credit

9

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

1. Significant Accounting Policies (Continued)

losses for financial assets held at the reporting date. Our current allowance for loan loss is an incurred loss model. As a result, we expect the new guidance will result in an increase to our allowance for loan losses. The standard is to be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The standard is effective for the Company as of January 1, 2020, and will primarily impact the allowance for loan losses related to our Private Education Loans and FFELP Loans. Early adoption is permitted on January 1, 2019. This standard represents a significant departure from existing GAAP, and may result in material changes to the Company’s accounting for the allowance for loan losses. We are currently evaluating the impact of adopting this accounting standard on our consolidated financial statements and footnote disclosures.

Intra-Entity Transfer of Assets

On October 24, 2016, the FASB issued ASU No. 2016-16, “Income Taxes — Intra-Entity Transfer of Assets Other and Inventory,” which requires recognition of the income tax consequences of an intra-entity transfer of non-inventory assets when the transfer occurs. The new standard is effective for the Company as of January 1, 2018. We have concluded that adopting this new accounting standard will be immaterial to our consolidated financial statements and footnote disclosures.

Goodwill Impairment

On January 26, 2017, the FASB issued ASU No. 2017-04, “Intangibles — Goodwill and Other,” which eliminates the two-step process that required identification of potential impairment and a separate measure of the actual impairment. The annual assessment of goodwill impairment will be determined by using the difference between the carrying amount and the fair value of the reporting unit. The new standard will be effective for the Company as of January 1, 2020. Early adoption is permitted. We are currently assessing the impact that adopting this new standard will have on our consolidated financial statements and footnote disclosures.

Hedging Activities

On August 28, 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging,” which better aligns risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments expand and refine hedge accounting for both nonfinancial and financial risk components and in some situations better align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The new standard will be effective for the Company as of January 1, 2019. Early adoption is permitted. We are currently assessing the impact this new standard will have on our consolidated financial statements and footnote disclosures.

2. Allowance for Loan Losses

Our provisions for loan losses represent the periodic expense of maintaining an allowance sufficient to absorb incurred probable losses, net of expected recoveries, in the held-for-investment loan portfolios. The evaluation of the provisions for loan losses is inherently subjective, as it requires material estimates that may be susceptible to significant changes. We believe that the allowance for loan losses is appropriate to cover probable losses incurred in the loan portfolios. See “Note 1 — Significant Accounting Policies — Education Loan Interest Income and Allowance for Loan Losses” for a description of our policy for the $6.5 billion of loans ($3.5 billion of FFELP and $3.0 billion of Private Education) purchased in June 2017 accounted for as either Purchased Credit Impaired Loans or Purchased Non-Credit Impaired Loans.

10

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

2. Allowance for Loan Losses (Continued)

We segregate our Private Education Loan portfolio into two classes of loans — traditional and non-traditional. Non-traditional loans are loans to (i) customers attending for-profit schools with an original Fair Isaac and Company (“FICO”) score of less than 670 and (ii) customers attending not-for-profit schools with an original FICO score of less than 640. The FICO score used in determining whether a loan is non-traditional is the greater of the customer or cosigner FICO score at or near origination. Traditional loans are defined as all other Private Education Loans that are not classified as non-traditional.

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NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

2. Allowance for Loan Losses (Continued)

Allowance for Loan Losses Metrics

	Three Months Ended September 30, 2017
(Dollars in millions)	FFELP Loans			Private Education Loans			Other Loans			Total
Allowance for Loan Losses
Beginning balance	$	61		$	1,286		$	15		$	1,362
Total provision		10			95			—			105
Charge-offs(1)		(10	)		(96	)		(3	)		(109	)
Reclassification of interest reserve(2)		—			2			—			2
Ending balance(3)	$	61		$	1,287		$	12		$	1,360
Allowance Ending Balance:
Individually evaluated for impairment	$	—		$	1,169		$	10		$	1,179
Collectively evaluated for impairment:
Excluding Purchased Non-Credit Impaired Loans and Purchased Credit Impaired Loans		61			118			2			181
Purchased Non-Credit Impaired Loans(3)		—			—			—			—
Purchased Credit Impaired Loans(3)		—			—			—			—
Ending total allowance	$	61		$	1,287		$	12		$	1,360
Loans Ending Balance:
Individually evaluated for impairment	$	—		$	10,961		$	30		$	10,991
Collectively evaluated for impairment:
Excluding Purchased Non-Credit Impaired Loans and Purchased Credit Impaired Loans		79,923			11,790			34			91,747
Purchased Non-Credit Impaired Loans(3)		3,362			2,656			—			6,018
Purchased Credit Impaired Loans(3)		—			258			—			258
Ending total loans(4)	$	83,285		$	25,665		$	64		$	109,014
Charge-offs as a percentage of average loans in repayment (annualized)		.05	%		1.63	%		16.22	%
Allowance coverage of charge-offs (annualized)		1.7			3.4			.9
Allowance as a percentage of the ending total loan balance(3)		.07	%		5.02	%		18.59	%
Allowance as a percentage of the ending loans in repayment(3)		.09	%		5.73	%		18.59	%
Ending total loans(4)	$	83,285		$	25,665		$	64
Average loans in repayment	$	68,168		$	23,112		$	85
Ending loans in repayment	$	66,220		$	22,448		$	64

⁽¹⁾  Charge-offs are reported net of expected recoveries. For Private Education Loans, the expected recovery amount is transferred to the receivable for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be recovered and any shortfalls in what was actually recovered in the period. See “Receivable for Partially Charged-Off Private Education Loans” for further discussion.

⁽²⁾  Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period to the allowance for loan losses when interest is capitalized to a loan’s principal balance.

⁽³⁾  See “Note 1 — Significant Accounting Policies — Education Loan Interest Income and Allowance for Loan Losses” for a description of our policy for the $6.5 billion of loans ($3.5 billion of FFELP and $3.0 billion of Private Education) purchased in June 2017 accounted for as either Purchased Credit Impaired Loans or Purchased Non-Credit Impaired Loans. The Purchased Credit Impaired Loans’ losses are not provided for by the allowance for loan losses in the above table as these loans are separately reserved for, if needed. No allowance for loan losses has been established for these loans as of September 30, 2017. The Purchased Non-Credit Impaired Loans’ losses are not provided for by the allowance for loan losses in the above table as the remaining purchased discount associated with the FFELP and Private Education Loans of $45 million and $405 million, respectively, as of September 30, 2017 is greater than the incurred losses and as a result no allowance for loan losses has been established for these loans as of September 30, 2017. As a result, excluding the $6.5 billion of loans acquired in June 2017, the allowance as a percentage of the ending total loan balance and the allowance as a percentage of the ending loans in repayment would be 0.08 percent and 0.10 percent for FFELP Loans and 5.66 percent and 6.54 percent for Private Education Loans, respectively.

⁽⁴⁾  Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.

12

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

2. Allowance for Loan Losses (Continued)

	Three Months Ended September 30, 2016
(Dollars in millions)	FFELP Loans			Private Education Loans			Other Loans			Total
Allowance for Loan Losses
Beginning balance	$	66		$	1,410		$	15		$	1,491
Total provision		13			92			1			106
Charge-offs(1)		(13	)		(112	)		(1	)		(126	)
Reclassification of interest reserve(2)		—			2			—			2
Ending balance	$	66		$	1,392		$	15		$	1,473
Allowance:
Ending balance: individually evaluated for impairment	$	—		$	1,153		$	11		$	1,164
Ending balance: collectively evaluated for impairment		66			239			4			309
Ending total allowance	$	66		$	1,392		$	15		$	1,473
Loans:
Ending balance: individually evaluated for impairment(3)	$	—		$	11,182		$	32		$	11,214
Ending balance: collectively evaluated for impairment(3)		89,201			14,682			99			103,982
Ending total loans(3)	$	89,201		$	25,864		$	131		$	115,196
Charge-offs as a percentage of average loans in repayment (annualized)		.07	%		1.94	%		1.87	%
Allowance coverage of charge-offs (annualized)		1.2			3.1			7.9
Allowance as a percentage of the ending total loan balance		.07	%		5.38	%		11.40	%
Allowance as a percentage of the ending loans in repayment		.09	%		6.17	%		11.40	%
Ending total loans(3)	$	89,201		$	25,864		$	131
Average loans in repayment	$	72,927		$	22,959		$	102
Ending loans in repayment	$	72,203		$	22,556		$	131

⁽¹⁾  Charge-offs are reported net of expected recoveries. For Private Education Loans, the expected recovery amount is transferred to the receivable for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be recovered and any shortfalls in what was actually recovered in the period. See “Receivable for Partially Charged-Off Private Education Loans” for further discussion.

⁽²⁾  Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period to the allowance for loan losses when interest is capitalized to a loan’s principal balance.

⁽³⁾  Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.

13

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

2. Allowance for Loan Losses (Continued)

	Nine Months Ended September 30, 2017
(Dollars in millions)	FFELP Loans			Private Education Loans			Other Loans			Total
Allowance for Loan Losses
Beginning balance	$	67		$	1,351		$	15		$	1,433
Total provision		30			285			2			317
Charge-offs(1)		(36	)		(355	)		(5	)		(396	)
Reclassification of interest reserve(2)		—			6			—			6
Ending balance(3)	$	61		$	1,287		$	12		$	1,360
Allowance Ending Balance:
Individually evaluated for impairment	$	—		$	1,169		$	10		$	1,179
Collectively evaluated for impairment:
Excluding Purchased Non-Credit Impaired Loans and Purchased Credit Impaired Loans		61			118			2			181
Purchased Non-Credit Impaired Loans(3)		—			—			—			—
Purchased Credit Impaired Loans(3)		—			—			—			—
Ending total allowance	$	61		$	1,287		$	12		$	1,360
Loans Ending Balance:
Individually evaluated for impairment	$	—		$	10,961		$	30		$	10,991
Collectively evaluated for impairment:
Excluding Purchased Non-Credit Impaired Loans and Purchased Credit Impaired Loans		79,923			11,790			34			91,747
Purchased Non-Credit Impaired Loans(3)		3,362			2,656			—			6,018
Purchased Credit Impaired Loans(3)		—			258			—			258
Ending total loans(4)	$	83,285		$	25,665		$	64		$	109,014
Charge-offs as a percentage of average loans in repayment (annualized)		.07	%		2.14	%		3.92	%
Allowance coverage of charge-offs (annualized)		1.3			2.7			1.7
Allowance as a percentage of the ending total loan balance(3)		.07	%		5.02	%		18.59	%
Allowance as a percentage of the ending loans in repayment(3)		.09	%		5.73	%		18.59	%
Ending total loans(4)	$	83,285		$	25,665		$	64
Average loans in repayment	$	68,791		$	22,180		$	186
Ending loans in repayment	$	66,220		$	22,448		$	64

⁽¹⁾  Charge-offs are reported net of expected recoveries. For Private Education Loans, the expected recovery amount is transferred to the receivable for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be recovered and any shortfalls in what was actually recovered in the period. See “Receivable for Partially Charged-Off Private Education Loans” for further discussion.

⁽²⁾  Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period to the allowance for loan losses when interest is capitalized to a loan’s principal balance.

⁽³⁾  See “Note 1 — Significant Accounting Policies — Education Loan Interest Income and Allowance for Loan Losses” for a description of our policy for the $6.5 billion of loans ($3.5 billion of FFELP and $3.0 billion of Private Education) purchased in June 2017 accounted for as either Purchased Credit Impaired Loans or Purchased Non-Credit Impaired Loans. The Purchased Credit Impaired Loans’ losses are not provided for by the allowance for loan losses in the above table as these loans are separately reserved for, if needed. No allowance for loan losses has been established for these loans as of September 30, 2017. The Purchased Non-Credit Impaired Loans’ losses are not provided for by the allowance for loan losses in the above table as the remaining purchased discount associated with the FFELP and Private Education Loans of $45 million and $405 million, respectively, as of September 30, 2017 is greater than the incurred losses and as a result no allowance for loan losses has been established for these loans as of September 30, 2017. As a result, excluding the $6.5 billion of loans acquired in June 2017, the allowance as a percentage of the ending total loan balance and the allowance as a percentage of the ending loans in repayment would be 0.08 percent and 0.10 percent for FFELP Loans and 5.66 percent and 6.54 percent for Private Education Loans, respectively.

⁽⁴⁾  Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.

14

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

2. Allowance for Loan Losses (Continued)

	Nine Months Ended September 30, 2016
(Dollars in millions)	FFELP Loans			Private Education Loans			Other Loans			Total
Allowance for Loan Losses
Beginning balance	$	78		$	1,471		$	15		$	1,564
Total provision		30			296			1			327
Charge-offs(1)		(42	)		(383	)		(1	)		(426	)
Reclassification of interest reserve(2)		—			8			—			8
Ending balance	$	66		$	1,392		$	15		$	1,473
Allowance:
Ending balance: individually evaluated for impairment	$	—		$	1,153		$	11		$	1,164
Ending balance: collectively evaluated for impairment		66			239			4			309
Ending total allowance	$	66		$	1,392		$	15		$	1,473
Loans:
Ending balance: individually evaluated for impairment(3)	$	—		$	11,182		$	32		$	11,214
Ending balance: collectively evaluated for impairment(3)		89,201			14,682			99			103,982
Ending total loans(3)	$	89,201		$	25,864		$	131		$	115,196
Charge-offs as a percentage of average loans in repayment (annualized)		.08	%		2.17	%		1.76	%
Allowance coverage of charge-offs (annualized)		1.2			2.7			9.5
Allowance as a percentage of the ending total loan balance		.07	%		5.38	%		11.40	%
Allowance as a percentage of the ending loans in repayment		.09	%		6.17	%		11.40	%
Ending total loans(3)	$	89,201		$	25,864		$	131
Average loans in repayment	$	73,200		$	23,564		$	89
Ending loans in repayment	$	72,203		$	22,556		$	131

⁽¹⁾  Charge-offs are reported net of expected recoveries. For Private Education Loans, the expected recovery amount is transferred to the receivable for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be recovered and any shortfalls in what was actually recovered in the period. See “Receivable for Partially Charged-Off Private Education Loans” for further discussion.

⁽²⁾  Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period to the allowance for loan losses when interest is capitalized to a loan’s principal balance.

⁽³⁾  Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.

15

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

2. Allowance for Loan Losses (Continued)

Key Credit Quality Indicators

FFELP Loans are substantially insured and guaranteed as to their principal and accrued interest in the event of default; therefore, the key credit quality indicator for this portfolio is loan status. The impact of changes in loan status is incorporated quarterly into the allowance for loan losses calculation.

For Private Education Loans, the key credit quality indicators are school type, FICO scores, the existence of a cosigner, the loan status and loan seasoning. The school type/FICO score are assessed at origination and maintained through the traditional/non-traditional loan designation. The other Private Education Loan key quality indicators can change and are incorporated quarterly into the allowance for loan losses calculation. The following table highlights the principal balance (excluding the receivable for partially charged-off loans) of our Private Education Loan portfolio stratified by the key credit quality indicators.

	Private Education Loans Credit Quality Indicators
	September 30, 2017					December 31, 2016
(Dollars in millions)	Balance(3)		% of Balance			Balance(3)		% of Balance
Credit Quality Indicators
School Type/FICO Scores:
Traditional	$	22,828		92	%	$	22,367		92	%
Non-Traditional(1)		2,066		8			1,966		8
Total	$	24,894		100	%	$	24,333		100	%
Cosigners:
With cosigner	$	16,137		65	%	$	15,610		64	%
Without cosigner		8,757		35			8,723		36
Total	$	24,894		100	%	$	24,333		100	%
Seasoning(2):
1-12 payments	$	1,343		5	%	$	1,340		5	%
13-24 payments		1,072		4			1,271		5
25-36 payments		1,541		6			1,908		8
37-48 payments		2,388		10			2,723		11
More than 48 payments		17,376		70			15,698		65
Not yet in repayment		1,174		5			1,393		6
Total	$	24,894		100	%	$	24,333		100	%

⁽¹⁾  Defined as loans to customers attending for-profit schools (with a FICO score of less than 670 at origination) and customers attending not-for-profit schools (with a FICO score of less than 640 at origination).

⁽²⁾  Number of months in active repayment for which a scheduled payment was received.

⁽³⁾  Balance represents gross Private Education Loans.

16

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

2. Allowance for Loan Losses (Continued)

The following tables provide information regarding the loan status and aging of past due loans.

.	FFELP Loan Delinquencies
	September 30, 2017						December 31, 2016
(Dollars in millions)	Balance			%			Balance			%
Loans in-school/grace/deferment(1)	$	5,199					$	5,871
Loans in forbearance(2)		11,866						10,490
Loans in repayment and percentage of each status:
Loans current		58,172			87.8	%		61,977			87.8	%
Loans delinquent 31-60 days(3)		2,565			3.9			2,820			4.0
Loans delinquent 61-90 days(3)		1,566			2.4			1,325			1.9
Loans delinquent greater than 90 days(3)		3,917			5.9			4,435			6.3
Total FFELP Loans in repayment		66,220			100	%		70,557			100	%
Total FFELP Loans, gross		83,285						86,918
FFELP Loan unamortized premium		692						879
Total FFELP Loans		83,977						87,797
FFELP Loan allowance for losses		(61	)					(67	)
FFELP Loans, net	$	83,916					$	87,730
Percentage of FFELP Loans in repayment					79.5	%					81.2	%
Delinquencies as a percentage of FFELP Loans in repayment					12.2	%					12.2	%
FFELP Loans in forbearance as a percentage of loans in repayment and forbearance					15.2	%					12.9	%

⁽¹⁾  Loans for customers who may still be attending school or engaging in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation, as well as loans for customers who have requested and qualify for other permitted program deferments such as military, unemployment, or economic hardships.

⁽²⁾  Loans for customers who have used their allowable deferment time or do not qualify for deferment, that need additional time to obtain employment or who have temporarily ceased making full payments due to hardship or other factors such as disaster relief.

⁽³⁾  The period of delinquency is based on the number of days scheduled payments are contractually past due.

17

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

2. Allowance for Loan Losses (Continued)

	Traditional Private Education Loan Delinquencies
	September 30, 2017						December 31, 2016
(Dollars in millions)	Balance			%			Balance			%
Loans in-school/grace/deferment(1)	$	1,065					$	1,271
Loans in forbearance(2)		1,117						700
Loans in repayment and percentage of each status:
Loans current		19,558			94.7	%		19,020			93.3	%
Loans delinquent 31-60 days(3)		368			1.8			444			2.2
Loans delinquent 61-90 days(3)		234			1.1			269			1.3
Loans delinquent greater than 90 days(3)		486			2.4			663			3.2
Total traditional loans in repayment		20,646			100	%		20,396			100	%
Total traditional loans, gross		22,828						22,367
Traditional loans unamortized discount		(831	)					(402	)
Total traditional loans		21,997						21,965
Traditional loans receivable for partially charged-off loans		502						526
Traditional loans allowance for losses		(1,086	)					(1,138	)
Traditional loans, net	$	21,413					$	21,353
Percentage of traditional loans in repayment					90.4	%					91.2	%
Delinquencies as a percentage of traditional loans in repayment					5.3	%					6.7	%
Loans in forbearance as a percentage of loans in repayment and forbearance					5.1	%					3.3	%

⁽¹⁾  Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation.

⁽²⁾  Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors such as disaster relief, consistent with established loan program servicing policies and procedures.

⁽³⁾  The period of delinquency is based on the number of days scheduled payments are contractually past due.

18

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

2. Allowance for Loan Losses (Continued)

	Non-Traditional Private Education Loan     Delinquencies
	September 30, 2017						December 31, 2016
(Dollars in millions)	Balance			%			Balance			%
Loans in-school/grace/deferment(1)	$	109					$	122
Loans in forbearance(2)		155						90
Loans in repayment and percentage of each status:
Loans current		1,596			88.5	%		1,486			84.8	%
Loans delinquent 31-60 days(3)		62			3.5			78			4.5
Loans delinquent 61-90 days(3)		43			2.4			52			2.9
Loans delinquent greater than 90 days(3)		101			5.6			138			7.8
Total non-traditional loans in repayment		1,802			100	%		1,754			100	%
Total non-traditional loans, gross		2,066						1,966
Non-traditional loans unamortized discount		(123	)					(55	)
Total non-traditional loans		1,943						1,911
Non-traditional loans receivable for partially charged-off loans		269						289
Non-traditional loans allowance for losses		(201	)					(213	)
Non-traditional loans, net	$	2,011					$	1,987
Percentage of non-traditional loans in repayment					87.2	%					89.2	%
Delinquencies as a percentage of non-traditional loans in repayment					11.5	%					15.2	%
Loans in forbearance as a percentage of loans in repayment and forbearance					7.9	%					4.9	%

⁽¹⁾  Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation.

⁽²⁾  Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors such as disaster relief, consistent with established loan program servicing policies and procedures.

⁽³⁾  The period of delinquency is based on the number of days scheduled payments are contractually past due.

Receivable for Partially Charged-Off Private Education Loans

At the end of each month, for loans that are 212 or more days past due, we charge off the estimated loss of a defaulted loan balance. Actual recoveries are applied against the remaining loan balance that was not charged off. We refer to this remaining loan balance as the “receivable for partially charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately charged off through the allowance for Private Education Loan losses with an offsetting reduction in the receivable for partially charged-off Private Education Loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered.

19

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

2. Allowance for Loan Losses (Continued)

The following table summarizes the activity in the receivable for partially charged-off Private Education Loans.

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in millions)	2017			2016			2017			2016
Receivable at beginning of period	$	784		$	847		$	815		$	881
Expected future recoveries of current period defaults(1)		24			28			88			96
Recoveries(2)		(37	)		(44	)		(121	)		(140	)
Charge-offs(3)		—			(3	)		(11	)		(9	)
Receivable at end of period	$	771		$	828		$	771		$	828

⁽¹⁾  Represents our estimate of the amount to be collected in the future.

⁽²⁾  Current period cash collections.

⁽³⁾  Represents the current period recovery shortfall — the difference between what was expected to be collected and what was actually collected. These amounts are included in total charge-offs as reported in the “Allowance for Private Education Loan Losses” table.

Troubled Debt Restructurings (“TDRs”)

We sometimes modify the terms of loans for certain customers when we believe such modifications may increase the ability and willingness of a customer to make payments and thus increase the ultimate overall amount collected on a loan. These modifications generally take the form of a forbearance, a temporary interest rate reduction or an extended repayment plan. For customers experiencing financial difficulty, certain Private Education Loans for which we have granted either a forbearance of greater than three months, an interest rate reduction or an extended repayment plan are classified as TDRs. Approximately 60 percent and 61 percent of the loans granted forbearance have qualified as a TDR loan at September 30, 2017 and December 31, 2016, respectively. The unpaid principal balance of TDR loans that were in an interest rate reduction plan as of September 30, 2017 and December 31, 2016 was $2.7 billion and $2.6 billion, respectively.

At September 30, 2017 and December 31, 2016, all of our TDR loans had a related allowance recorded. The following table provides the recorded investment, unpaid principal balance and related allowance for our TDR loans.

	TDR Loans
(Dollars in millions)	Recorded Investment(1)		Unpaid Principal Balance		Related Allowance
September 30, 2017
Private Education Loans — Traditional	$	9,245	$	9,282	$	985
Private Education Loans — Non-Traditional		1,294		1,298		184
Total	$	10,539	$	10,580	$	1,169
December 31, 2016
Private Education Loans — Traditional	$	9,386	$	9,429	$	1,003
Private Education Loans — Non-Traditional		1,373		1,376		187
Total	$	10,759	$	10,805	$	1,190

⁽¹⁾  The recorded investment is equal to the unpaid principal balance and accrued interest receivable net of unamortized deferred fees and costs.

20

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

2. Allowance for Loan Losses (Continued)

The following table provides the average recorded investment and interest income recognized for our TDR loans.

	Three Months Ended September 30,
	2017				2016
(Dollars in millions)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Private Education Loans — Traditional	$	9,257	$	153	$	9,367	$	140
Private Education Loans — Non-Traditional		1,305		27		1,402		27
Total	$	10,562	$	180	$	10,769	$	167

	Nine Months Ended September 30,
	2017				2016
(Dollars in millions)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Private Education Loans — Traditional	$	9,310	$	448	$	9,303	$	416
Private Education Loans — Non-Traditional		1,333		80		1,418		81
Total	$	10,643	$	528	$	10,721	$	497

The following table provides information regarding the loan status and aging of TDR loans that are past due.

	TDR Loan Delinquencies
	September 30, 2017					December 31, 2016
(Dollars in millions)	Balance		%			Balance		%
Loans in deferment(1)	$	506				$	579
Loans in forbearance(2)		931					588
Loans in repayment and percentage of each status:
Loans current		8,133		89.0	%		8,273		85.8	%
Loans delinquent 31-60 days(3)		314		3.4			412		4.3
Loans delinquent 61-90 days(3)		216		2.4			267		2.8
Loans delinquent greater than 90 days(3)		480		5.2			686		7.1
Total TDR loans in repayment		9,143		100	%		9,638		100	%
Total TDR loans, gross	$	10,580				$	10,805

⁽¹⁾  Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation.

⁽²⁾  Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors such as disaster relief, consistent with established loan program servicing policies and procedures.

⁽³⁾  The period of delinquency is based on the number of days scheduled payments are contractually past due.

21

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

2. Allowance for Loan Losses (Continued)

The following table provides the amount of loans modified in the periods presented that resulted in a TDR. Additionally, the table summarizes charge-offs occurring in the TDR portfolio, as well as TDRs for which a payment default occurred in the current period within 12 months of the loan first being designated as a TDR. We define payment default as 60 days past due for this disclosure.

	Three Months Ended September 30,
	2017						2016
(Dollars in millions)	Modified Loans(1)		Charge- Offs(2)		Payment Default		Modified Loans(1)		Charge- Offs(2)		Payment Default
Private Education Loans — Traditional	$	186	$	63	$	38	$	233	$	68	$	56
Private Education Loans — Non-Traditional		14		17		5		21		18		11
Total	$	200	$	80	$	43	$	254	$	86	$	67

	Nine Months Ended September 30,
	2017						2016
(Dollars in millions)	Modified Loans(1)		Charge- Offs(2)		Payment Default		Modified Loans(1)		Charge- Offs(2)		Payment Default
Private Education Loans — Traditional	$	574	$	223	$	126	$	861	$	221	$	174
Private Education Loans — Non-Traditional		44		57		18		73		61		32
Total	$	618	$	280	$	144	$	934	$	282	$	206

⁽¹⁾  Represents period ending balance of loans that have been modified during the period and resulted in a TDR.

⁽²⁾  Represents loans that charged off that were classified as TDRs.

Accrued Interest Receivable

The following table provides information regarding accrued interest receivable on our Private Education Loans.

(Dollars in millions)	Accrued Interest Receivable		Greater Than 90 Days Past Due		Allowance for Uncollectible Interest
September 30, 2017
Private Education Loans — Traditional	$	338	$	19	$	20
Private Education Loans — Non-Traditional		49		5		5
Total	$	387	$	24	$	25
December 31, 2016
Private Education Loans — Traditional	$	344	$	26	$	23
Private Education Loans — Non-Traditional		47		7		7
Total	$	391	$	33	$	30

22

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

3. Borrowings

The following table summarizes our borrowings.

	September 30, 2017						December 31, 2016
(Dollars in millions)	Short Term		Long Term		Total		Short Term			Long Term			Total
Unsecured borrowings:
Senior unsecured debt	$	1,390	$	12,366	$	13,756	$	717		$	13,029		$	13,746
Total unsecured borrowings		1,390		12,366		13,756		717			13,029			13,746
Secured borrowings:
FFELP Loan securitizations		—		72,674		72,674		—			73,522			73,522
Private Education Loan securitizations(1)		686		12,575		13,261		548			14,125			14,673
FFELP Loan — other facilities		—		9,140		9,140		—			12,443			12,443
Private Education Loan — other facilities		687		1,778		2,465		464			—			464
Other(2)		482		—		482		606			—			606
Total secured borrowings		1,855		96,167		98,022		1,618			100,090			101,708
Total before hedge accounting adjustments		3,245		108,533		111,778		2,335			113,119			115,454
Hedge accounting adjustments		36		24		60		(1	)		(751	)		(752	)
Total	$	3,281	$	108,557	$	111,838	$	2,334		$	112,368		$	114,702

⁽¹⁾  Includes $686 million and $548 million of short-term debt related to the Private Education Loan asset-backed securitization repurchase facilities (“Repurchase Facilities”) as of September 30, 2017 and December 31, 2016, respectively. Includes $1.3 billion and $475 million of long-term debt related to the Repurchase Facilities as of September 30, 2017 and December 31, 2016, respectively.

⁽²⁾  “Other” primarily includes the obligation to return cash collateral held related to derivative exposures, which includes $70 million and $193 million of securities re-pledged subject to an overnight repurchase transaction as of September 30, 2017 and December 31, 2016, respectively.

23

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

3. Borrowings (Continued)

Variable Interest Entities

We consolidated the following financing VIEs as of September 30, 2017 and December 31, 2016, as we are the primary beneficiary. As a result, these VIEs are accounted for as secured borrowings.

	September 30, 2017
	Debt Outstanding								Carrying Amount of Assets Securing Debt Outstanding
(Dollars in millions)	Short Term		Long Term			Total			Loans		Cash		Other Assets			Total
Secured Borrowings — VIEs:
FFELP Loan securitizations	$	—	$	72,674		$	72,674		$	73,611	$	2,495	$	932		$	77,038
Private Education Loan securitizations(1)		686		12,575			13,261			17,546		490		235			18,271
FFELP Loan — other facilities		—		6,211			6,211			6,331		181		155			6,667
Private Education Loan — other facilities		687		1,778			2,465			3,289		69		44			3,402
Total before hedge accounting adjustments		1,373		93,238			94,611			100,777		3,235		1,366			105,378
Hedge accounting adjustments		—		(335	)		(335	)		—		—		(432	)		(432	)
Total	$	1,373	$	92,903		$	94,276		$	100,777	$	3,235	$	934		$	104,946

	December 31, 2016
	Debt Outstanding								Carrying Amount of Assets Securing Debt Outstanding
(Dollars in millions)	Short Term		Long Term			Total			Loans		Cash		Other Assets			Total
Secured Borrowings — VIEs:
FFELP Loan securitizations	$	—	$	73,522		$	73,522		$	74,197	$	2,676	$	778		$	77,651
Private Education Loan securitizations(1)		548		14,125			14,673			19,815		455		260			20,530
FFELP Loan — other facilities		—		9,046			9,046			9,232		289		172			9,693
Private Education Loan — other facilities		464		—			464			685		10		14			709
Other		66		—			66			79		4		—			83
Total before hedge accounting adjustments		1,078		96,693			97,771			104,008		3,434		1,224			108,666
Hedge accounting adjustments		—		(1,201	)		(1,201	)		—		—		(1,235	)		(1,235	)
Total	$	1,078	$	95,492		$	96,570		$	104,008	$	3,434	$	(11	)	$	107,431

⁽¹⁾  Includes $686 million of short-term debt, $1.3 billion of long-term debt and $109 million of restricted cash related to the Repurchase Facilities as of September 30, 2017. Includes $548 million of short-term debt, $475 million of long-term debt and $49 million of restricted cash related to the Repurchase Facilities as of December 31, 2016.

4. Derivative Financial Instruments

Our risk management strategy and use of and accounting for derivatives have not materially changed from that discussed in our 2016 Form 10-K. Please refer to “Note 7 — Derivative Financial Instruments” in our 2016 Form 10-K for a full discussion.

24

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

4. Derivative Financial Instruments (Continued)

Summary of Derivative Financial Statement Impact

The following tables summarize the fair values and notional amounts of all derivative instruments at September 30, 2017 and December 31, 2016, and their impact on other comprehensive income and earnings for the three and nine months ended September 30, 2017 and 2016.

Impact of Derivatives on Consolidated Balance Sheet

			Cash Flow						Fair Value						Trading						Total
(Dollars in millions)	Hedged Risk Exposure		Sep 30, 2017			Dec 31, 2016			Sep 30, 2017			Dec 31, 2016			Sep 30, 2017			Dec 31, 2016			Sep 30, 2017			Dec 31, 2016
Fair Values(1)
Derivative Assets:
Interest rate swaps		Interest rate	$	49		$	78		$	366		$	465		$	9		$	22		$	424		$	565
Cross-currency interest rate swaps		Foreign currency and interest rate		—			—			58			—			—			—			58			—
Other(2)		Interest rate		—			—			—			—			—			—			—			—
Total derivative assets(3)				49			78			424			465			9			22			482			565
Derivative Liabilities:
Interest rate swaps		Interest rate		(44	)		(76	)		(57	)		(62	)		(67	)		(70	)		(168	)		(208	)
Floor Income Contracts		Interest rate		—			—			—			—			(126	)		(184	)		(126	)		(184	)
Cross-currency interest rate swaps		Foreign currency and interest rate		—			—			(463	)		(1,243	)		(44	)		(53	)		(507	)		(1,296	)
Other(2)		Interest rate		—			—			—			—			(24	)		(13	)		(24	)		(13	)
Total derivative liabilities(3)				(44	)		(76	)		(520	)		(1,305	)		(261	)		(320	)		(825	)		(1,701	)
Net total derivatives			$	5		$	2		$	(96	)	$	(840	)	$	(252	)	$	(298	)	$	(343	)	$	(1,136	)

⁽¹⁾  Fair values reported are exclusive of collateral held and pledged and accrued interest. Assets and liabilities are presented without consideration of master netting agreements. Derivatives are carried on the balance sheet based on net position by counterparty under master netting agreements, and classified in other assets or other liabilities depending on whether in a net positive or negative position.

⁽²⁾  “Other” includes embedded derivatives bifurcated from securitization debt as well as derivatives related to our Total Return Swap Facility.

⁽³⁾  The following table reconciles gross positions without the impact of master netting agreements to the balance sheet classification:

	Other Assets						Other Liabilities
(Dollar in millions)	September 30, 2017			December 31, 2016			September 30, 2017			December 31, 2016
Gross position	$	482		$	565		$	(825	)	$	(1,701	)
Impact of master netting agreements		(36	)		(31	)		36			31
Derivative values with impact of master netting agreements (as carried on balance sheet)		446			534			(789	)		(1,670	)
Cash collateral (held) pledged		(411	)		(345	)		263			319
Net position	$	35		$	189		$	(526	)	$	(1,351	)

The above fair values include adjustments when necessary for counterparty credit risk for both when we are exposed to the counterparty, net of collateral postings, and when the counterparty is exposed to us, net of collateral postings. The net adjustments decreased the asset position at September 30, 2017 and December 31,

25

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

4. Derivative Financial Instruments (Continued)

2016 by $4 million and $0, respectively. In addition, the above fair values reflect adjustments for illiquid derivatives as indicated by a wide bid/ask spread in the interest rate indices to which the derivatives are indexed. These adjustments decreased the overall net asset positions at September 30, 2017 and December 31, 2016 by $34 million and $31 million, respectively.

	Cash Flow				Fair Value				Trading				Total
(Dollars in billions)	Sep 30, 2017		Dec 31, 2016		Sep 30, 2017		Dec 31, 2016		Sep 30, 2017		Dec 31, 2016		Sep 30, 2017		Dec 31, 2016
Notional Values:
Interest rate swaps	$	24.7	$	15.2	$	12.3	$	11.8	$	62.5	$	23.8	$	99.5	$	50.8
Floor Income Contracts		—		—		—		—		21.9		18.5		21.9		18.5
Cross-currency interest rate swaps		—		—		6.8		8.5		.3		.3		7.1		8.8
Other(1)		—		—		—		—		2.2		2.6		2.2		2.6
Total derivatives	$	24.7	$	15.2	$	19.1	$	20.3	$	86.9	$	45.2	$	130.7	$	80.7

⁽¹⁾  “Other” includes embedded derivatives bifurcated from securitization debt as well as derivatives related to our Total Return Swap Facility.

Impact of Derivatives on Consolidated Statements of Income

	Three Months Ended September 30,
	Unrealized Gain (Loss) on Derivatives(1)(2)						Realized Gain (Loss) on Derivatives(3)						Unrealized Gain (Loss) on Hedged Item(1)						Total Gain (Loss)
(Dollars in millions)	2017			2016			2017			2016			2017			2016			2017			2016
Fair Value Hedges:
Interest rate swaps	$	(28	)	$	(149	)	$	38		$	62		$	39		$	175		$	49		$	88
Cross-currency interest rate swaps		261			112			(30	)		(22	)		(262	)		(81	)		(31	)		9
Total fair value derivatives		233			(37	)		8			40			(223	)		94			18			97
Cash Flow Hedges:
Interest rate swaps		—			—			(10	)		(20	)		—			—			(10	)		(20	)
Total cash flow derivatives		—			—			(10	)		(20	)		—			—			(10	)		(20	)
Trading:
Interest rate swaps		7			(20	)		(1	)		14			—			—			6			(6	)
Floor Income Contracts		31			113			(16	)		(28	)		—			—			15			85
Cross-currency interest rate swaps		—			6			(1	)		(1	)		—			—			(1	)		5
Other		(2	)		(3	)		(3	)		(1	)		—			—			(5	)		(4	)
Total trading derivatives		36			96			(21	)		(16	)		—			—			15			80
Total		269			59			(23	)		4			(223	)		94			23			157
Less: realized gains (losses) recorded in interest expense		—			—			(2	)		20			—			—			(2	)		20
Gains (losses) on derivative and hedging activities, net	$	269		$	59		$	(21	)	$	(16	)	$	(223	)	$	94		$	25		$	137

⁽¹⁾  Recorded in “Gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.

⁽²⁾  Represents ineffectiveness related to cash flow hedges.

⁽³⁾  For fair value and cash flow hedges, recorded in interest expense. For trading derivatives, recorded in “Gains (losses) on derivative and hedging activities, net.”

26

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

4. Derivative Financial Instruments (Continued)

	Nine Months Ended September 30,
	Unrealized Gain (Loss) on Derivatives(1)(2)						Realized Gain (Loss) on Derivatives(3)						Unrealized Gain (Loss) on Hedged Item(1)						Total Gain (Loss)
(Dollars in millions)	2017			2016			2017			2016			2017			2016			2017			2016
Fair Value Hedges:
Interest rate swaps	$	(94	)	$	166		$	139		$	201		$	62		$	(172	)	$	107		$	195
Cross-currency interest rate swaps		837			210			(88	)		(58	)		(866	)		(135	)		(117	)		17
Total fair value derivatives		743			376			51			143			(804	)		(307	)		(10	)		212
Cash Flow Hedges:
Interest rate swaps		—			—			(41	)		(31	)		—			—			(41	)		(31	)
Total cash flow derivatives		—			—			(41	)		(31	)		—			—			(41	)		(31	)
Trading:
Interest rate swaps		(9	)		44			25			35			—			—			16			79
Floor Income Contracts		97			147			(54	)		(222	)		—			—			43			(75	)
Cross-currency interest rate swaps		9			51			(4	)		(3	)		—			—			5			48
Other		(11	)		(8	)		(8	)		(2	)		—			—			(19	)		(10	)
Total trading derivatives		86			234			(41	)		(192	)		—			—			45			42
Total		829			610			(31	)		(80	)		(804	)		(307	)		(6	)		223
Less: realized gains (losses) recorded in interest expense		—			—			10			112			—			—			10			112
Gains (losses) on derivative and hedging activities, net	$	829		$	610		$	(41	)	$	(192	)	$	(804	)	$	(307	)	$	(16	)	$	111

⁽¹⁾  Recorded in “Gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.

⁽²⁾  Represents ineffectiveness related to cash flow hedges.

⁽³⁾  For fair value and cash flow hedges, recorded in interest expense. For trading derivatives, recorded in “Gains (losses) on derivative and hedging activities, net.”

Collateral

Collateral held and pledged related to derivative exposures between us and our derivative counterparties are detailed in the following table:

(Dollars in millions)	September 30, 2017		December 31, 2016
Collateral held:
Cash (obligation to return cash collateral is recorded in short-term borrowings)	$	411	$	345
Securities at fair value — corporate derivatives (not recorded in financial statements)(1)		67		193
Securities at fair value — on-balance sheet securitization derivatives (not recorded in financial statements)(2)		300		230
Total collateral held	$	778	$	768
Derivative asset at fair value including accrued interest	$	619	$	689
Collateral pledged to others:
Cash (right to receive return of cash collateral is recorded in investments)	$	263	$	319
Total collateral pledged	$	263	$	319
Derivative liability at fair value including accrued interest and premium receivable	$	784	$	1,670

⁽¹⁾  The Company has the ability to sell or re-pledge securities it holds as collateral.

⁽²⁾  The trusts do not have the ability to sell or re-pledge securities they hold as collateral.

27

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

4. Derivative Financial Instruments (Continued)

Our corporate derivatives contain credit contingent features. At our current unsecured credit rating, we have fully collateralized our corporate derivative liability position (including accrued interest and net of premiums receivable) of $282 million with our counterparties. Downgrades in our unsecured credit rating would not result in any additional collateral requirements, except to increase the frequency of collateral calls. Trust related derivatives do not contain credit contingent features related to our or the trusts’ credit ratings.

5. Other Assets

The following table provides the detail of our other assets.

(Dollars in millions)	September 30, 2017		December 31, 2016
Accrued interest receivable, net	$	1,804	$	1,663
Income tax asset, net current and deferred		623		725
Benefit and insurance-related investments		487		488
Derivatives at fair value		446		534
Fixed assets, net		152		160
Accounts receivable		135		95
Other loans, net		52		148
Other		389		380
Total	$	4,088	$	4,193

6. Business Combinations — Acquisition of Duncan Solutions

Acquisitions are accounted for under the acquisition method of accounting as defined in ASC 805, “Business Combinations.” The Company allocates the purchase price to the fair value of the acquired tangible assets, liabilities and identifiable intangible assets as of the acquisition date.

On July 31, 2017, Navient acquired Duncan Solutions for approximately $86 million in cash. Duncan Solutions is a leading transportation revenue management company serving municipalities and toll authorities, offering a range of technology-enabled products and services to supports its clients’ parking and tolling operations. We have engaged an independent appraiser to assist in the valuation of the assets acquired and liabilities assumed including identifiable intangible assets, primarily customer relationships, the trade name and developed technology. We anticipate the purchase price allocation will be completed by the end of the first quarter 2018. The results of operations of Duncan Solutions have been included in Navient’s consolidated financial statements since the acquisition date and are reflected in Navient’s Business Services segment results in “Note 11 — Segment Reporting.” Navient has not disclosed the pro forma impact of this acquisition to the results of operations for the nine months ended September 30, 2017 and 2016, as the pro forma impact was deemed immaterial.

28

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

7. Stockholders’ Equity

The following table summarizes common share repurchases and issuances.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Common shares repurchased(1)		11,346,367		14,347,974		29,646,374		47,137,636
Average purchase price per share	$	14.55	$	13.95	$	14.85	$	12.21
Shares repurchased related to employee stock-based compensation plans(2)		131,374		1,145,017		1,741,529		2,499,729
Average purchase price per share	$	15.34	$	14.20	$	15.56	$	12.36
Common shares issued(3)		385,676		1,558,455		3,535,988		4,525,047

⁽¹⁾  Common shares purchased under our share repurchase program.

⁽²⁾  Comprises shares withheld from stock option exercises and vesting of restricted stock for employees’ tax withholding obligations and shares tendered by employees to satisfy option exercise costs.

⁽³⁾  Common shares issued under our various compensation and benefit plans.

The closing price of our common stock on September 30, 2017 was $15.02.

Dividend and Share Repurchase Program

In September 2017, June 2017 and March 2017, we paid a common stock dividend of $0.16 per share.

We repurchased 29.6 million shares of common stock for $440 million in the nine months ended September 30, 2017. The shares were repurchased under our previously disclosed $600 million share repurchase program. Effective October 4, 2017, Navient suspended its remaining share repurchase program through year-end 2018 to allocate capital towards growing the education lending business and building book value. As of September 30, 2017, the remaining repurchase authority was $160 million. In the nine months ended September 30, 2016, we repurchased 47.1 million shares for $575 million.

29

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

8. Earnings per Common Share

Basic earnings per common share (“EPS”) are calculated using the weighted average number of shares of common stock outstanding during each period. A reconciliation of the numerators and denominators of the basic and diluted EPS calculations follows.

	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions, except per share data)	2017		2016		2017		2016
Numerator:
Net income attributable to Navient Corporation	$	176	$	230	$	376	$	535
Denominator:
Weighted average shares used to compute basic EPS		269		310		279		324
Effect of dilutive securities:
Dilutive effect of stock options, non-vested restricted stock, restricted stock units and Employee Stock Purchase Plans (“ESPPs”)(1)		5		6		6		5
Dilutive potential common shares(2)		5		6		6		5
Weighted average shares used to compute diluted EPS		274		316		285		329
Basic earnings (loss) per common share attributable to Navient Corporation	$	.65	$	.74	$	1.35	$	1.65
Diluted earnings (loss) per common share attributable to Navient Corporation	$	.64	$	.73	$	1.32	$	1.63

⁽¹⁾  Includes the potential dilutive effect of additional common shares that are issuable upon exercise of outstanding stock options, non-vested restricted stock, restricted stock units, and the outstanding commitment to issue shares under applicable ESPPs, determined by the treasury stock method.

⁽²⁾  For the three months ended September 30, 2017 and 2016, stock options covering approximately 5 million and 4 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive. For the nine months ended September 30, 2017 and 2016, stock options covering approximately 5 million and 5 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive.

9. Fair Value Measurements

We use estimates of fair value in applying various accounting standards in our 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. Please refer to “Note 12 — Fair Value Measurements” in our 2016 Form 10-K for a full discussion.

During the three and nine months ended September 30, 2017, there were no significant transfers of financial instruments between levels, or changes in our methodology or assumptions used to value our financial instruments.

30

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

9. Fair Value Measurements (Continued)

The following table summarizes the valuation of our financial instruments that are marked-to-market on a recurring basis.

	Fair Value Measurements on a Recurring Basis
	September 30, 2017											December 31, 2016
(Dollars in millions)	Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3			Total
Assets
Available-for-sale investments:
Agency residential mortgage-backed securities	$	—	$	1		$	—		$	1		$	—	$	1		$	—		$	1
Other		—		2			—			2			—		2			—			2
Total available-for-sale investments		—		3			—			3			—		3			—			3
Derivative instruments:(1)
Interest rate swaps		—		420			4			424			—		553			12			565
Cross-currency interest rate swaps		—		—			58			58			—		—			—			—
Other		—		—			—			—			—		—			—			—
Total derivative assets(2)		—		420			62			482			—		553			12			565
Total	$	—	$	423		$	62		$	485		$	—	$	556		$	12		$	568
Liabilities(3)
Derivative instruments(1)
Interest rate swaps	$	—	$	(118	)	$	(50	)	$	(168	)	$	—	$	(150	)	$	(58	)	$	(208	)
Floor Income Contracts		—		(126	)		—			(126	)		—		(184	)		—			(184	)
Cross-currency interest rate swaps		—		(44	)		(463	)		(507	)		—		(53	)		(1,243	)		(1,296	)
Other		—		—			(24	)		(24	)		—		—			(13	)		(13	)
Total derivative liabilities(2)		—		(288	)		(537	)		(825	)		—		(387	)		(1,314	)		(1,701	)
Total	$	—	$	(288	)	$	(537	)	$	(825	)	$	—	$	(387	)	$	(1,314	)	$	(1,701	)

⁽¹⁾  Fair value of derivative instruments excludes accrued interest and the value of collateral.

⁽²⁾  See “Note 4 — Derivative Financial Instruments” for a reconciliation of gross positions without the impact of master netting agreements to the balance sheet classification.

⁽³⁾  Borrowings which are the hedged items in a fair value hedge relationship and which are adjusted for changes in value due to benchmark interest rates only are not carried at full fair value and are not reflected in this table.

31

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2017 and for the three and nine months ended

September 30, 2017 and 2016 is unaudited) (Continued)

9. Fair Value Measurements (Continued)

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

	Three Months Ended September 30,
	2017												2016
	Derivative instruments												Derivative instruments
(Dollars in millions)	Interest Rate Swaps			Cross Currency Interest Rate Swaps			Other			Total Derivative Instruments			Interest Rate Swaps			Cross Currency Interest Rate Swaps			Other			Total Derivative Instruments
Balance, beginning of period	$	(48	)	$	(666	)	$	(22	)	$	(736	)	$	(37	)	$	(801	)	$	(7	)	$	(845	)
Total gains/(losses) (realized and unrealized):
Included in earnings(1)		1			231			(5	)		227			(2	)		64			(4	)		58
Included in other comprehensive income		—			—			—			—			—			—			—			—
Settlements		1			30			3			34			—			23			1			24
Transfers in and/or out of level 3		—			—			—			—			—			—			—			—
Balance, end of period	$	(46	)	$	(405	)	$	(24	)	$	(475	)	$	(39	)	$	(714	)	$	(10	)	$	(763	)
Change in unrealized gains/(losses) relating to instruments still held at the reporting date(2)	$	3		$	227