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 June 30, 2021

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 has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    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.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐        No  ☑

Securities registered pursuant to Section 12(b) of the Act.

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $.01 per share	NAVI	The NASDAQ Global Select Market
6% Senior Notes due December 15, 2043	JSM	The NASDAQ Global Select Market

As of June 30, 2021, there were 167,840,188 shares of common stock outstanding.

TABLE OF CONTENTS

Organization of Our Form 10-Q

The order and presentation of content in our Form 10-Q differs from the traditional Securities and Exchange Commission (SEC) Form 10-Q format. Our format is designed to improve readability and to better present how we organize and manage our business. See Appendix A, "Form 10-Q Cross-Reference Index" for a cross-reference index to the traditional SEC Form 10-Q format.

	Page Number
Forward-Looking and Cautionary Statements	1
Use of Non-GAAP Financial Measures	2
Business	3
Overview and Fundamentals of Our Business	3
How We Organize Our Business	6
Management’s Discussion and Analysis of Financial Condition and Results of Operations	7
Selected Historical Financial Information and Ratios	7
The Quarter in Review	8
Navient’s Response to COVID-19	9
Results of Operations	11
Segment Results	14
Financial Condition	21
Liquidity and Capital Resources	27
Critical Accounting Policies and Estimates	30
Non-GAAP Financial Measures	30
Legal Proceedings	40
Risk Factors	40
Quantitative and Qualitative Disclosures about Market Risk	41
Unregistered Sales of Equity Securities and Use of Proceeds	45
Controls and Procedures	45
Exhibits	46
Financial Statements	47
Signatures	87
Appendix A – Form 10-Q Cross-Reference Index	88

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking” statements and other information that is based on management’s current expectations as of the date of this report. Statements that are not historical facts, including statements about our beliefs, opinions, or expectations and statements that assume or are dependent upon future events, are forward-looking statements and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “may,” “could,” “should,” “goals,” or “target.” Such statements are based on management's expectations as of the date of this filing and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties are discussed more fully under the section titled “Risk Factors” in our 2020 Annual Report on Form 10-K (the 2020 Form 10-K) and include, but are not limited to the following:  

• the continuing impacts of the COVID-19 pandemic and related risks;

• the economic conditions and the creditworthiness of third parties;

• increased defaults on education loans held by us;

• the cost and availability of funding in the capital markets;

• the transition away from the LIBOR reference rate to an alternative reference rate;  

• higher or lower than expected prepayments of loans could change the expected net interest income we receive or cause the bonds issued by a securitization trust to be paid at a differently speed than anticipated;

• our unhedged Floor Income is dependent on the future interest rate environment and therefore is variable;

• a reduction in our credit ratings;

• adverse market conditions or an inability to effectively manage our liquidity risk could negatively impact us;

• the interest rate characteristics of our assets do not always match those of our funding arrangements;

• our use of derivatives exposes us to credit and market risk;

• our ability to continually and effectively align our cost structure with our business operations;

• a failure of our operating systems, infrastructure or information technology systems;

• failure by any third party providing us material services or products or a breach or violation of law by one of these third parties;

• changes to applicable laws, rules, regulations and government policies and expanded regulatory and governmental oversight;

• our work with government clients exposes us to additional risks inherent in the government contracting environment;

• shareholder activism;

• federal funding constraints and spending policy changes may result in disruption of federal payments for services we provide to the government;

• shareholders’ percentage ownership in Navient may be diluted in the future;

• reputational risk and social factors;

• obligations owed to parties under various transaction agreements that were executed as part of the spin-off of Navient from SLM Corporation (the Spin-Off); and

• acquisitions or strategic investments that we pursue.

Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business.  

The preparation of our consolidated financial statements also requires management to make certain estimates and assumptions including estimates and assumptions about future events. These estimates or assumptions may prove to be incorrect and actual results could differ materially. All forward-looking statements contained in this report are qualified by these cautionary statements and are made only as of the date of this report. We do not undertake any obligation to update or revise these forward-looking statements except as required by law.

Through this discussion and analysis, we intend to provide the reader with some narrative context for how our management views our consolidated financial statements, additional context within which to assess our operating results, and information on the quality and variability of our earnings, liquidity and cash flows.

1

USE OF NON-GAAP FINANCIAL MEASURES

We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate our business segments and present financial results on a basis that differs from GAAP. We refer to this different basis of presentation as Core Earnings, which is a non-GAAP financial measure. We provide this Core Earnings basis of presentation on a consolidated basis and for each business segment because this is what we review internally when making management decisions regarding our performance and how we allocate resources. We also include this information in our presentations with credit rating agencies, lenders and investors. Because our Core Earnings basis of presentation corresponds to our segment financial presentations, we are required by GAAP to provide Core Earnings disclosures in the notes to our consolidated financial statements for our business segments.

In addition to Core Earnings, we present the following non-GAAP financial measures: Tangible Equity, Adjusted Tangible Equity Ratio, Pro forma Adjusted Tangible Equity Ratio, and Earnings before Interest, Taxes, Depreciation and Amortization Expense (EBITDA) (for the Business Processing segment). See “Management’s Discussion and Analysis – Non-GAAP Financial Measures” for a further discussion and a complete reconciliation between GAAP net income and Core Earnings.

2

Overview and Fundamentals of Our Business

Navient is a leading provider of education loan management and business processing solutions for education, healthcare, and government clients at the federal, state, and local levels. We help our clients and millions of Americans achieve success through technology-enabled financing, services and support.  

With a focus on data-driven insights, service, compliance and innovative support, Navient’s business consists of:

 

• Federal Education Loans

We own a portfolio of $55.6 billion of federally guaranteed Federal Family Education Loan Program (FFELP) Loans. We service and provide asset recovery services on this portfolio and for third parties, deploying data-driven approaches to support the success of our customers.

We service federal education loans for approximately 5.6 million customers on behalf of the U.S. Department of Education (ED). Our flexible and scalable infrastructure manages large volumes of complex transactions with continued customer experience and efficiency improvements.

• Consumer Lending

We own, service and originate Private Education Loans that enable students to pursue higher education and economic opportunities. Our $19.7 billion private loan portfolio demonstrates high customer success rates. Our loan origination business assists borrowers in refinancing their education loan debt and supports students and families in financing their higher education. In second-quarter 2021, we originated $1.3 billion in Private Education Loans.

• Business Processing

We provide business processing solutions to a variety of public sector and health care organizations. We support over 500 clients – and their millions of clients, patients, and citizens – through a suite of solutions that leverages our scale, technology and customer experience expertise. Our data driven solutions enable our clients to focus on their missions and optimize their cash flow, and they enable individuals to successfully navigate complex programs, transactions, and decisions.

Superior Operational Performance with a Strong Customer Service and Compliance Commitment

We help our customers — both individuals and institutions — navigate the path to financial success through proactive service and innovative solutions.

• Scalable, data-driven solutions. Annually, we support tens of millions of people to conduct hundreds of millions of transactions and interactions. Designed using configurable architecture, our systems are built for scale and rapid implementation. We harness the power of data to build tailored programs that optimize our clients’ results.

We leverage our multichannel communication platform, predictive analytics, and decades of insight to stay in touch with borrowers and address challenges that may arise. As the COVID-19 pandemic hit, we quickly implemented payment relief options for millions of borrowers.

In our Business Processing segment, using cloud-based solutions, we rapidly staffed, trained, and activated several call centers of thousands of remote staff for states needing urgent support during the COVID-19 pandemic.

Across all our businesses, we use real-time dashboards and data visualization tools to monitor performance metrics and identify, track, and address trends and opportunities.

3

• Simplify complex processes. On our clients’ behalf, we help individuals successfully navigate a broad spectrum of complex transactions.

For example, our staff and systems strive to streamline and simplify the student loan repayment process, so borrowers can more easily understand their available choices and make informed decisions for their situation. We simplified the government’s process for enrolling in federal income-driven repayment plans by creating an agent-assisted e-sign enrollment process, greatly increasing completion.

• Improve customer experience and success. We continually make enhancements in an effort to improve customer experience, drawing from a variety of inputs including customer surveys, research panels, analysis of customer inquiries, transactions and activities, and complaint data, and regulator commentary. Across our businesses, our customer-facing representatives are trained and measured to provide empathetic, accurate support.

o Repayment plan education and outreach: We help federal student loan borrowers understand the wide range of repayment options so they can make informed choices about the plans that align with their financial circumstances and goals. We continue to lead in enrolling customers in affordable repayment plans.

o Advocating for enhancements to student loans: Navient has been a leader in recommending policy reforms that would enhance the student loan outcomes. For example, we have recommended improving financial literacy before borrowing, simplifying federal loan repayment options and encouraging college completion — reforms that we believe would make a meaningful difference for millions of Americans.

o Office of the Customer Advocate: Our Office of the Customer Advocate, established in 1997, offers escalated assistance to customers. We are committed to working with customers and appreciate customer comments, which, combined with our own customer communication channels, help us improve the ways we assist our customers.

o Private loan modification program: In 2009, we pioneered the creation of a loan modification program to help Private Education Loan borrowers needing additional assistance. As of June 30, 2021, $802 million of our Private Education Loans were enrolled in this interest rate reduction program, helping customers through more affordable monthly payments while making progress in repaying their principal loan balance.

o Serving military customers: Navient was the first student loan servicer to launch a dedicated military benefits customer service team, website (Navient.com/military), and toll-free number. Navient’s military benefits team supports service members and their families to access the benefits designed for them, including interest rate benefits, deferment and other options.

o Financial literacy: We also continue to offer free resources to help customers and the general public build knowledge on personal finance topics, including videos, articles and online tools.

• Commitment to compliance. Our rigorous compliance posture ensures adherence with laws and regulations and helps protect our clients, customers, employees and shareholders. We use a “Three Lines of Defense” compliance framework, considered best practice by the U.S. Federal Financial Institutions Examination Council (FFIEC). This framework and other compliance protocols ensure we adhere to key industry laws and regulations including: Fair and Accurate Credit Transactions Act (FACTA); Fair Credit Reporting Act (FCRA); Fair Debt Collection Practices Act (FDCPA); Equal Credit Opportunity Act (ECOA); Federal Information Security Management Act (FISMA); Gramm-Leach-Bliley Act (GLBA); Health Insurance Portability and Accountability Act (HIPAA); IRS Publication 1075; Servicemembers Civil Relief Act (SCRA); Military Lending Act (MLA); Telephone Consumer Protection Act (TCPA); Unfair, Deceptive, or Abusive Acts and Practices (UDAAP); state laws; and state and city licensing.

4

• Deliver superior performance. Navient delivers value for our clients and customers. Whether supporting student loan borrowers to successfully manage their loans, delivering new citizen services for public sector agencies, or helping a state manage backlogs or recover revenue to support essential services, we deliver results.

Federal loans serviced by Navient achieved a Cohort Default Rate (CDR) 26% better than our peers as calculated from the most recent CDR released by ED in September 2020. During the COVID-19 pandemic, we quickly and accurately delivered assistance to student loan borrowers. We are consistently a top performer in our asset recovery business and deliver superior service to our public and private sector clients. We regularly leverage data-driven insights, scale, technology and customer service to deliver value to our clients.

Our Business Processing segment regularly outperforms our clients’ expectations and the results delivered by our competition. For example:

o For one client, we delivered efficiency results 30% higher than our client’s other vendors.

o We have increased our transportation clients’ revenue by up to 15%.  

• Corporate Social Responsibility. We are committed to contributing to the social and economic wellbeing of our local communities, to fostering the success of our customers, to supporting a culture of integrity, inclusion and equality in our workforce, and to integrating environmental responsibility into our business. More information about our environmental, social and governance commitments is available at about.Navient.com.

Strong Financial Performance Resulting in a Strong Capital Return

Our second-quarter 2021 results continue to build upon our previous year’s results demonstrating the strength of our business model and our ability to deliver predictable and meaningful cash flow and earnings in all types of economic environments. Adjusted Core Earnings⁽¹⁾ per share grew 92% and 8% on a year-to-date and quarterly basis, respectively, compared to the year-ago periods.  

Our significant earnings generate significant capital which results in a strong capital return to our investors. Navient expects to continue to return excess capital to shareholders through dividends and share repurchases in accordance with our capital allocation policy.

By optimizing capital adequacy and allocating capital to highly accretive opportunities, including organic growth and acquisitions, we remain well positioned to pay dividends and repurchase stock, while maintaining appropriate leverage that supports our credit ratings and ensures ongoing access to capital markets.

(Dollars and shares in millions)	Q2-21			Q2-20
Shares repurchased		11.8			—
Reduction in shares outstanding		7	%		—
Total repurchases in dollars	$	200		$	—
Dividends paid	$	27		$	31

At June 30, 2021, $300 million remained in share repurchase authorization.

To inform our capital allocation decisions, we use the Adjusted Tangible Equity Ratio, in addition to other metrics. As anticipated, the implementation of ASU No. 2016-13, “Financial Instruments – Credit Losses” (CECL), on January 1, 2020, reduced our capital ratios, which we have rebuilt during 2020 and 2021. In addition, our GAAP equity was reduced in 2020 as a result of the net mark-to-market losses related to derivative accounting primarily due to the significant decline in interest rates. Our Pro forma Adjusted Tangible Equity Ratio⁽¹⁾ at June 30, 2021, which excludes the cumulative net mark-to-market losses related to derivative accounting that will reverse to zero as the contracts mature, was 8.0%.

(Dollars in millions)	Q1-20			Q2-20			Q3-20			Q4-20			YTD-20			Q1-21			Q2-21
Capital Returned(2)	$	366		$	31		$	96		$	30		$	523		$	129		$	227
Adjusted Tangible Equity Ratio(1)		3.2	%		3.6	%		4.1	%		5.0	%		5.0	%		6.2	%		6.3	%
Pro forma Adjusted Tangible Equity    Ratio(1)		5.3	%		6.0	%		6.4	%		7.1	%		7.1	%		8.1	%		8.0	%

⁽¹⁾ Item is a non-GAAP financial measure. For a description and reconciliation, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures.”        

⁽²⁾ Capital Returned is defined as share repurchases and dividends paid.

5

How We Organize Our Business

We operate our business in three primary segments: Federal Education Loans, Consumer Lending and Business Processing.  

Federal Education Loans Segment

In this segment, Navient owns FFELP Loans and performs servicing and asset recovery services on this portfolio. We also service and perform asset recovery services on federal education loans owned by ED and other institutions. Our servicing quality, data-driven strategies, and multichannel education about federal repayment options translate into positive results for the millions of borrowers we serve.

Consumer Lending Segment

In this segment, Navient owns, originates, acquires and services high-quality private education loans. We believe our more than 45 years of experience, product design, digital marketing strategies, and origination and servicing platform provide a unique competitive advantage. We see meaningful growth opportunities in originating Private Education Loans to financially responsible consumers, generating attractive long-term risk adjusted returns.  

Business Processing Segment

In this segment, Navient performs business processing services for over 500 government and healthcare clients.

• Government services: We provide state governments, agencies, court systems, municipalities, and parking and tolling authorities with expert service, leveraging our scale, integrated technology solutions and data-driven approach. Our support enables our clients to better serve their constituents, meet rapidly changing needs, reduce their operating expenses, manage risk and maximize revenue opportunities.  

• Healthcare services: We perform revenue cycle outsourcing, accounts receivable management, extended business office support, consulting engagements and public health programs. We offer customizable solutions for our clients that include hospitals, hospital systems, medical centers, large physician groups, other healthcare providers and departments of public health.  

Other Segment

Our Other segment consists of our corporate liquidity portfolio, gains and losses incurred on the repurchase of debt, unallocated expenses of shared services and restructuring/other reorganization expenses.

6

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Selected Historical Financial Information and Ratios

	Three Months Ended June 30,						Six Months Ended June 30,
(In millions, except per share data)	2021			2020			2021			2020
GAAP Basis
Net income (loss)	$	185		$	125		$	555		$	19
Diluted earnings (loss) per common share	$	1.05		$	.64		$	3.08		$	.10
Weighted average shares used to compute diluted earnings per share		176			195			180			198
Return on assets		.91	%		.56	%		1.35	%		.04	%
Core Earnings Basis(1)
Net income(1)	$	165		$	179		$	469		$	272
Diluted earnings per common share(1)	$	.94		$	.92		$	2.61		$	1.37
Adjusted diluted earnings per common share(1)	$	.98		$	.91		$	2.71		$	1.41
Weighted average shares used to compute diluted earnings per share		176			195			180			198
Net interest margin, Federal Education Loans segment		.97	%		1.07	%		.97	%		.94	%
Net interest margin, Consumer Lending segment		2.95	%		3.20	%		2.97	%		3.26	%
Return on assets		.81	%		.81	%		1.14	%		.61	%
Education Loan Portfolios(2)
Ending FFELP Loans, net	$	55,550		$	60,921		$	55,550		$	60,921
Ending Private Education Loans, net		19,725			21,462			19,725			21,462
Ending total education loans, net	$	75,275		$	82,383		$	75,275		$	82,383
Average FFELP Loans	$	56,649		$	62,141		$	57,360		$	63,018
Average Private Education Loans		20,730			23,008			21,433			23,060
Average total education loans	$	77,379		$	85,149		$	78,793		$	86,078

⁽¹⁾   Item is a non-GAAP financial measure. For a description and reconciliation, see the section titled “Non-GAAP Financial Measures – Core Earnings.”

⁽²⁾   Balances are the same for GAAP and Core Earnings basis.

7

The Quarter in Review

We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate our business segments and present financial results on a basis that differs from GAAP. We refer to this different basis of presentation as Core Earnings. We provide this Core Earnings basis of presentation on a consolidated basis and for each business segment because this is what we review internally when making management decisions regarding our performance and how we allocate resources. We also include this information in our presentations with credit rating agencies, lenders and investors. Because our Core Earnings basis of presentation corresponds to our segment financial presentations, we are required by GAAP to provide certain Core Earnings disclosures in the notes to our consolidated financial statements for our business segments. See “Non-GAAP Financial Measures — Core Earnings” for a further discussion and a complete reconciliation between GAAP net income and Core Earnings.

Second-quarter 2021 GAAP net income was $185 million ($1.05 diluted earnings per share), compared with $125 million ($0.64 diluted Core Earnings per share) for the year-ago quarter. See “Results of Operations – Comparison of Second-Quarter 2021 Results with Second-Quarter 2020” for a discussion of the primary contributors to the change in GAAP earnings between periods.

Second-quarter 2021 Core Earnings net income was $165 million ($0.94 diluted Core Earnings per share), compared with $179 million ($0.92 diluted Core Earnings per share) for the year-ago quarter. Second-quarter 2021 and 2020 adjusted diluted Core Earnings⁽¹⁾ per share were $0.98 and $0.91, respectively. See “Segment Results” for a discussion of the primary contributors to the change in Core Earnings between periods.

Financial highlights of second-quarter 2021 versus second-quarter 2020 include:

Federal Education Loans segment:

• Net income decreased $33 million, or 23%, from $146 million to $113 million.

• Net interest income decreased 18%.

• FFELP Loan delinquency rate increased from 8.2% to 8.3%.

Consumer Lending segment:

• Net income increased $9 million, or 10%, from $87 million to $96 million.

• Originated $1.3 billion of Private Education Refinance Loans.  

• Private Education Loan delinquency rate increased from 2.0% to 2.6%.

Business Processing segment:

• EBITDA⁽¹⁾ increased $32 million, or 400%, from $8 million to $40 million, primarily due to revenue earned from contracts to support states.  

• Revenue increased $66 million, or 103%, to $130 million.

Capital, funding and liquidity:

• Adjusted Tangible Equity Ratio⁽¹⁾ increased to 6.3% from 3.6%. Pro forma Adjusted Tangible Equity Ratio⁽¹⁾ increased to 8.0% from 6.0%.

• Repurchased $200 million of common shares. $300 million repurchase authority remains outstanding.

• Paid $27 million in common stock dividends.

• Issued $2.1 billion in term asset-backed securities (ABS).

• Retired $692 million of unsecured debt. On July 12, retired an additional $750 million of unsecured debt scheduled to mature in 2022.

Expenses:

• Adjusted Core Earnings expenses⁽¹⁾ increased $29 million to $244 million. This increase was primarily a result of a $35 million increase in expenses in the Business Processing segment.

⁽¹⁾  Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”

8

Navient’s Response to COVID-19

The World Health Organization first declared the COVID-19 outbreak a pandemic on March 13, 2020 by which time the economic impact of the crisis was beginning to take hold, impacting the global economy and our results of operations. The COVID-19 pandemic was subsequently declared a national emergency. In response to the COVID-19 pandemic, many state, local, and foreign governments put in place quarantines, executive orders, shelter-in-place orders, and restrictions in order to control the spread of the disease. Such orders or restrictions resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions, and cancellation or postponement of events. They also led to a general decline in economic activity and consumer confidence and increases in job losses and unemployment. While certain COVID-19 vaccines have been approved and have become widely available for use in the United States, there are many parts of the country where the vaccination rate is significantly below 50%. As a result, although the economy has improved since the pandemic began, it is still uncertain when or if normal pre-pandemic economic activity and business operations will resume and what effect the Delta or other variants will have on the global economy. In this section, we will highlight our response to the global pandemic and its continuing impact on our business and operations. We suggest that the information below should be read in conjunction with our risk factors included in “Risk Factors — The Impact of COVID-19 and Related Risk” in our 2020 Form 10-K.  

Our Team Members

As this crisis evolved, we took early action to protect the health and safety of our employees. We expanded our work-from-home capabilities and implemented best practices in our facilities with regard to safety and hygiene to protect those who were unable to work remotely. We were able to quickly and successfully enable 90% of our team to work from home. As of June 30, 2021, approximately 85% of our team remains on work-from-home status. As a result of these steps, the pandemic has not adversely affected our ability to maintain our operations or service our customers and borrowers. We currently anticipate that some of our team members will begin returning to the office later this year. As we plan for the return to office process, it is likely to take place in stages and we anticipate that the environment may require a continuation of various safety protocols.

Customers and Education Loan Performance

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. In compliance with the CARES Act and through subsequent legislative and executive actions, we have placed all loans owned by ED into forbearance and suspend payments and interest accrual until September 30, 2021. While the CARES Act applies only to loans owned by ED, our FFELP and Private Education Loan portfolios have also been impacted by the pandemic and we have offered COVID-19 relief options such as the use of forbearance to those borrowers. Private Education Loans in forbearance decreased to $606 million or 3.0% of the portfolio at June 30, 2021, after peaking at $3.4 billion or 14.7% during the second quarter of 2020. This compared to $604 million or 2.7% of the portfolio at December 31, 2019, prior to the impact of COVID-19. Despite the COVID-19 crisis, we have seen most borrowers continue to make payments according to their payment plans. And while forbearance rates are slightly higher today than they were pre-pandemic, the balance of loans delinquent has declined – our Private Education Loan delinquency rate declined from 4.6% at December 31, 2019 to 2.6% as of June 30, 2021. Our Private Education Loan charge-offs declined 49% to $184 million for the full year of 2020 compared with $364 million in full year 2019. This decline was due to the strength of the economy heading into March 2020 as well as a result of the COVID-19 forbearance granted to borrowers. We see this continued decline with charge-offs of $35 million in second-quarter 2021 compared to $48 million in the year-ago quarter. We do expect defaults to begin to increase in 2022 given the default timing impact of the use of forbearance which our allowance for loan losses captures. Our total reserves were $1.69 billion (excluding the expected future recoveries on charged-off loans) at June 30, 2021, which represent reserves equal to 6.8% of our Private Education Loans and 0.5% of our FFELP Loan portfolio. While we are paying close attention to the needs of our customers, it is too early to know the full impact of this crisis or the path and timing of the recovery.

In the first quarter of 2020, our Private Education Refinance Loan originations of $1.9 billion represented a 92% increase over the year-ago quarter. With the onset of the crisis in March 2020, we reduced our marketing efforts and tightened credit until we had greater visibility into the uncertainty and volatility in the capital markets and the overall economic outlook. This resulted in second-quarter 2020 originations of $238 million. With improved visibility in both credit and funding costs, we restarted marketing efforts in the third quarter of 2020 and increased third-quarter and fourth-quarter originations to $1.3 billion and $1.1 billion, respectively. Total originations were $4.6 billion in 2020 compared to $4.9 billion in 2019. First-quarter and second-quarter 2021 originations were $1.7 billion and $1.3 billion, respectively. We expect 2021 originations to be higher than 2020 if the economy continues to improve.

9

Clients and Business Processing Segment Performance

In our Business Processing Segment (BPS), EBITDA⁽¹⁾ increased to $40 million from $8 million in the year-ago quarter. This increase is a result of being able to transition hundreds of our experienced BPS colleagues and adapt our technology enabled solutions to support state clients working to help residents access unemployment benefits implemented in the CARES Act, as well as to perform contact tracing and vaccine administration services. These new services have generated revenue in 2020 and the first six months of 2021 that more than offset the negative revenue impact BPS is experiencing as a result of COVID-19 which includes lower transaction-related placements in both government services and health care revenue cycle management. For the remainder of 2021 we expect the revenue from the unemployment contracts related to the CARES Act and contact tracing and vaccine administration contracts to decline as the economy recovers and the need decreases. We also expect revenue from the core parts of the business to continue to improve into 2022 to pre-COVID-19 levels if the economy continues to improve.

Liquidity, Financings and Capital

The impact of the COVID-19 crisis on the capital markets was significant during the early part of the crisis, decreasing the number of transactions brought to market and increasing the pricing of those that were successfully marketed. However, in the second half of 2020 the capital markets began to improve with ready access to the markets, albeit at a higher cost than pre-COVID-19 levels. In the first half of 2021, we issued $500 million of unsecured debt and $5.5 billion of ABS below pre-COVID-19 cost of funds levels. Throughout the crisis we have maintained a strong liquidity position. As of June 30, 2021, we had $2.3 billion of primary sources of liquidity, $1.5 billion of which was cash. We also had, as of June 30, 2021, additional capacity in our funding facilities of $2.4 billion for Private Education Loans and $530 million for FFELP Loans. In addition, cash flow from our loan portfolio and services contracts remains strong as our very seasoned loan portfolio experiences lower levels of stress.

We ended the quarter with an Adjusted Tangible Equity Ratio⁽¹⁾ of 6.3% compared to 5.0% as of December 31,2020. In 2020, our GAAP equity was reduced due to the implementation of CECL on January 1, 2020 as well as a result of the net mark-to-market losses related to derivative accounting as a result of the significant decrease in interest rates.  These mark-to-market losses recognized under GAAP cumulatively totaled $459 million (after tax) as of June 30, 2021. This decrease will reverse over time as these derivatives mature. The resulting Pro forma Adjusted Tangible Equity Ratio⁽¹⁾, which excludes these cumulative mark-to-market losses, was 8.0% at June 30, 2021. We expect our capital levels to continue to rebuild over the course of 2021.

Other Matters

From an accounting, reporting and disclosure perspective, COVID-19 and the related work-from-home policies did not negatively impact our ability to close our books, manage our financial systems, or maintain our internal control over financial reporting and our disclosure controls and procedures. See “Critical Accounting Policies and Estimates” in our 2020 Form 10-K for a discussion of how COVID-19 impacted our allowance for loan loss and our conclusion of goodwill not being impaired.

We have successfully implemented our business continuity plans in response to COVID-19. We do not foresee requiring material expenditures to continue to operate in a work-from-home environment nor do we expect material expenditures to return to work in the office. We do not anticipate a material adverse impact of COVID-19 on our supply chain and we do not expect the anticipated impact of COVID-19 to materially change the relationship between costs and revenues. We have not been adversely impacted by travel restrictions and border closures nor do we anticipate that our operations will be materially impacted by any constraints on our human capital resources and productivity.

⁽¹⁾ Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”

10

Results of Operations

GAAP Income Statements (Unaudited)

	Three Months Ended June 30,						Increase (Decrease)						Six Months Ended June 30,						Increase (Decrease)
(In millions, except per share data)	2021			2020			$			%			2021			2020			$			%
Interest income:
FFELP Loans	$	365		$	455		$	(90	)		(20	)%	$	737		$	1,025		$	(288	)		(28	)%
Private Education Loans		295			362			(67	)		(19	)		614			767			(153	)		(20	)
Cash and investments		1			2			(1	)		(50	)		1			15			(14	)		(93	)
Total interest income		661			819			(158	)		(19	)		1,352			1,807			(455	)		(25	)
Total interest expense		339			519			(180	)		(35	)		667			1,234			(567	)		(46	)
Net interest income		322			300			22			7			685			573			112			20
Less: provisions for loan losses		(1	)		44			(45	)		(102	)		(88	)		139			(227	)		(163	)
Net interest income after provisions for loan losses		323			256			67			26			773			434			339			78
Other income (loss):
Servicing revenue		50			52			(2	)		(4	)		102			109			(7	)		(6	)
Asset recovery and business processing revenue		142			102			40			39			281			212			69			33
Other income (loss)		4			9			(5	)		(56	)		5			17			(12	)		(71	)
Gains on sales of loans		2			—			2			100			78			—			78			100
Losses on debt repurchases		(12	)		—			(12	)		100			(12	)		—			(12	)		100
Gains (losses) on derivative and hedging activities, net		(10	)		(30	)		20			(67	)		26			(253	)		279			110
Total other income (loss)		176			133			43			32			480			85			395			465
Expenses:
Operating expenses		252			213			39			18			510			463			47			10
Goodwill and acquired intangible assets impairment and    amortization expense		5			5			—			—			10			11			(1	)		(9	)
Restructuring/other reorganization expenses		2			1			1			100			8			6			2			33
Total expenses		259			219			40			18			528			480			48			10
Income before income tax expense		240			170			70			41			725			39			686			1,759
Income tax expense		55			45			10			22			170			20			150			750
Net income	$	185		$	125		$	60			48	%	$	555		$	19		$	536			2,821	%
Basic earnings per common share	$	1.07		$	.65		$	.42			65	%	$	3.12		$	.10		$	3.02			3,020	%
Diluted earnings per common share	$	1.05		$	.64		$	.41			64	%	$	3.08		$	.10		$	2.98			2,980	%
Dividends per common share	$	.16		$	.16		$	—			—	%	$	.32		$	.32		$	—			—	%

11

Comparison of Second-Quarter 2021 Results with Second-Quarter 2020

For the three months ended June 30, 2021, net income was $185 million, or $1.05 diluted earnings per common share, compared with net income of $125 million, or $0.64 diluted earnings per common share, for the year-ago period.

The primary contributors to the change in net income are as follows:

• Net interest income increased by $22 million, primarily as a result of a $22 million increase in mark-to-market gains on fair value hedges recorded in interest expense.  Also contributing to the increase is a favorable interest rate environment with lower interest rates  and the growth in the Private Education Refinance Loan portfolio. Partially offsetting this increase is the continued natural paydown of the FFELP and non-refinance Private Education Loan portfolios.

• Provisions for loan losses decreased $45 million from $44 million to $(1) million:

○  The provision for FFELP loan losses decreased $3 million to $0.

○  The provision for Private Education Loan losses decreased $42 million from $41 million to $(1) million.

The negative provision for the current quarter of $(1) million was comprised of $13 million in connection with loan originations less the reversal of both $5 million of allowance for loan losses in connection with the sale of approximately $30 million of Private Education Loans, as well as $9 million related to a decrease in expected losses for the overall portfolio. There has been an improvement in the current and forecasted economic conditions since March 31,2021, but such improvement has not mitigated the uncertainty related to the potential negative impact on the portfolio from the end of various payment relief and stimulus benefits in the future. The provision in the year-ago quarter primarily related to an increase in expected losses due to COVID-19’s negative impact on the current and forecasted economic conditions that occurred subsequent to the adoption of CECL on January 1, 2020.

• Asset recovery and business processing revenue increased $40 million primarily as a result of a $53 million increase in  revenue earned in our Business Processing segment from contracts to support states in providing unemployment benefits, contact tracing and vaccine administration services in connection with COVID-19. In addition, there was an increase in revenue from our traditional Business Processing segment services we perform for our government and healthcare services clients. These increases were partially offset by the wind-down of the ED asset recovery contract and the impact of COVID-19 on certain collection activities in the Federal Education Loan segment.

• Losses on debt repurchases increased $12 million. We repurchased $692 million of debt at a $12 million loss in the current quarter. There were no debt repurchases in the year-ago quarter.  

• Net losses on derivative and hedging activities decreased $20 million. The primary factors affecting the change were interest rate and foreign currency fluctuations, which impact the valuations of derivative instruments including Floor Income Contracts, basis swaps and foreign currency hedges during each period. Valuations of derivative instruments fluctuate based upon many factors including changes in interest rates, credit risk, foreign currency fluctuations and other market factors. As a result, net gains and losses on derivative and hedging activities may vary significantly in future periods.

• Excluding net regulatory-related expenses of $8 million and $(2) million in the second quarters of 2021 and 2020, respectively, operating expenses were $244 million and $215 million in the second quarters of 2021 and 2020, respectively. This $29 million increase was primarily a result of a $35 million increase in expenses in the Business Processing segment in connection with the increase in segment revenue. Regulatory-related expenses in the year-ago quarter are net of $10 million of insurance reimbursements for costs related to such matters.

• During the three months ended June 30, 2021 and 2020, respectively, the Company incurred $2 million and $1 million, respectively of restructuring/other reorganization expenses in connection with an effort to reduce costs and improve operating efficiency. These charges were primarily due to facility lease terminations and severance-related costs.

We repurchased 11.8 million shares of our common stock during the second quarter of 2021. There were no share repurchases in the year-ago quarter. As a result of repurchases, our average outstanding diluted shares decreased by 19 million common shares (or 10%) from the year-ago period.  

Comparison of Six Months Ended June 30, 2021 Results with Six Months Ended June 30, 2020

For the six months ended June 30, 2021, net income was $555 million, or $3.08 diluted earnings per common share, compared with net income of $19 million, or $0.10 diluted earnings per common share, for the year-ago period.

The primary contributors to the change in net income are as follows:

• Net interest income increased by $112 million, primarily as a result of a $76 million increase in mark-to-market gains on fair value hedges recorded in interest expense.  Also contributing to the increase is a favorable interest rate environment with lower interest rates  and the growth in the Private Education

12

Refinance Loan portfolio. Partially offsetting this increase is the continued natural paydown of the FFELP and non-refinance Private Education Loan portfolios.

• Provisions for loan losses decreased $227 million from $139 million to $(88) million:

○  The provision for FFELP loan losses decreased $9 million to $0.

○  The provision for Private Education Loan losses decreased $218 million from $130 million to $(88) million.

The negative provision for the current period of $(88) million was comprised of $29 million in connection with loan originations less the reversal of both $107 million of allowance for loan losses in connection with the sale of approximately $1.6 billion of Private Education Loans, as well as $10 million related to a decrease in expected losses for the overall portfolio. There has been an improvement in the current and forecasted economic conditions since December 31,2020, but such improvement has not mitigated the uncertainty related to the potential negative impact on the portfolio from the end of various payment relief and stimulus benefits in the future. The provision in the year-ago period primarily related to an increase in expected losses due to COVID-19’s negative impact on the current and forecasted economic conditions that occurred subsequent to the adoption of CECL on January 1, 2020.

• Asset recovery and business processing revenue increased $69 million primarily as a result of a $121 million increase in  revenue earned in our Business Processing segment from contracts to support states in providing unemployment benefits, contact tracing and vaccine administration services in connection with COVID-19. In addition, there was an increase in revenue from our traditional Business Processing segment services we perform for our government and healthcare services clients.  These increases were partially offset by the wind-down of the ED asset recovery contract and the impact of COVID-19 on certain collection activities in the Federal Education Loan segment.

• Gains on sales of loans increased $78 million in connection with the sale of approximately $1.6 billion of Private Education Loans in 2021. There were no such sales in the year-ago period. The sale of Private Education Loans was comprised as follows:

○  Approximately $590 million of non-Refinance Loans, resulting in a $48 million gain on sale (of which $560 million were sold in the first quarter and $30 million were sold in the second quarter); and

○  Approximately $1.03 billion of Refinance Loans, resulting in a $30 million gain on sale. In addition, there was a $13 million gain related to derivatives that were used to hedge this transaction that did not qualify for hedge accounting. As a result, this gain related to the derivatives was included as a part of “gains (losses) on derivative and hedging activities, net” on the income statement.

• Losses on debt repurchases increased $12 million. We repurchased $717 million of debt at a $12 million loss in the current period. There were no debt repurchases in the year-ago period.  

• Net losses on derivative and hedging activities decreased $279 million. The primary factors affecting the change were interest rate and foreign currency fluctuations, which impact the valuations of derivative instruments including Floor Income Contracts, basis swaps and foreign currency hedges during each period. Valuations of derivative instruments fluctuate based upon many factors including changes in interest rates, credit risk, foreign currency fluctuations and other market factors. As a result, net gains and losses on derivative and hedging activities may vary significantly in future periods. In particular, the net loss in the six months ended June 30, 2020 was primarily related to the significant reduction in interest rates and resulting impact on the mark-to-market of the derivatives used to economically hedge FFELP Loan Floor Income that do not qualify for hedge accounting. For the six months ended June 30, 2021, interest rates have increased which has resulted in mark-to-market gains on these instruments.

• Excluding net regulatory-related expenses of $16 million and $5 million in the six months ended June 30, 2021 and 2020, respectively, operating expenses were $494 million and $458 million in the six months ended June 30, 2021 and 2020, respectively. This $36 million increase was primarily a result of a $72 million increase in expenses in the Business Processing segment in connection with the increase in segment revenue, with an offsetting $36 million decrease in expenses primarily in the Federal Education Loans segment as a result of the decrease of Federal Education Loan asset recovery revenue discussed above. Regulatory-related expenses in the year-ago period are net of $10 million of insurance reimbursements for costs related to such matters.

• During the six months ended June 30, 2021 and 2020, respectively, the Company incurred $8 million and $6 million, respectively of restructuring/other reorganization expenses in connection with an effort to reduce costs and improve operating efficiency. These charges were primarily due to facility lease terminations and severance-related costs.

We repurchased 19.9 million and 23.0 million shares of our common stock during the six months ended June 30, 2021 and 2020, respectively. As a result of repurchases, our average outstanding diluted shares decreased by 18 million common shares (or 9%) from the year-ago period.  

13

Segment Results

Federal Education Loans Segment

The following table presents Core Earnings results for our Federal Education Loans segment.

	Three Months Ended June 30,				% Increase (Decrease)			Six Months Ended June 30,				% Increase (Decrease)
(Dollars in millions)	2021		2020		2021 vs. 2020			2021		2020		2021 vs. 2020
Interest income:
FFELP Loans	$	351	$	456		(23	)%	$	709	$	1,037		(32	)%
Cash and investments		—		1		(100	)		—		7		(100	)
Total interest income		351		457		(23	)		709		1,044		(32	)
Total interest expense		210		286		(27	)		424		742		(43	)
Net interest income		141		171		(18	)		285		302		(6	)
Less: provision for loan losses		—		3		(100	)		—		9		(100	)
Net interest income after provision for loan losses		141		168		(16	)		285		293		(3	)
Other income:
Servicing revenue		47		51		(8	)		99		106		(7	)
Asset recovery and business processing      revenue		12		38		(68	)		26		90		(71	)
Other income		2		5		(60	)		2		9		(78	)
Total other income		61		94		(35	)		127		205		(38	)
Direct operating expenses		55		70		(21	)		117		153		(24	)
Income before income tax expense		147		192		(23	)		295		345		(14	)
Income tax expense		34		46		(26	)		70		62		13
Core Earnings	$	113	$	146		(23	)%	$	225	$	283		(20	)%

Comparison of Second-Quarter 2021 Results with Second-Quarter 2020

• Core Earnings were $113 million compared to $146 million.

• Net interest income decreased $30 million primarily due to a decrease in annual reset rate Floor Income that occurred on July 1, 2020.

• Provision for loan losses decreased $3 million.  

^○  Charge-offs were $5 million compared with $12 million.

^○  Delinquencies greater than 30 days were $3.8 billion compared with $3.5 billion.  

^○  Forbearances were $7.4 billion, down $8.1 billion from $15.5 billion. Forbearances have declined by approximately $9.8 billion from the COVID-19 peak in second-quarter 2020.

• Other revenue decreased $33 million primarily due to a $26 million decrease in asset recovery revenue, which was primarily a result of the wind-down of the ED asset recovery contract as well as the impact of COVID-19 on certain collection activities.

• Expenses were $15 million lower primarily as a result of the decrease in asset recovery revenue discussed above.

14

Key performance metrics are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in millions)	2021			2020			2021			2020
Segment net interest margin		.97	%		1.07	%		.97	%		.94	%
FFELP Loans:
FFELP Loan spread		1.03	%		1.15	%		1.03	%		1.01	%
Provision for loan losses	$	—		$	3		$	—		$	9
Charge-offs	$	5		$	12		$	11		$	31
Charge-off rate		.04	%		.11	%		.05	%		.13	%
Greater than 30-days delinquency rate		8.3	%		8.2	%		8.3	%		8.2	%
Greater than 90-days delinquency rate		3.8	%		3.8	%		3.8	%		3.8	%
Forbearance rate		13.9	%		26.6	%		13.9	%		26.6	%
Average FFELP Loans	$	56,649		$	62,141		$	57,360		$	63,018
Ending FFELP Loans, net	$	55,550		$	60,921		$	55,550		$	60,921
(Dollars in billions)
Number of accounts serviced for ED (in millions)		5.6			5.6			5.6			5.6
Total federal loans serviced	$	283		$	282		$	283		$	282
Contingent collections receivables inventory	$	11.3		$	13.5		$	11.3		$	13.5

Net Interest Margin

The following table details the net interest margin. 

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
FFELP Loan yield		1.89	%		2.12	%		1.90	%		2.61	%
Hedged Floor Income		.41			.42			.41			.39
Unhedged Floor Income		.18			.41			.18			.31
FFELP Loan net yield		2.48			2.95			2.49			3.31
FFELP Loan cost of funds		(1.45	)		(1.80	)		(1.46	)		(2.30	)
FFELP Loan spread		1.03			1.15			1.03			1.01
Other interest-earning asset spread impact		(.06	)		(.08	)		(.06	)		(.07	)
Net interest margin(1)		.97	%		1.07	%		.97	%		.94	%

⁽¹⁾  The average balances of the interest-earning assets for the respective periods are:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in millions)	2021		2020		2021		2020
FFELP Loans	$	56,649	$	62,141	$	57,360	$	63,018
Other interest-earning assets		1,832		1,856		1,813		1,883
Total FFELP Loan interest-earning assets	$	58,481	$	63,997	$	59,173	$	64,901

As of June 30, 2021, our FFELP Loan portfolio totaled $55.6 billion, comprised of $18.9 billion of FFELP Stafford Loans and $36.7 billion of FFELP Consolidation Loans. The weighted-average life of these portfolios as of June 30, 2021 was 6 years and 7 years, respectively, assuming a Constant Prepayment Rate (CPR) of 9% and 5%, respectively.

15

Floor Income

The following table analyzes on a Core Earnings basis the ability of the FFELP Loans in our portfolio to earn Floor Income after June 30, 2021 and 2020, based on interest rates as of those dates.  

(Dollars in billions)	June 30, 2021			June 30, 2020
Education loans eligible to earn Floor Income	$	55.1		$	60.5
Less: post-March 31, 2006 disbursed loans required    to rebate Floor Income		(25.4	)		(27.6	)
Less: economically hedged Floor Income		(13.8	)		(17.6	)
Education loans eligible to earn Floor Income after    rebates and economically hedged	$	15.9		$	15.3
Education loans earning Floor Income	$	11.0		$	9.4

The following table presents a projection of the average balance of FFELP Consolidation Loans for which Fixed Rate Floor Income has been economically hedged with derivatives for the period July 1, 2021 to December 31, 2025.

(Dollars in billions)	July 1, 2021 to December 31, 2021		2022		2023		2024		2025
Average balance of FFELP Consolidation Loans    whose Floor Income is economically hedged	$	13.3	$	11.8	$	7.3	$	1.6	$	.6

Provision for Loan Losses

The provision for FFELP Loan Losses was $0 in second-quarter 2021, down $3 million from the year-ago quarter.

Servicing Revenue

The Company services loans for approximately 5.6 million customer accounts under its ED servicing contract as of June 30, 2021, unchanged from June 30, 2020. Third-party loan servicing fees in the three months ended June 30, 2021 and 2020 included $34 million and $36 million, respectively, of servicing revenue related to the ED servicing contract.

Asset Recovery and Business Processing Revenue

Asset recovery and business processing revenue decreased $26 million primarily as a result of the wind-down of the ED asset recovery contract as well as the impact of COVID-19 on certain collection and processing activities (temporary stoppage or other restrictions on certain activities).

Operating Expenses

Expenses were $15 million lower primarily as a result of the decrease in asset recovery revenue discussed above.

16

Consumer Lending Segment

The following table presents Core Earnings results for our Consumer Lending segment.  

	Three Months Ended June 30,					% Increase (Decrease)			Six Months Ended June 30,					% Increase (Decrease)
(Dollars in millions)	2021			2020		2021 vs. 2020			2021			2020		2021 vs. 2020
Interest income:
Private Education Loans	$	295		$	362		(19	)%	$	614		$	767		(20	)%
Cash and investments		—			—		—			—			3		(100	)
Interest income		295			362		(19	)		614			770		(20	)
Interest expense		137			174		(21	)		287			385		(25	)
Net interest income		158			188		(16	)		327			385		(15	)
Less: provision for loan losses		(1	)		41		(102	)		(88	)		130		(168	)
Net interest income after provision for    loan losses		159			147		8			415			255		63
Other income:
Servicing revenue		3			1		200			3			3		—
Other income		—			—		—			1			—		100
Gains on sales of loans		2			—		100			91			—		100
Total other income		5			1		400			95			3		3,067
Direct operating expenses		39			34		15			79			72		10
Income before income tax expense		125			114		10			431			186		132
Income tax expense		29			27		7			101			43		135
Core Earnings	$	96		$	87		10	%	$	330		$	143		131	%

Comparison of Second-Quarter 2021 Results with Second-Quarter 2020

• Originated $1.3 billion of Private Education Refinance Loans compared to $238 million.

• Core Earnings were $96 million compared to $87 million.

• Net interest income decreased $30 million primarily due to the natural paydown of the non-refinance loan portfolio. Partially offsetting this decrease was the growth of the Private Education Refinance Loan portfolio.  

• Provision for loan losses decreased $42 million. The negative provision for the current quarter of $(1) million was comprised of $13 million in connection with loan originations less the reversal of both $5 million of allowance for loan losses in connection with the sale of approximately $30 million of Private Education Loans, as well as $9 million related to a decrease in expected losses for the overall portfolio. There has been an improvement in the current and forecasted economic conditions since March 31,2021, but such improvement has not mitigated the uncertainty related to the potential negative impact on the portfolio from the end of various payment relief and stimulus benefits in the future. The provision in the year-ago quarter primarily related to an increase in expected losses due to COVID-19’s negative impact on the current and forecasted economic conditions that occurred subsequent to the adoption of CECL on January 1, 2020.

^○  Charge-offs were $35 million compared with $48 million.

^○  Private Education Loan delinquencies greater than 90 days: $193 million, down $17 million from $210 million.

^○  Private Education Loan delinquencies greater than 30 days: $505 million, up $79 million from $426 million.

^○  Private Education Loan forbearances: $606 million, down $1.2 billion from $1.8 billion. Forbearances have declined by approximately $2.8 billion from the COVID-19 peak in second-quarter 2020.  

• Gains on sales of education loans (included in “Other revenue”) were $2 million in connection with the sale of approximately $30 million of Private Education Loans in second-quarter 2021. There were no such sales in the year-ago quarter.  

• Expenses were $5 million higher as a result of the significant increase in loan originations as well as an increase in legal expenses.

17

Key performance metrics are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in millions)	2021			2020			2021			2020
Segment net interest margin		2.95	%		3.20	%		2.97	%		3.26	%
Private Education Loans (including Refinance Loans):
Private Education Loan spread		3.18	%		3.39	%		3.19	%		3.46	%
Provision for loan losses	$	(1	)	$	41		$	(88	)	$	130
Charge-offs	$	35		$	48		$	70		$	116
Charge-off rate		.71	%		.97	%		0.70	%		1.13	%
Greater than 30-days delinquency rate		2.6	%		2.0	%		2.6	%		2.0	%
Greater than 90-days delinquency rate		1.0	%		1.0	%		1.0	%		1.0	%
Forbearance rate		3.0	%		8.4	%		3.0	%		8.4	%
Average Private Education Loans	$	20,730		$	23,008		$	21,433		$	23,060
Ending Private Education Loans, net	$	19,725		$	21,462		$	19,725		$	21,462
Private Education Refinance Loans:
Charge-offs	$	2		$	2		$	5		$	4
Greater than 90-days delinquency rate		—	%		.1	%		.1	%		.1	%
Average Private Education Refinance Loans	$	8,271		$	7,710		$	8,437		$	7,429
Ending Private Education Refinance Loans	$	8,393		$	7,455		$	8,393		$	7,455
Private Education Refinance Loan originations	$	1,285		$	238		$	2,956		$	2,129

Net Interest Margin

The following table details the net interest margin.

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Private Education Loan yield		5.71	%		6.33	%		5.78	%		6.69	%
Private Education Loan cost of funds		(2.53	)		(2.94	)		(2.59	)		(3.23	)
Private Education Loan spread		3.18			3.39			3.19			3.46
Other interest-earning asset spread impact		(.23	)		(.19	)		(.22	)		(.20	)
Net interest margin(1)		2.95	%		3.20	%		2.97	%		3.26	%

⁽¹⁾  The average balances of the interest-earning assets for the respective periods are:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in millions)	2021		2020		2021		2020
Private Education Loans	$	20,730	$	23,008	$	21,433	$	23,060
Other interest-earning assets		821		692		821		722
Total Private Education Loan interest-earning assets	$	21,551	$	23,700	$	22,254	$	23,782

As of June 30, 2021, our Private Education Loan portfolio totaled $19.7 billion. The weighted-average life of this portfolio as of June 30, 2021 was 4 years assuming a CPR of 11%.

Provision for Loan Losses

Provision for loan losses decreased $42 million. The negative provision for the current quarter of $(1) million was comprised of $13 million in connection with loan originations less the reversal of both $5 million of allowance for loan losses in connection with the sale of approximately $30 million of Private Education Loans, as well as $9 million related to a decrease in expected losses for the overall portfolio. There has been an improvement in the current and forecasted economic conditions since March 31,2021, but such improvement has not mitigated the uncertainty related to the potential negative impact on the portfolio from the end of various payment relief and stimulus benefits in the future. The provision in the year-ago quarter primarily related to an increase in expected losses due to COVID-19’s negative impact on the current and forecasted economic conditions that occurred subsequent to the adoption of CECL on January 1, 2020.

18

Gains on Sales of Loans

Gains on sales of education loans were $2 million in connection with the sale of approximately $30 million of Private Education Loans in second-quarter 2021. There were no such sales in the year-ago quarter.

The sales of Private Education Loans for the six months ended June 30, 2021 were comprised of the following transactions:

^○  Approximately $590 million of non-Refinance Loans, resulting in a $48 million gain on sale (of which $560 million were sold in the first quarter and $30 million were sold in the second quarter); and

^○  Approximately $1.03 billion of Refinance Loans, resulting in a $43 million gain on sale.

Operating Expenses

Operating expenses were $5 million higher as a result of the significant increase in loan originations as well as an increase in legal expenses.

Business Processing Segment

The following table presents Core Earnings results for our Business Processing segment.

	Three Months Ended June 30,				% Increase (Decrease)			Six Months Ended June 30,				% Increase (Decrease)
(Dollars in millions)	2021		2020		2021 vs. 2020			2021		2020		2021 vs. 2020
Business processing revenue	$	130	$	64		103	%	$	255	$	122		109	%
Direct operating expenses		92		57		61			183		111		65
Income before income tax expense		38		7		443			72		11		555
Income tax expense		9		1		800			17		3		467
Core Earnings	$	29	$	6		383	%	$	55	$	8		588	%

Comparison of Second-Quarter 2021 Results with Second-Quarter 2020

• Core Earnings were $29 million compared to $6 million.

• Revenue increased $66 million, or 103%, primarily as a result of revenue earned from contracts to support states in providing unemployment benefits, contact tracing and vaccine administration services, as well as an increase in revenue from our traditional Business Processing segment services that we perform for our government and healthcare services clients.

• EBITDA was $40 million, up $32 million, or 400%. The increase in EBITDA is primarily the result of the revenue increase discussed above. The EBITDA margin increased to 30% from 13%.

Key performance metrics are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in millions)	2021			2020			2021			2020
Revenue from government services	$	66		$	43		$	129		$	77
Revenue from healthcare services		64			21			126			45
Total fee revenue	$	130		$	64		$	255		$	122
EBITDA(1)	$	40		$	8		$	76		$	13
EBITDA margin(1)		30	%		13	%		30	%		10	%
Contingent collections receivables    inventory (in billions)	$	15.5		$	14.5		$	15.5		$	14.5

⁽¹⁾ Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”

19

Other Segment

The following table presents Core Earnings results for our Other segment.

	Three Months Ended June 30,						% Increase (Decrease)			Six Months Ended June 30,						% Increase (Decrease)
(Dollars in millions)	2021			2020			2021 vs. 2020			2021			2020			2021 vs. 2020
Net interest loss after provision for loan    losses	$	(17	)	$	(30	)		(43	)%	$	(35	)	$	(61	)		(43	)%
Other income:
Other income		2			4			(50	)		2			8			(75	)
Losses on debt repurchases		(12	)		—			100			(12	)		—			100
Other income		(10	)		4			(350	)		(10	)		8			(225	)
Expenses:
Unallocated shared services expenses:
Unallocated information technology costs		20			21			(5	)		41			42			(2	)
Unallocated corporate costs		46			31			48			90			85			6
Total unallocated shared services expenses		66			52			27			131			127			3
Restructuring/other reorganization       expenses		2			1			100			8			6			33
Total expenses		68			53			28			139			133			5
Loss before income tax benefit		(95	)		(79	)		20			(184	)		(186	)		(1	)
Income tax benefit		(22	)		(19	)		16			(43	)		(44	)		(2	)
Core Earnings (loss)	$	(73	)	$	(60	)		22	%	$	(141	)	$	(142	)		(1	)%

Net Interest Loss after Provision for Loan Losses

Net interest loss after provision for loan losses is due to the negative carrying cost of our corporate liquidity portfolio. The decrease in the net interest loss is primarily a result of a decrease in the cost of funds of the debt funding the corporate liquidity portfolio.

Unallocated Shared Services Expenses

Unallocated shared services expenses are comprised of costs primarily related to information technology costs related to infrastructure and operations, stock-based compensation expense, accounting, finance, legal, compliance and risk management, regulatory-related expenses, human resources, certain executive management and the board of directors. Regulatory-related expenses include actual settlement amounts as well as third-party professional fees we incur in connection with such regulatory matters and are presented net of any insurance reimbursements for covered costs related to such matters. On an adjusted basis, expenses increased $4 million from the year-ago quarter. Adjusted expenses exclude $8 million and $(2) million, respectively, of regulatory-related expenses in the second quarters of 2021 and 2020. Regulatory expenses in the three months ended June 30, 2020 are net of $10 million, of insurance reimbursements for costs related to such matters.

See “Note 9 – Commitments, Contingencies and Guarantees” for a discussion of legal and regulatory matters where it is reasonably possible that a loss contingency exists. The Company is unable to anticipate the timing of a resolution or the impact that these matters may have on the Company’s consolidated financial position, liquidity, results of operation or cash flows. As a result, it is not possible at this time to estimate a range of potential exposure, if any, for amounts that may be payable in connection with these matters and reserves have not been established. It is possible that an adverse ruling or rulings may have a material adverse impact on the Company.  

Restructuring/Other Reorganization Expenses

During the second quarters of 2021 and 2020, the Company incurred $2 million and $1 million, respectively, of restructuring/other reorganization expenses in connection with an effort to reduce costs and improve operating efficiency. The charges were due primarily to facility lease terminations and severance-related costs.

20

Financial Condition

This section provides information regarding the balances, activity and credit performance metrics of our education loan portfolio.

Summary of Our Education Loan Portfolio

Ending Education Loan Balances, net 

	June 30, 2021
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans			Private Education Loans			Total Portfolio
Total education loan portfolio:
In-school(1)	$	24		$	—		$	24		$	17		$	41
Grace, repayment and other(2)		19,025			36,778			55,803			20,684			76,487
Total		19,049			36,778			55,827			20,701			76,528
Allowance for loan losses		(188	)		(89	)		(277	)		(976	)		(1,253	)
Total education loan portfolio	$	18,861		$	36,689		$	55,550		$	19,725		$	75,275
% of total FFELP		34	%		66	%		100	%
% of total		25	%		49	%		74	%		26	%		100	%

	December 31, 2020
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans			Private Education Loans			Total Portfolio
Total education loan portfolio:
In-school(1)	$	30		$	—		$	30		$	14		$	44
Grace, repayment and other(2)		19,771			38,771			58,542			22,154			80,696
Total		19,801			38,771			58,572			22,168			80,740
Allowance for loan losses		(194	)		(94	)		(288	)		(1,089	)		(1,377	)
Total education loan portfolio	$	19,607		$	38,677		$	58,284		$	21,079		$	79,363
% of total FFELP		34	%		66	%		100	%
% of total		25	%		49	%		74	%		26	%		100	%

	June 30, 2020
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans			Private Education Loans			Total Portfolio
Total education loan portfolio:
In-school(1)	$	35		$	—		$	35		$	14		$	49
Grace, repayment and other(2)		20,520			40,668			61,188			22,546			83,734
Total		20,555			40,668			61,223			22,560			83,783
Allowance for loan losses		(202	)		(100	)		(302	)		(1,098	)		(1,400	)
Total education loan portfolio	$	20,353		$	40,568		$	60,921		$	21,462		$	82,383
% of total FFELP		33	%		67	%		100	%
% of total		25	%		49	%		74	%		26	%		100	%

⁽¹⁾  Loans for customers still attending school and are not yet required to make payments on the loan.

⁽²⁾  Includes loans in deferment or forbearance.

21

Education Loan Activity

	Three Months Ended June 30, 2021
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans			Total Private Education Loans			Total Portfolio
Beginning balance	$	19,218		$	37,655		$	56,873		$	19,742		$	76,615
Acquisitions (originations and purchases)(1)		2			1			3			1,313			1,316
Capitalized interest and premium/discount    amortization		161			192			353			45			398
Refinancings and consolidations to third    parties		(232	)		(395	)		(627	)		(127	)		(754	)
Loan sales		—			—			—			(23	)		(23	)
Repayments and other		(288	)		(764	)		(1,052	)		(1,225	)		(2,277	)
Ending balance	$	18,861		$	36,689		$	55,550		$	19,725		$	75,275

	Three Months Ended June 30, 2020
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans			Total Private Education Loans			Total Portfolio
Beginning balance	$	20,900		$	41,592		$	62,492		$	22,338		$	84,830
Acquisitions (originations and purchases)(1)		4			4			8			241			249
Capitalized interest and premium/discount    amortization		120			132			252			60			312
Refinancings and consolidations to third    parties		(245	)		(347	)		(592	)		(150	)		(742	)
Repayments and other		(426	)		(813	)		(1,239	)		(1,027	)		(2,266	)
Ending balance	$	20,353		$	40,568		$	60,921		$	21,462		$	82,383

	Six Months Ended June 30, 2021
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans			Total Private Education Loans			Total Portfolio
Beginning balance	$	19,607		$	38,677		$	58,284		$	21,079		$	79,363
Acquisitions (originations and purchases)(1)		4			3			7			3,043			3,050
Capitalized interest and premium/discount    amortization		353			401			754			90			844
Refinancings and consolidations to third    parties		(480	)		(827	)		(1,307	)		(266	)		(1,573	)
Loan sales		—			—			—			(1,488	)		(1,488	)
Repayments and other		(623	)		(1,565	)		(2,188	)		(2,733	)		(4,921	)
Ending balance	$	18,861		$	36,689		$	55,550		$	19,725		$	75,275

	Six Months Ended June 30, 2020
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans			Total Private Education Loans			Total Portfolio
Beginning balance	$	21,723		$	42,852		$	64,575		$	22,245		$	86,820
Acquisitions (originations and purchases)(1)		10			9			19			2,151			2,170
Capitalized interest and premium/discount    amortization		307			319			626			131			757
Refinancings and consolidations to third    parties		(517	)		(667	)		(1,184	)		(302	)		(1,486	)
Repayments and other		(1,170	)		(1,945	)		(3,115	)		(2,763	)		(5,878	)
Ending balance	$	20,353		$	40,568		$	60,921		$	21,462		$	82,383

⁽¹⁾ Includes the origination of $407 million and $94 million of Private Education Refinance Loans in the second quarters of 2021 and 2020, and $1.0 billion and $415 million in the six months ended of 2021 and 2020, respectively, that refinanced FFELP and Private Education Loans that were on our balance sheet.

22

FFELP Loan Portfolio Performance

	June 30, 2021						December 31, 2020						June 30, 2020
(Dollars in millions)	Balance			%			Balance			%			Balance			%
Loans in-school/grace/deferment(1)	$	2,576					$	2,791					$	3,130
Loans in forbearance(2)		7,397						7,725						15,453
Loans in repayment and percentage of each status:
Loans current		42,026			91.7	%		43,623			90.8	%		39,152			91.8	%
Loans delinquent 31-60 days(3)		1,398			3.0			1,374			2.9			1,222			2.9
Loans delinquent 61-90 days(3)		685			1.5			836			1.7			657			1.5
Loans delinquent greater than 90 days(3)		1,745			3.8			2,223			4.6			1,609			3.8
Total FFELP Loans in repayment		45,854			100	%		48,056			100	%		42,640			100	%
Total FFELP Loans		55,827						58,572						61,223
FFELP Loan allowance for losses		(277	)					(288	)					(302	)
FFELP Loans, net	$	55,550					$	58,284					$	60,921
Percentage of FFELP Loans in repayment					82.1	%					82.0	%					69.6	%
Delinquencies as a percentage of FFELP Loans in    repayment					8.3	%					9.2	%					8.2	%
FFELP Loans in forbearance as a percentage of    loans in repayment and forbearance					13.9	%					13.8	%					26.6	%

⁽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 payments due to hardship or other factors such as disaster relief, including COVID-19 relief programs, 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.

23

Private Education Loan Portfolio Performance

	June 30, 2021						December 31, 2020						June 30, 2020
(Dollars in millions)	Balance			%			Balance			%			Balance			%
Loans in-school/grace/deferment(1)	$	403					$	483					$	512
Loans in forbearance(2)		606						844						1,847
Loans in repayment and percentage of each status:
Loans current		19,187			97.4	%		20,287			97.4	%		19,775			98.0	%
Loans delinquent 31-60 days(3)		208			1.1			211			1.0			128			.6
Loans delinquent 61-90 days(3)		104			.5			126			.6			88			.4
Loans delinquent greater than 90 days(3)		193			1.0			217			1.0			210			1.0
Total Private Education Loans in repayment		19,692			100	%		20,841			100	%		20,201			100	%
Total Private Education Loans		20,701						22,168						22,560
Private Education Loan allowance for losses		(976	)					(1,089	)					(1,098	)
Private Education Loans, net	$	19,725					$	21,079					$	21,462
Percentage of Private Education Loans in    repayment					95.1	%					94.0	%					89.5	%
Delinquencies as a percentage of Private Education    Loans in repayment					2.6	%					2.6	%					2.0	%
Loans in forbearance as a percentage of loans in    repayment and forbearance					3.0	%					3.9	%					8.4	%
Percentage of Private Education Loans with a    cosigner(4)					39	%					41	%					43	%

⁽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, including COVID-19 relief programs, 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.

⁽⁴⁾  Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 65% for all periods presented.

24

Allowance for Loan Losses

	Three Months Ended June 30,
	2021									2020
(Dollars in millions)	FFELP Loans			Private Education Loans			Total			FFELP Loans			Private Education Loans			Total
Allowance at beginning of period	$	282		$	992		$	1,274		$	311		$	1,083		$	1,394
Provision:
Reversal of allowance related to loan sales(1)		—			(5	)		(5	)		—			—			—
Remaining provision		—			4			4			3			41			44
Total provision		—			(1	)		(1	)		3			41			44
Charge-offs(2)		(5	)		(35	)		(40	)		(12	)		(48	)		(60	)
Decrease in expected future recoveries on    charged-off loans(3)		—			20			20			—			22			22
Allowance at end of period		277			976			1,253			302			1,098			1,400
Plus: expected future recoveries on charged-off    loans(3)		—			434			434			—			549			549
Allowance at end of period excluding expected future    recoveries on charged-off loans(4)	$	277		$	1,410		$	1,687		$	302		$	1,647		$	1,949
Charge-offs as a percentage of average loans in    repayment (annualized)		.04	%		.71	%					.11	%		.97	%
Allowance coverage of charge-offs (annualized)(4)		15.5			10.0						6.3			8.6
Allowance as a percentage of the ending total loan    balance(4)		.5	%		6.8	%					.5	%		7.3	%
Allowance as a percentage of ending loans in    repayment(4)		.6	%		7.2	%					.7	%		8.2	%
Ending total loans	$	55,827		$	20,701					$	61,223		$	22,560
Average loans in repayment	$	46,348		$	19,667					$	44,144		$	19,731
Ending loans in repayment	$	45,854		$	19,692					$	42,640		$	20,201

⁽¹⁾ In connection with the sale of approximately $30 million of Private Education Loans in second-quarter 2021. See “Consumer Lending Segment" for a further discussion.

⁽²⁾ Charge-offs are reported net of expected recoveries. For Private Education Loans, at the time of charge-off, the expected recovery amount is transferred from the education loan balance to the allowance for loan loss and is referred to as the “expected future recoveries on charged-off loans.” For FFELP Loans, the recovery is received at the time of charge-off.

⁽³⁾ At the end of each month, for Private Education 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 as the expected future recoveries on 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 expected future recoveries on charged-off 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. The following table summarizes the activity in the expected future recoveries on charged-off loans:

	Three Months Ended June 30,
(Dollars in millions)	2021			2020
Receivable at beginning of period	$	454		$	571
Expected future recoveries of current period defaults		5			9
Recoveries		(22	)		(28	)
Charge-offs		(3	)		(3	)
Receivable at end of period	$	434		$	549
Change in balance during period	$	(20	)	$	(22	)

⁽⁴⁾ The allowance used for these metrics excludes the expected future recoveries on charged-off loans to better reflect the current expected credit losses remaining in the portfolio.

25

	Six Months Ended June 30,
	2021									2020
(Dollars in millions)	FFELP Loans			Private Education Loans			Total			FFELP Loans			Private Education Loans			Total
Allowance at beginning of period	$	288		$	1,089		$	1,377		$	64		$	1,048		$	1,112
Transition adjustment made under CECL on    January 1, 2020(1)		—			—			—			260			(3	)		257
Allowance at beginning of period after transition    adjustment to CECL		288			1,089			1,377			324			1,045			1,369
Provision:
Reversal of allowance related to loan sales(2)		—			(107	)		(107	)		—			—			—
Remaining provision		—			19			19			9			130			139
Total provision		—			(88	)		(88	)		9			130			139
Total charge-offs(3)		(11	)		(70	)		(81	)		(31	)		(116	)		(147	)
Decrease in expected future recoveries on    charged-off loans(4)		—			45			45			—			39			39
Ending balance		277			976			1,253			302			1,098			1,400
Plus: expected future recoveries on charged-off    loans(4)		—			434			434			—		$	549			549
Allowance at end of period excluding expected future    recoveries on charged-off loans(5)	$	277		$	1,410		$	1,687		$	302		$	1,647		$	1,949
Charge-offs as a percentage of average loans in    repayment (annualized)		.05	%		.70	%					.13	%		1.13	%
Allowance coverage of charge-offs (annualized)(5)		12.5			10.0						4.8			7.1
Allowance as a percentage of ending total loans(5)		.5	%		6.8	%					.5	%		7.3	%
Allowance as a percentage of ending loans in    repayment(5)		.6	%		7.2	%					.7	%		8.2	%
Ending total loans	$	55,827		$	20,701					$	61,223		$	22,560
Average loans in repayment	$	46,694		$	20,272					$	48,302		$	20,666
Ending loans in repayment	$	45,854		$	19,692					$	42,640		$	20,201

⁽¹⁾  For a further discussion of our adoption of CECL, see “Note 2 – Significant Accounting Policies” in our 2020 Annual Report on Form 10-K.

⁽²⁾  In connection with the sale of approximately $1.6 billion of Private Education Loans in 2021.

⁽³⁾  Charge-offs are reported net of expected recoveries. For Private Education Loans, at the time of charge-off, the expected recovery amount is transferred from the education loan balance to the allowance for loan loss and is referred to as the “expected future recoveries on charged-off loans.” For FFELP Loans, the recovery is received at the time of charge-off.

⁽⁴⁾  At the end of each month, for Private Education 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 as the expected future recoveries on 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 expected future recoveries on charged-off 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. The following table summarizes the activity in the expected future recoveries on charged-off loans.

	Six Months Ended June 30,
(Dollars in millions)	2021			2020
Receivable at beginning of period	$	479		$	588
Expected future recoveries of current period defaults		10			22
Recoveries		(47	)		(57	)
Charge-offs		(8	)		(4	)
Receivable at end of period	$	434		$	549
Change in balance during period	$	(45	)	$	(39	)

⁽⁵⁾  The allowance used for these metrics excludes the expected future recoveries on charged-off loans to better reflect the current expected credit losses remaining in the portfolio.

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Liquidity and Capital Resources

Funding and Liquidity Risk Management

The following “Liquidity and Capital Resources” discussion concentrates primarily on our Federal Education Loans and Consumer Lending segments. Our Business Processing and Other segments require minimal liquidity and funding. See “Navient’s Response to COVID-19” for a discussion of COVID-19’s impact on liquidity and capital resources.

We define liquidity as cash and high-quality liquid assets that we can use to meet our cash requirements. Our two primary liquidity needs are: (1) servicing our debt and (2) our ongoing ability to meet our cash needs for running the operations of our businesses (including derivative collateral requirements) throughout market cycles, including during periods of financial stress. Secondary liquidity needs, which can be adjusted as needed, include the origination of Private Education Loans, acquisitions of Private Education Loan and FFELP Loan portfolios, acquisitions of companies, the payment of common stock dividends and the repurchase of our common stock. To achieve these objectives, we analyze and monitor our liquidity needs and maintain excess liquidity and access to diverse funding sources including the issuance of unsecured debt and the issuance of secured debt primarily through asset-backed securitizations and/or other financing facilities.

We define our liquidity risk as the potential inability to meet our obligations when they become due without incurring unacceptable losses or to invest in future asset growth and business operations at reasonable market rates. Our primary liquidity risk relates to our ability to service our debt, meet our other business obligations and to continue to grow our business. The ability to access the capital markets is impacted by general market and economic conditions, our credit ratings, as well as the overall availability of funding sources in the marketplace. In addition, credit ratings may be important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions, including over-the-counter derivatives.

Credit ratings and outlooks are opinions subject to ongoing review by the ratings agencies and may change, from time to time, based on our financial performance, industry and market dynamics and other factors. Other factors that influence our credit ratings include the ratings agencies’ assessment of the general operating environment, our relative positions in the markets in which we compete, reputation, liquidity position, the level and volatility of earnings, corporate governance and risk management policies, capital position and capital management practices. A negative change in our credit rating could have a negative effect on our liquidity because it might raise the cost and availability of funding and potentially require additional cash collateral or restrict cash currently held as collateral on existing borrowings or derivative collateral arrangements. It is our objective to improve our credit ratings so that we can continue to efficiently access the capital markets even in difficult economic and market conditions. We have unsecured debt totaling $8.1 billion at June 30, 2021. Three credit rating agencies currently rate our long-term unsecured debt at below investment grade.

We expect to fund our ongoing liquidity needs, including the repayment of $1.6 billion of senior unsecured notes that mature in the short term (i.e., over the next 12 months, of which $750 million was retired in July 2021) and the remaining $6.5 billion of senior unsecured notes that mature in the long term (from 2023 to 2043 with 82% maturing by 2029), primarily through our current cash, investments and unencumbered FFELP Loan and Private Education Refinance Loan portfolios (see “Sources of Liquidity” below), the predictable operating cash flows provided by operating activities ($333 million in the six months ended June 30, 2021), the repayment of principal on unencumbered education loan assets, and the distribution of overcollateralization from our securitization trusts. We may also, depending on market conditions and availability, draw down on our secured FFELP Loan and Private Education Loan facilities, issue term ABS, enter into additional Private Education Loan ABS repurchase facilities, or issue additional unsecured debt.

We originate Private Education Loans. We also have purchased and may purchase, in future periods, Private Education Loan and FFELP Loan portfolios from third parties. Those originations and purchases are part of our ongoing liquidity needs. We purchased 11.8 million shares of common stock for $200 million in second-quarter 2021. We had $300 million of remaining share repurchase authority as of June 30, 2021.

27

Sources of Primary Liquidity

(Dollars in millions)	June 30, 2021		December 31, 2020		June 30, 2020
Ending Balances:
Total unrestricted cash and liquid investments	$	1,453	$	1,183	$	1,632
Unencumbered FFELP Loans		309		208		266
Unencumbered Private Education Refinance    Loans		574		274		481
Total	$	2,336	$	1,665	$	2,379

	Three Months Ended						Six Months Ended
(Dollars in millions)	June 30, 2021		December 31, 2020		June 30, 2020		June 30, 2021		June 30, 2020
Average Balances:
Total unrestricted cash and liquid investments	$	1,254	$	1,365	$	1,315	$	1,226	$	1,232
Unencumbered FFELP Loans		320		387		225		298		281
Unencumbered Private Education Refinance    Loans		688		572		422		720		558
Total	$	2,262	$	2,324	$	1,962	$	2,244	$	2,071

Sources of Additional Liquidity

Liquidity may also be available under our secured credit facilities. Maximum borrowing capacity under the FFELP Loan and Private Education Loan asset-backed commercial paper (ABCP) facilities will vary and be subject to each agreement’s borrowing conditions, including, among others, facility size, current usage and availability of qualifying collateral from unencumbered loans. The following tables detail additional borrowing capacity of these facilities with maturity dates ranging from October 2021 to June 2023.

(Dollars in millions)	June 30, 2021		December 31, 2020		June 30, 2020
Ending Balances
FFELP Loan ABCP facilities	$	530	$	506	$	242
Private Education Loan ABCP facilities		2,405		2,221		1,969
Total	$	2,935	$	2,727	$	2,211

	Three Months Ended						Six Months Ended
(Dollars in millions)	June 30, 2021		December 31, 2020		June 30, 2020		June 30, 2021		June 30, 2020
Average Balances
FFELP Loan ABCP facilities	$	577	$	542	$	256	$	616	$	554
Private Education Loan ABCP facilities		2,423		2,138		1,132		2,422		1,009
Total	$	3,000	$	2,680	$	1,388	$	3,038	$	1,563

At June 30, 2021, we had a total of $5.6 billion of unencumbered tangible assets inclusive of those listed in the table above as sources of primary liquidity. Total unencumbered education loans comprised $2.6 billion principal of our unencumbered tangible assets of which $2.3 billion and $309 million related to Private Education Loans and FFELP Loans, respectively. In addition, as of June 30, 2021, we had $5.5 billion of encumbered net assets (i.e., overcollateralization) in our various financing facilities (consolidated variable interest entities). Our secured financing facilities include Private Education Loan ABS Repurchase Facilities, which had $0.8 billion outstanding as of June 30, 2021. These repurchase facilities are collateralized by Residual Interests in previously issued Private Education Loan ABS trusts. These are examples of how we can effectively finance previously encumbered assets to generate additional liquidity in addition to the unencumbered assets we traditionally have encumbered in the past. Additionally, these repurchase facilities had a cost of funds lower than that of a new unsecured debt issuance.

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The following table reconciles encumbered and unencumbered assets and their net impact on total Tangible Equity.

(Dollars in billions)	June 30, 2021			December 31, 2020
Net assets of consolidated variable interest entities    (encumbered assets) — FFELP Loans	$	3.8			3.9
Net assets of consolidated variable interest entities    (encumbered assets) — Private Education Loans		1.7			2.1
Tangible unencumbered assets(1)		5.6			5.4
Senior unsecured debt		(8.1	)		(8.4	)
Mark-to-market on unsecured hedged debt(2)		(.5	)		(.7	)
Other liabilities, net		(.5	)		(.6	)
Total Tangible Equity (1)	$	2.0		$	1.7

⁽¹⁾  Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”

⁽²⁾  At June 30, 2021 and December 31, 2020, there were $459 million and $634 million, respectively, of net gains (losses) on derivatives hedging this debt in unencumbered assets, which partially offset these gains (losses).

Borrowings

Ending Balances

	June 30, 2021						December 31, 2020
(Dollars in millions)	Short Term		Long Term		Total		Short Term		Long Term		Total
Unsecured borrowings:
Senior unsecured debt	$	1,658	$	6,465	$	8,123	$	677	$	7,714	$	8,391
Total unsecured borrowings		1,658		6,465		8,123		677		7,714		8,391
Secured borrowings:
FFELP Loan securitizations		—		54,000		54,000		—		54,697		54,697
Private Education Loan securitizations		832		13,154		13,986		960		13,891		14,851
FFELP Loan ABCP facilities		—		462		462		2,053		479		2,532
Private Education Loan ABCP facilities		1,194		1,259		2,453		2,582		—		2,582
Other		354		—		354		337		—		337
Total secured borrowings		2,380		68,875		71,255		5,932		69,067		74,999
Core Earnings basis borrowings(1)		4,038		75,340		79,378		6,609		76,781		83,390
Adjustment for GAAP accounting treatment		30		474		504		4		551		555
GAAP basis borrowings	$	4,068	$	75,814	$	79,882	$	6,613	$	77,332	$	83,945

Average Balances

	Three Months Ended June 30,										Six Months Ended June 30,
	2021					2020					2021					2020
(Dollars in millions)	Average Balance		Average Rate			Average Balance		Average Rate			Average Balance		Average Rate			Average Balance		Average Rate
Unsecured borrowings:
Senior unsecured debt	$	8,195		4.48	%	$	9,485		4.95	%	$	8,434		4.54	%	$	9,652		5.48	%
Total unsecured borrowings		8,195		4.48			9,485		4.95			8,434		4.54			9,652		5.48
Secured borrowings:
FFELP Loan securitizations		54,524		1.27			57,340		1.66			54,529		1.28			58,165		2.16
Private Education Loan securitizations		13,856		2.48			13,756		2.91			14,248		2.51			13,798		3.17
FFELP Loan ABCP facilities		702		1.80			3,415		1.53			1,369		1.57			3,401		2.09
Private Education Loan ABCP facilities		2,290		2.00			3,864		2.61			2,322		2.04			3,685		2.79
Other		318		.28			355		.29			300		.30			348		1.05
Total secured borrowings		71,690		1.53			78,730		1.91			72,768		1.54			79,397		2.35
Core Earnings basis borrowings(1)		79,885		1.83			88,215		2.24			81,202		1.86			89,049		2.69
Adjustment for GAAP accounting treatment		—		(.13	)		—		.13			—		(.20	)		—		.10
GAAP basis borrowings	$	79,885		1.70	%	$	88,215		2.37	%	$	81,202		1.66	%	$	89,049		2.79	%

⁽¹⁾  Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.” The differences in derivative accounting give rise to the difference above.

29

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). A discussion of our critical accounting policies, which includes the allowance for loan losses, goodwill, and premium and discount amortization, can be found in our 2020 Form 10-K. There were no significant changes to these critical accounting policies during the six months ended June 30, 2021.

Non-GAAP Financial Measures

In addition to financial results reported on a GAAP basis, Navient also provides certain performance measures which are non-GAAP financial measures.  We present the following non-GAAP financial measures: (1) Core Earnings, (2) Adjusted Tangible Equity Ratio and (3) EBITDA for the Business Processing segment.

1.   Core Earnings

We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate our business segments and present financial results on a basis that differs from GAAP. We refer to this different basis of presentation as Core Earnings. We provide this Core Earnings basis of presentation on a consolidated basis and for each business segment because this is what we review internally when making management decisions regarding our performance and how we allocate resources. We also refer to this information in our presentations with credit rating agencies, lenders and investors. Because our Core Earnings basis of presentation corresponds to our segment financial presentations, we are required by GAAP to provide certain Core Earnings disclosures in the notes to our consolidated financial statements for our business segments.

Core Earnings are not a substitute for reported results under GAAP. We use Core Earnings to manage our business segments because Core Earnings reflect adjustments to GAAP financial results for two items, discussed below, that can create significant volatility mostly due to timing factors generally beyond the control of management. Accordingly, we believe that Core Earnings provide management with a useful basis from which to better evaluate results from ongoing operations against the business plan or against results from prior periods. Consequently, we disclose this information because we believe it provides investors with additional information regarding the operational and performance indicators that are most closely assessed by management. When compared to GAAP results, the two items we remove to result in our Core Earnings presentations are:

(1) Mark-to-market gains/losses resulting from our use of derivative instruments to hedge our economic risks that do not qualify for hedge accounting treatment or do qualify for hedge accounting treatment but result in ineffectiveness; and

(2) The accounting for goodwill and acquired intangible assets.

While GAAP provides a uniform, comprehensive basis of accounting, for the reasons described above, our Core Earnings basis of presentation does not. Core Earnings are subject to certain general and specific limitations that investors should carefully consider. For example, there is no comprehensive, authoritative guidance for management reporting. Our Core Earnings are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. Accordingly, our Core Earnings presentation does not represent a comprehensive basis of accounting. Investors, therefore, may not be able to compare our performance with that of other financial services companies based upon Core Earnings. Core Earnings results are only meant to supplement GAAP results by providing additional information regarding the operational and performance indicators that are most closely used by management, our board of directors, credit rating agencies, lenders and investors to assess performance.

30

The following tables show Core Earnings for each reportable segment and our business as a whole along with the adjustments made to the income/expense items to reconcile the amounts to our reported GAAP results as required by GAAP and reported in “Note 12 — Segment Reporting.”

	Three Months Ended June 30, 2021
														Adjustments
(Dollars in millions)	Federal Education Loans		Consumer Lending			Business Processing		Other			Total Core Earnings			Reclassi- fications			Additions/ (Subtractions)			Total Adjustments(1)			Total GAAP
Interest income:
Education loans	$	351	$	295		$	—	$	—		$	646		$	24		$	(10	)	$	14		$	660
Cash and investments		—		—			—		1			1			—			—			—			1
Total interest income		351		295			—		1			647			24			(10	)		14			661
Total interest expense		210		137			—		18			365			(2	)		(24	)		(26	)		339
Net interest income (loss)		141		158			—		(17	)		282			26			14			40			322
Less: provisions for loan losses		—		(1	)		—		—			(1	)		—			—			—			(1	)
Net interest income (loss) after    provisions for loan losses		141		159			—		(17	)		283			26			14			40			323
Other income (loss):
Servicing revenue		47		3			—		—			50			—			—			—			50
Asset recovery and business    processing revenue		12		—			130		—			142			—			—			—			142
Other income (loss)		2		—			—		2			4			(26	)		16			(10	)		(6	)
Gains on sales of loans		—		2			—		—			2			—			—			—			2
Losses on debt repurchases		—		—			—		(12	)		(12	)		—			—			—			(12	)
Total other income (loss)		61		5			130		(10	)		186			(26	)		16			(10	)		176
Expenses:
Direct operating expenses		55		39			92		—			186			—			—			—			186
Unallocated shared services    expenses		—		—			—		66			66			—			—			—			66
Operating expenses		55		39			92		66			252			—			—			—			252
Goodwill and acquired intangible    asset impairment and    amortization		—		—			—		—			—			—			5			5			5
Restructuring/other reorganization    expenses		—		—			—		2			2			—			—			—			2
Total expenses		55		39			92		68			254			—			5			5			259
Income (loss) before income tax    expense (benefit)		147		125			38		(95	)		215			—			25			25			240
Income tax expense (benefit)(2)		34		29			9		(22	)		50			—			5			5			55
Net income (loss)	$	113	$	96		$	29	$	(73	)	$	165		$	—		$	20		$	20		$	185

⁽¹⁾  Core Earnings adjustments to GAAP:  

	Three Months Ended June 30, 2021
(Dollars in millions)	Net Impact of Derivative Accounting			Net Impact of Goodwill and Acquired Intangibles			Total
Net interest income (loss) after provisions for loan losses	$	40		$	—		$	40
Total other income (loss)		(10	)		—			(10	)
Goodwill and acquired intangible asset impairment and amortization		—			5			5
Total Core Earnings adjustments to GAAP	$	30		$	(5	)		25
Income tax expense (benefit)								5
Net income (loss)							$	20

⁽²⁾  Income taxes are based on a percentage of net income before tax for the individual reportable segment.

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	Three Months Ended June 30, 2020
												Adjustments
(Dollars in millions)	Federal Education Loans		Consumer Lending		Business Processing		Other			Total Core Earnings		Reclassi- fications			Additions/ (Subtractions)			Total Adjustments(1)			Total GAAP
Interest income:
Education loans	$	456	$	362	$	—	$	—		$	818	$	13		$	(14	)	$	(1	)	$	817
Cash and investments		1		—		—		1			2		—			—			—			2
Total interest income		457		362		—		1			820		13			(14	)		(1	)		819
Total interest expense		286		174		—		31			491		25			3			28			519
Net interest income (loss)		171		188		—		(30	)		329		(12	)		(17	)		(29	)		300
Less: provisions for loan losses		3		41		—		—			44		—			—			—			44
Net interest income (loss) after    provisions for loan losses		168		147		—		(30	)		285		(12	)		(17	)		(29	)		256
Other income (loss):
Servicing revenue		51		1		—		—			52		—			—			—			52
Asset recovery and business    processing revenue		38		—		64		—			102		—			—			—			102
Other income (loss)		5		—		—		4			9		12			(42	)		(30	)		(21	)
Total other income (loss)		94		1		64		4			163		12			(42	)		(30	)		133
Expenses:
Direct operating expenses		70		34		57		—			161		—			—			—			161
Unallocated shared services expenses		—		—		—		52			52		—			—			—			52
Operating expenses		70		34		57		52			213		—			—			—			213
Goodwill and acquired intangible asset    impairment and amortization		—		—		—		—			—		—			5			5			5
Restructuring/other reorganization    expenses		—		—		—		1			1		—			—			—			1
Total expenses		70		34		57		53			214		—			5			5			219
Income (loss) before income tax    expense (benefit)		192		114		7		(79	)		234		—			(64	)		(64	)		170
Income tax expense (benefit)(2)		46		27		1		(19	)		55		—			(10	)		(10	)		45
Net income (loss)	$	146	$	87	$	6	$	(60	)	$	179	$	—		$	(54	)	$	(54	)	$	125

⁽¹⁾  Core Earnings adjustments to GAAP:  

	Three Months Ended June 30, 2020
(Dollars in millions)	Net Impact of Derivative Accounting			Net Impact of Goodwill and Acquired Intangibles			Total
Net interest income (loss) after provisions for loan losses	$	(29	)	$	—		$	(29	)
Total other income (loss)		(30	)		—			(30	)
Goodwill and acquired intangible asset impairment and amortization		—			5			5
Total Core Earnings adjustments to GAAP	$	(59	)	$	(5	)		(64	)
Income tax expense (benefit)								(10	)
Net income (loss)							$	(54	)

⁽²⁾  Income taxes are based on a percentage of net income before tax for the individual reportable segment.

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	Six Months Ended June 30, 2021
														Adjustments
(Dollars in millions)	Federal Education Loans		Consumer Lending			Business Processing		Other			Total Core Earnings			Reclassi- fications			Additions/ (Subtractions)			Total Adjustments(1)			Total GAAP
Interest income:
Education loans	$	709	$	614		$	—	$	—		$	1,323		$	48		$	(20	)	$	28		$	1,351
Cash and investments		—		—			—		1			1			—			—			—			1
Total interest income		709		614			—		1			1,324			48			(20	)		28			1,352
Total interest expense		424		287			—		36			747			(3	)		(77	)		(80	)		667
Net interest income (loss)		285		327			—		(35	)		577			51			57			108			685
Less: provisions for loan losses		—		(88	)		—		—			(88	)		—			—			—			(88	)
Net interest income (loss) after    provisions for loan losses		285		415			—		(35	)		665			51			57			108			773
Other income (loss):
Servicing revenue		99		3			—		—			102			—			—			—			102
Asset recovery and business    processing revenue		26		—			255		—			281			—			—			—			281
Other income (loss)		2		1			—		2			5			(38	)		64			26			31
Gains on sales of loans		—		91			—		—			91			(13	)		—			(13	)		78
Losses on debt repurchases		—		—			—		(12	)		(12	)		—			—			—			(12	)
Total other income (loss)		127		95			255		(10	)		467			(51	)		64			13			480
Expenses:
Direct operating expenses		117		79			183		—			379			—			—			—			379
Unallocated shared services expenses		—		—			—		131			131			—			—			—			131
Operating expenses		117		79			183		131			510			—			—			—			510
Goodwill and acquired intangible    asset impairment and amortization		—		—			—		—			—			—			10			10			10
Restructuring/other reorganization    expenses		—		—			—		8			8			—			—			—			8
Total expenses		117		79			183		139			518			—			10			10			528
Income (loss) before income tax    expense (benefit)		295		431			72		(184	)		614			—			111			111			725
Income tax expense (benefit)(2)		70		101			17		(43	)		145			—			25			25			170
Net income (loss)	$	225	$	330		$	55	$	(141	)	$	469		$	—		$	86		$	86		$	555

⁽¹⁾  Core Earnings adjustments to GAAP:  

	Six Months Ended June 30, 2021
(Dollars in millions)	Net Impact of Derivative Accounting		Net Impact of Goodwill and Acquired Intangibles			Total
Net interest income (loss) after provisions for loan losses	$	108	$	—		$	108
Total other income (loss)		13		—			13
Goodwill and acquired intangible asset impairment and amortization		—		10			10
Total Core Earnings adjustments to GAAP	$	121	$	(10	)		111
Income tax expense (benefit)							25
Net income (loss)						$	86

⁽²⁾  Income taxes are based on a percentage of net income before tax for the individual reportable segment.

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	Six Months Ended June 30, 2020
												Adjustments
(Dollars in millions)	Federal Education Loans		Consumer Lending		Business Processing		Other			Total Core Earnings		Reclassi- fications			Additions/ (Subtractions)			Total Adjustments(1)			Total GAAP
Interest income:
Education loans	$	1,037	$	767	$	—	$	—		$	1,804	$	16		$	(28	)	$	(12	)	$	1,792
Cash and investments		7		3		—		5			15		—			—			—			15
Total interest income		1,044		770		—		5			1,819		16			(28	)		(12	)		1,807
Total interest expense		742		385		—		66			1,193		32			9			41			1,234
Net interest income (loss)		302		385		—		(61	)		626		(16	)		(37	)		(53	)		573
Less: provisions for loan losses		9		130		—		—			139		—			—			—			139
Net interest income (loss) after    provisions for loan losses		293		255		—		(61	)		487		(16	)		(37	)		(53	)		434
Other income (loss):
Servicing revenue		106		3		—		—			109		—			—			—			109
Asset recovery and business    processing revenue		90		—		122		—			212		—			—			—			212
Other income (loss)		9		—		—		8			17		16			(269	)		(253	)		(236	)
Total other income (loss)		205		3		122		8			338		16			(269	)		(253	)		85
Expenses:
Direct operating expenses		153		72		111		—			336		—			—			—			336
Unallocated shared services    expenses		—		—		—		127			127		—			—			—			127
Operating expenses		153		72		111		127			463		—			—			—			463
Goodwill and acquired intangible    asset impairment and amortization		—		—		—		—			—		—			11			11			11
Restructuring/other reorganization    expenses		—		—		—		6			6		—			—			—			6
Total expenses		153		72		111		133			469		—			11			11			480
Income (loss) before income tax    expense (benefit)		345		186		11		(186	)		356		—			(317	)		(317	)		39
Income tax expense (benefit)(2)		82		43		3		(44	)		84		—			(64	)		(64	)		20
Net income (loss)	$	263	$	143	$	8	$	(142	)	$	272	$	—		$	(253	)	$	(253	)	$	19

⁽¹⁾  Core Earnings adjustments to GAAP:  

	Six Months Ended June 30, 2020
(Dollars in millions)	Net Impact of Derivative Accounting			Net Impact of Goodwill and Acquired Intangibles			Total
Net interest income (loss) after provisions for loan losses	$	(53	)	$	—		$	(53	)
Total other income (loss)		(253	)		—			(253	)
Goodwill and acquired intangible asset impairment and amortization		—			11			11
Total Core Earnings adjustments to GAAP	$	(306	)	$	(11	)		(317	)
Income tax expense (benefit)								(64	)
Net income (loss)							$	(253	)

⁽²⁾  Income taxes are based on a percentage of net income before tax for the individual reportable segment.

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The following discussion summarizes the differences between Core Earnings and GAAP net income and details each specific adjustment required to reconcile our Core Earnings segment presentation to our GAAP earnings.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in millions)	2021			2020			2021			2020
Core Earnings net income	$	165		$	179		$	469		$	272
Core Earnings adjustments to GAAP:
Net impact of derivative accounting		30			(59	)		121			(306	)
Net impact of goodwill and acquired intangible assets		(5	)		(5	)		(10	)		(11	)
Net income tax effect		(5	)		10			(25	)		64
Total Core Earnings adjustments to GAAP		20			(54	)		86			(253	)
GAAP net income	$	185		$	125		$	555		$	19

(1) Derivative Accounting: Core Earnings exclude periodic gains and losses that are caused by the mark-to-market valuations on derivatives that do not qualify for hedge accounting treatment under GAAP, as well as the periodic mark-to-market gains and losses that are a result of ineffectiveness recognized related to effective hedges under GAAP. Under GAAP, for our derivatives that are held to maturity, the mark-to-market gain or loss over the life of the contract will equal $0 except for Floor Income Contracts, where the mark-to-market gain will equal the amount for which we originally sold the contract. In our Core Earnings presentation, we recognize the economic effect of these hedges, which generally results in any net settlement cash paid or received being recognized ratably as an interest expense or revenue over the hedged item’s life.

The accounting for derivatives requires that changes in the fair value of derivative instruments be recognized currently in earnings, with no fair value adjustment of the hedged item, unless specific hedge accounting criteria are met. The gains and losses recorded in “Gains (losses) on derivative and hedging activities, net” and interest expense (for qualifying fair value hedges) are primarily caused by interest rate and foreign currency exchange rate volatility and changing credit spreads during the period as well as the volume and term of derivatives not receiving hedge accounting treatment. We believe that our derivatives are effective economic hedges, and as such, are a critical element of our interest rate and foreign currency risk management strategy. However, some of our derivatives, primarily Floor Income Contracts, basis swaps and at times, certain other LIBOR swaps do not qualify for hedge accounting treatment and the stand-alone derivative is adjusted to fair value in the income statement with no consideration for the corresponding change in fair value of the hedged item.

Our Floor Income Contracts are written options that must meet more stringent requirements than other hedging relationships to achieve hedge effectiveness. Specifically, our Floor Income Contracts do not qualify for hedge accounting treatment because the pay down of principal of the education loans underlying the Floor Income embedded in those education loans does not exactly match the change in the notional amount of our written Floor Income Contracts. Additionally, the term, the interest rate index, and the interest rate index reset frequency of the Floor Income Contract can be different than that of the education loans. Under derivative accounting treatment, the upfront contractual payment is deemed a liability and changes in fair value are recorded through income throughout the life of the contract. The change in the fair value of Floor Income Contracts is primarily caused by changing interest rates that cause the amount of Floor Income paid to the counterparties to vary. This is economically offset by the change in the amount of Floor Income earned on the underlying education loans but that offsetting change in fair value is not recognized. We believe the Floor Income Contracts are economic hedges because they effectively fix the amount of Floor Income earned over the contract period, thus eliminating the timing and uncertainty that changes in interest rates can have on Floor Income for that period. Therefore, for purposes of Core Earnings, we have removed the mark-to-market gains and losses related to these contracts and added back the amortization of the net contractual premiums received on the Floor Income Contracts. The amortization of the net contractual premiums received on the Floor Income Contracts for Core Earnings is reflected in education loan interest income. Under GAAP accounting, the premiums received on the Floor Income Contracts are recorded as revenue in the “gains (losses) on derivative and hedging activities, net” line item by the end of the contracts’ lives.

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Basis swaps are used to convert floating rate debt from one floating interest rate index to another to better match the interest rate characteristics of the assets financed by that debt. We primarily use basis swaps to hedge our education loan assets that are primarily indexed to LIBOR or Prime. The accounting for derivatives requires that when using basis swaps, the change in the cash flows of the hedge effectively offset both the change in the cash flows of the asset and the change in the cash flows of the liability. Our basis swaps hedge variable interest rate risk; however, they generally do not meet this effectiveness test because the index of the swap does not exactly match the index of the hedged assets as required for hedge accounting treatment. Additionally, some of our FFELP Loans can earn at either a variable or a fixed interest rate depending on market interest rates and therefore swaps economically hedging these FFELP Loans do not meet the criteria for hedge accounting treatment. As a result, under GAAP, these swaps are recorded at fair value with changes in fair value reflected currently in the income statement.

The table below quantifies the adjustments for derivative accounting between GAAP and Core Earnings net income.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in millions)	2021			2020			2021			2020
Core Earnings derivative adjustments:
Gains (losses) on derivative and hedging activities, net,    included in other income	$	(10	)	$	(30	)	$	26		$	(253	)
Plus: Gains (losses) on fair value hedging activity included    in interest expense		16			(6	)		61			(15	)
Total gains(losses)		6			(36	)		87			(268	)
Plus: Reclassification of settlement expense (income) on    derivative and hedging activities, net(1)		26			(12	)		38			(16	)
Mark-to-market gains (losses) on derivative and hedging    activities, net(2)		32			(48	)		125			(284	)
Amortization of net premiums on Floor Income Contracts in net    interest income for Core Earnings		(10	)		(14	)		(20	)		(28	)
Other derivative accounting adjustments(3)		8			3			16			6
Total net impact of derivative accounting	$	30		$	(59	)	$	121		$	(306	)

⁽¹⁾   Derivative accounting requires net settlement income/expense on derivatives that do not qualify as hedges to be recorded in a separate income statement line item below net interest income. Under our Core Earnings presentation, these settlements are reclassified to the income statement line item of the economically hedged item. For our Core Earnings net interest income, this would primarily include (a) reclassifying the net settlement amounts related to our Floor Income Contracts to education loan interest income and (b) reclassifying the net settlement amounts related to certain of our interest rate swaps to debt interest expense. The table below summarizes these net settlements on derivative and hedging activities and the associated reclassification on a Core Earnings basis.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in millions)	2021			2020			2021			2020
Reclassification of settlements on derivative and    hedging activities:
Net settlement expense on Floor Income Contracts    reclassified to net interest income	$	(24	)	$	(13	)	$	(48	)	$	(16	)
Net settlement income (expense) on interest rate    swaps reclassified to net interest income		(2	)		25			(3	)		32
Net realized gains (losses) on terminated derivative    contracts reclassified to other income		—			—			13			—
Total reclassifications of settlements on derivative    and hedging activities	$	(26	)	$	12		$	(38	)	$	16

⁽²⁾  “Mark-to-market gains (losses) on derivative and hedging activities, net” is comprised of the following:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in millions)	2021			2020			2021		2020
Floor Income Contracts	$	21		$	(10	)	$	58	$	(190	)
Basis swaps		(1	)		(21	)		4		12
Foreign currency hedges		15			6			45		16
Other		(3	)		(23	)		18		(122	)
Total mark-to-market gains (losses) on derivative and    hedging activities, net	$	32		$	(48	)	$	125	$	(284	)

⁽³⁾  Other derivative accounting adjustments consist of adjustments related to: (1) foreign currency denominated debt that is adjusted to spot foreign exchange rates for GAAP where such adjustments are reversed for Core Earnings and (2) certain terminated derivatives that did not receive hedge accounting treatment under GAAP but were economic hedges under Core Earnings and, as a result, such gains or losses are amortized into Core Earnings over the life of the hedged item.

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Cumulative Impact of Derivative Accounting under GAAP compared to Core Earnings

As of June 30, 2021, derivative accounting has decreased GAAP equity by approximately $459 million as a result of cumulative net mark-to-market losses (after tax) recognized under GAAP, but not in Core Earnings. The following table rolls forward the cumulative impact to GAAP equity due to these after-tax mark-to-market net gains and losses related to derivative accounting.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in millions)	2021			2020			2021			2020
Beginning impact of derivative accounting on GAAP    equity	$	(499	)	$	(629	)	$	(616	)	$	(235	)
Net impact of net mark-to-market gains (losses) under    derivative accounting(1)		40			(63	)		157			(457	)
Ending impact of derivative accounting on GAAP    equity	$	(459	)	$	(692	)	$	(459	)	$	(692	)

⁽¹⁾  Net impact of net mark-to-market gains (losses) under derivative accounting is composed of the following:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in millions)	2021			2020			2021			2020
Total pre-tax net impact of derivative accounting    recognized in net income(2)	$	30		$	(59	)	$	121		$	(306	)
Tax and other impacts of derivative accounting    adjustments		(7	)		13			(29	)		75
Change in mark-to-market gains (losses) on    derivatives, net of tax recognized in other    comprehensive income		17			(17	)		65			(226	)
Net impact of net mark-to-market gains (losses) under    derivative accounting	$	40		$	(63	)	$	157		$	(457	)

⁽²⁾  See “Core Earnings derivative adjustments” table above.

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Hedging Embedded Floor Income

Net Floor premiums received on Floor Income Contracts that have not been amortized into Core Earnings as of the respective period-ends are presented in the table below. These net premiums will be recognized in Core Earnings in future periods. As of June 30, 2021, the remaining term of the Floor Income Contracts was approximately 2 years. Historically, we have sold Floor Income Contracts on a periodic basis and depending upon market conditions and pricing, we may enter into additional Floor Income Contracts in the future. The balance of unamortized Floor Income Contracts will increase as we sell new contracts and decline due to the amortization of existing contracts.

In addition to using Floor Income Contracts, we also use pay-fixed interest rate swaps to hedge the embedded Floor Income within FFELP Loans. These interest rate swaps qualify as GAAP hedges and are accounted for as cash flow hedges of variable rate debt. For GAAP, gains and losses on these hedges are recorded in accumulated other comprehensive income. Hedged Floor Income from these cash flow hedges that has not been recognized into Core Earnings and GAAP as of the respective period-ends is presented in the table below. This hedged Floor Income will be recognized in Core Earnings and GAAP in future periods and is presented net of tax. As of June 30, 2021, the remaining term of these pay-fixed interest rate swaps was approximately 6 years. Historically, we have used pay-fixed interest rate swaps on a periodic basis to hedge embedded Floor Income and depending upon market conditions and pricing, we may enter into swaps in the future. The balance of unrecognized hedged Floor Income will increase as we enter into new swaps and decline as revenue is recognized

(Dollars in millions)	June 30, 2021		June 30, 2020
Unamortized net Floor premiums, net of tax	$	24	$	56
Unrecognized hedged Floor Income related to pay-fixed    interest rate swaps, net of tax		312		398
Total hedged Floor Income, net of tax(1)(2)	$	336	$	454

⁽¹⁾ $439 million and $593 million on a pre-tax basis as of June 30, 2021 and June 30, 2020, respectively.

⁽²⁾ Of the $336 million as of June 30, 2021, approximately $86 million, $118 million and $89 million will be recognized as part of Core Earnings net income in the remainder of 2021, 2022 and 2023, respectively.

(2) Goodwill and Acquired Intangible Assets: Our Core Earnings exclude goodwill and intangible asset impairment and the amortization of acquired intangible assets. The following table summarizes the goodwill and acquired intangible asset adjustments.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in millions)	2021			2020			2021			2020
Core Earnings goodwill and acquired intangible    asset adjustments	$	(5	)	$	(5	)	$	(10	)	$	(11	)

Adjusted Core Earnings

Adjusted Core Earnings net income and adjusted Core Earnings operating expenses exclude restructuring and regulatory-related expenses. Management excludes these expenses as it is one of the measures we review internally when making management decisions regarding our performance and how we allocate resources, as this presentation is a useful basis for management and investors to further analyze Core Earnings. We also refer to this information in our presentations with credit rating agencies, lenders and investors.

The following table summarizes these expenses which are excluded:

	Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in millions)	2021		2020			2021		2020
Restructuring/other reorganization expenses	$	2	$	1		$	8	$	6
Regulatory-related expenses(1)		8		(2	)		16		5
Total	$	10	$	(1	)	$	24	$	11

(1) Net of $10 million of insurance reimbursements for costs related to such matters for the three and six months ended June 30, 2020.

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2.   Adjusted Tangible Equity Ratio

Adjusted Tangible Equity Ratio measures the ratio of Navient’s Tangible Equity to its tangible assets. We adjust this ratio to exclude the assets and equity associated with our FFELP portfolio because FFELP Loans are no longer originated and the FFELP portfolio bears a 3% maximum loss exposure under the terms of the federal guaranty. Management believes that excluding this portfolio from the ratio enhances its usefulness to investors. Management uses this ratio, in addition to other metrics, for analysis and decision making related to capital allocation decisions. The Adjusted Tangible Equity Ratio is calculated as:

(Dollars in millions)	June 30, 2021			June 30, 2020
Navient Corporation's stockholders' equity	$	2,701		$	2,115
Less: Goodwill and acquired intangible assets		726			746
Tangible Equity		1,975			1,369
Less: Equity held for FFELP Loans		278			305
Adjusted Tangible Equity	$	1,697		$	1,064
Divided by:
Total assets	$	83,348		$	91,045
Less:
Goodwill and acquired intangible assets		726			746
FFELP Loans		55,550			60,921
Adjusted tangible assets	$	27,072		$	29,378
Adjusted Tangible Equity Ratio(1)		6.3	%		3.6	%

⁽¹⁾ The following provides a pro forma of what the Adjusted Tangible Equity Ratio would be if the cumulative net mark-to-market losses related to derivative accounting under GAAP were excluded. These cumulative losses reverse to $0 upon the maturity of the individual derivative instruments. As these losses are temporary, we believe this pro forma presentation is a useful basis for management and investors to further analyze the Adjusted Tangible Equity Ratio.

(Dollars in millions)	June 30, 2021			June 30, 2020
Adjusted Tangible Equity (from above table)	$	1,697		$	1,064
Plus: ending impact of derivative accounting on GAAP equity		459			692
Pro forma Adjusted Tangible Equity	$	2,156		$	1,756
Divided by: adjusted tangible assets (from above table)	$	27,072		$	29,378
Pro forma Adjusted Tangible Equity Ratio		8.0	%		6.0	%

3.   Earnings before Interest, Taxes, Depreciation and Amortization Expense (EBITDA)

This measures the operating performance of the Business Processing segment and is used by management and equity investors to monitor operating performance and determine the value of those businesses.  EBITDA for the Business Processing segment is calculated as:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in millions)	2021			2020			2021			2020
Core Earnings pre-tax income	$	38		$	7		$	72		$	11
Plus:
Depreciation and amortization expense(1)		2			1			4			2
EBITDA	$	40		$	8		$	76		$	13
Divided by:
Total revenue	$	130		$	64		$	255		$	122
EBITDA margin		30	%		13	%		30	%		10	%

⁽¹⁾ There is no interest expense in this segment.

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Legal Proceedings

For a discussion of legal matters as of June 30, 2021, please refer to “Note 9 – Commitments and Contingencies” to our consolidated financial statements included in this report, which is incorporated into this item by reference.

Risk Factors

The risk factors disclosed in Part I—Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “Form 10-K”) should be considered together with information included in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2021. For a discussion of our risk factors, please see the section entitled “Risk Factors” in our 2020 Annual Report on Form 10-K, as updated by the section entitled “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021. These are not the only risks to which we are exposed. 

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Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Sensitivity Analysis

Our interest rate risk management seeks to limit the impact of short-term movements in interest rates on our results of operations and financial position. The following tables summarize the potential effect on earnings over the next 12 months and the potential effect on fair values of balance sheet assets and liabilities at June 30, 2021 and 2020, based upon a sensitivity analysis performed by management assuming a hypothetical increase and decrease in market interest rates of 100 basis points. The earnings sensitivities assume an immediate increase and decrease in market interest rates of 100 basis points and are applied only to financial assets and liabilities, including hedging instruments, that existed at the balance sheet date and do not take into account any new assets, liabilities or hedging instruments that may arise over the next 12 months. There is the possibility that the Federal Reserve may use negative interest rates if economic conditions warrant which could potentially affect the success of our asset and liability management activities and negatively affect our financial condition and results of operations.

	As of June 30, 2021						As of June 30, 2020
	Impact on Annual Earnings If:						Impact on Annual Earnings If:
	Interest Rates						Interest Rates
(Dollars in millions, except per share amounts)	Increase 100 Basis Points			Decrease 100 Basis Points			Increase 100 Basis Points			Decrease 100 Basis Points
Effect on Earnings:
Change in pre-tax net income before mark-to    -market gains (losses) on derivative and    hedging activities(1)	$	(29	)	$	10		$	(50	)	$	13
Mark-to-market gains (losses) on derivative and    hedging activities		109			(144	)		125			(205	)
Increase (decrease) in income before taxes	$	80		$	(134	)	$	75		$	(192	)
Increase (decrease) in net income after taxes	$	62		$	(103	)	$	58		$	(148	)
Increase (decrease) in diluted earnings per    common share	$	.36		$	(.61	)	$	.30		$	(.76	)

⁽¹⁾   If decreasing interest rates by 100 basis points results in a negative interest rate, we assume the interest rate is 0% for this disclosure (as opposed to being a negative interest rate).  

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	At June 30, 2021
			Interest Rates:
			Change from Increase of 100 Basis Points						Change from Decrease of 100 Basis Points
(Dollars in millions)	Fair Value		$			%			$		%
Effect on Fair Values:
Assets
Education Loans	$	77,860	$	(376	)		—		$	586		1	%
Other earning assets		4,075		—			—			—		—
Other assets		3,998		(184	)		(5	)		272		7
Total assets gain/(loss)	$	85,933	$	(560	)		(1	)%	$	858		1	%
Liabilities
Interest-bearing liabilities	$	80,267	$	(361	)		—	%	$	391		—	%
Other liabilities		754		(164	)		(22	)		274		36
Total liabilities (gain)/loss	$	81,021	$	(525	)		(1	)%	$	665		1	%

	At December 31, 2020
			Interest Rates:
			Change from Increase of 100 Basis Points						Change from Decrease of 100 Basis Points
(Dollars in millions)	Fair Value		$			%			$		%
Effect on Fair Values:
Assets
Education Loans	$	81,579	$	(419	)		(1	)%	$	669		1	%
Other earning assets		3,822		—			—			—		—
Other assets		4,227		(248	)		(6	)		300		7
Total assets gain/(loss)	$	89,628	$	(667	)		(1	)%	$	969		1	%
Liabilities
Interest-bearing liabilities	$	83,345	$	(373	)		—	%	$	406		—	%
Other liabilities		1,020		(274	)		(27	)		358		35
Total liabilities (gain)/loss	$	84,365	$	(647	)		(1	)%	$	764		1	%

A primary objective in our funding is to minimize our sensitivity to changing interest rates by generally funding our floating rate education loan portfolio with floating rate debt and our fixed rate education loan portfolio with fixed rate debt although we can have a mismatch at times. In addition, we can have a mismatch in the index (including the frequency of reset) of floating rate debt versus floating rate assets. In addition, due to the ability of some FFELP Loans to earn Floor Income, we can have a fixed versus floating mismatch in funding if the education loan earns at the fixed borrower rate and the funding remains floating. During 2021 and 2020, certain FFELP Loans were earning Floor Income and we locked in a portion of that Floor Income through the use of derivative contracts. The result of these hedging transactions was to fix the relative spread between the education loan asset rate and the variable rate liability.

In the preceding tables, under the scenario where interest rates increase or decrease by 100 basis points, the change in pre-tax net income before the mark-to-market gains (losses) on derivative and hedging activities is primarily due to the impact of (i) our unhedged FFELP Loans being in a fixed-rate mode due to Floor Income, while being funded with variable rate debt in low interest rate environments; and (ii) a portion of our variable rate assets being funded with fixed rate liabilities. Item (i) will generally cause income to decrease when interest rates increase and income to increase when interest rates decrease. Item (ii) has the opposite effect. The increase and decrease in income in both periods when interest rates increase and decrease 100 basis points is due primarily to item (i) above. The relative changes in the impacts between 2021 and 2020 related to an increase in interest rates is primarily a result of item (ii) having a larger partially offsetting impact in 2021 compared to 2020.

In the preceding tables, under the scenario where interest rates increase or decrease by 100 basis points, the change in mark-to-market gains (losses) on derivative and hedging activities in 2021 and 2020 is primarily due to (i) the notional amount and remaining term of our derivative portfolio and related hedged debt and (ii) the interest rate environment. In 2021 and 2020 the mark to market gains (losses) are primarily related to derivatives that don’t qualify for hedge accounting that are used to economically hedge Floor Income as well as the origination of fixed rate Private Education Refinance loans. As a result of not qualifying for hedge accounting there is not an offsetting mark to market of the hedged item in this analysis. The mark to market gains (losses) where interest rates increase and decrease

42

100 basis points are lower in 2021 than 2020 primarily as a result of a decline in the notional amount of derivatives outstanding in connection with the decrease in the education loan portfolio over that time period.

In addition to interest rate risk addressed in the preceding tables, we are also exposed to risks related to foreign currency exchange rates. Foreign currency exchange risk is primarily the result of foreign currency denominated debt issued by us. When we issue foreign denominated corporate unsecured and securitization debt, our policy is to use cross currency interest rate swaps to swap all foreign currency denominated debt payments (fixed and floating) to U.S. dollar LIBOR using a fixed exchange rate. In the tables above, there would be an immaterial impact on earnings if exchange rates were to decrease or increase, due to the terms of the hedging instrument and hedged items matching. The balance sheet interest bearing liabilities would be affected by a change in exchange rates; however, the change would be materially offset by the cross-currency interest rate swaps in other assets or other liabilities. In certain economic environments, volatility in the spread between spot and forward foreign exchange rates has resulted in mark-to-market impacts to current-period earnings which have not been factored into the above analysis. The earnings impact is noncash, and at maturity of the instruments the cumulative mark-to-market impact will be zero. Navient has not issued foreign currency denominated debt since 2008.

Asset and Liability Funding Gap

The tables below present our assets and liabilities (funding) arranged by underlying indices as of June 30, 2021. In the following GAAP presentation, the funding gap only includes derivatives that qualify as effective hedges (those derivatives which are reflected in net interest margin, as opposed to those reflected in the “gains (losses) on derivatives and hedging activities, net” line on the consolidated statements of income). The difference between the asset and the funding is the funding gap for the specified index. This represents our exposure to interest rate risk in the form of basis risk and repricing risk, which is the risk that the different indices may reset at different frequencies or may not move in the same direction or at the same magnitude.

Management analyzes interest rate risk and in doing so includes all derivatives that are economically hedging our debt whether they qualify as effective hedges or not (Core Earnings basis). Accordingly, we are also presenting the asset and liability funding gap on a Core Earnings basis in the table that follows the GAAP presentation.

GAAP Basis:

Index (Dollars in billions)	Frequency of Variable Resets	Assets		Funding(1)		Funding Gap
3-month Treasury bill	weekly	$	2.7	$	—	$	2.7
3-month Treasury bill	annual		.2		—		.2
Prime	annual		.2		—		.2
Prime	quarterly		1.7		—		1.7
Prime	monthly		5.8		—		5.8
3-month LIBOR	quarterly		.3		24.7		(24.4	)
3-month LIBOR(2)	monthly		—		.6		(.6	)
3-month LIBOR(2)	daily		—		.2		(.2	)
1-month LIBOR	monthly		3.9		32.7		(28.8	)
1-month LIBOR	daily		52.5		—		52.5
Non-Discrete reset(2)(3)	monthly		—		3.9		(3.9	)
Non-Discrete reset(4)	daily/weekly		4.0		.3		3.7
Fixed Rate(5)			12.0		20.9		(8.9	)
Total		$	83.3	$	83.3	$	—

⁽¹⁾  Funding (by index) includes all derivatives that qualify as hedges.

⁽²⁾  Funding includes loan repurchase facilities.

⁽³⁾  Funding consists of auction rate ABS and ABCP facilities.

⁽⁴⁾  Assets include restricted and unrestricted cash equivalents and other overnight type instruments. Funding includes the obligation to return cash collateral held related to derivatives exposures.

⁽⁵⁾  Assets include receivables and other assets (including goodwill and acquired intangibles). Funding includes other liabilities and stockholders’ equity.

43

Core Earnings Basis:

Index (Dollars in billions)	Frequency of Variable Resets	Assets		Funding(1)		Funding Gap
3-month Treasury bill	weekly	$	2.7	$	—	$	2.7
3-month Treasury bill	annual		.2		—		.2
Prime	annual		.2		—		.2
Prime	quarterly		1.7		—		1.7
Prime	monthly		5.8		—		5.8
3-month LIBOR	quarterly		.3		5.4		(5.1	)
3-month LIBOR(2)	monthly		—		.6		(.6	)
3-month LIBOR(2)	daily		—		.2		(.2	)
1-month LIBOR	monthly		3.9		50.9		(47.0	)
1-month LIBOR	daily		52.5		—		52.5
Non-Discrete reset(2)(3)	monthly		—		3.9		(3.9	)
Non-Discrete reset(4)	daily/weekly		4.0		.3		3.7
Fixed Rate(5)			11.8		21.8		(10.0	)
Total		$	83.1	$	83.1	$	—

⁽¹⁾  Funding (by index) includes all derivatives that management considers economic hedges of interest rate risk and reflects how we internally manage our interest rate exposure.

⁽²⁾  Funding includes loan repurchase facilities.

⁽³⁾  Funding consists of auction rate ABS and ABCP facilities.

⁽⁴⁾  Assets include restricted and unrestricted cash equivalents and other overnight type instruments. Funding includes the obligation to return cash collateral held related to derivatives exposures.

⁽⁵⁾  Assets include receivables and other assets (including goodwill and acquired intangibles). Funding includes other liabilities and stockholders’ equity.

We use interest rate swaps and other derivatives to achieve our risk management objectives. Our asset liability management strategy is to match assets with debt (in combination with derivatives) that have the same underlying index and reset frequency or, when economical, have interest rate characteristics that we believe are highly correlated. Interest earned on our FFELP Loans is primarily indexed to daily one-month LIBOR and our cost of funds is primarily indexed to rates other than daily one-month LIBOR. A source of variability in FFELP net interest income could also be Floor Income we earn on certain FFELP Loans. Pursuant to the terms of the FFELP, certain FFELP Loans can earn interest at the stated fixed rate of interest as underlying debt interest rate expense remains variable. We refer to this additional spread income as “Floor Income.” Floor Income can be volatile since it is dependent on interest rate levels. We frequently hedge this volatility with derivatives which lock in the value of the Floor Income over the term of the contract. Interest earned on our Private Education Refinance Loans is generally fixed rate with the related cost of funds generally fixed rate as well. Interest earned on the remaining Private Education Loans is generally indexed to either one-month Prime or LIBOR rates and our cost of funds is primarily indexed to one-month or three-month LIBOR. The use of funding with index types and reset frequencies that are different from our assets exposes us to interest rate risk in the form of basis and repricing risk. This could result in our cost of funds not moving in the same direction or with the same magnitude as the yield on our assets. While we believe this risk is low, as all of these indices are short-term with rate movements that are highly correlated over a long period of time, market disruptions (which have occurred in prior years) can lead to a temporary divergence between indices resulting in a negative impact to our earnings.

44

Unregistered Sales of Equity Securities and Use of Proceeds

Share Repurchases

The following table provides information relating to our purchases of shares of our common stock in the three months ended June 30, 2021.

(In millions, except per share data)	Total Number of Shares Purchased(1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)		Approximate Dollar Value of Shares That May Yet Be Purchased Under Publicly Announced Plans or Programs(2)
Period:
April 1 — April 30, 2021		4.4	$	15.05		4.4	$	435
May 1 — May 31, 2021		4.2		17.30		3.7	$	371
June 1 — June 30, 2021		3.7		19.06		3.7	$	300
Total second-quarter 2021		12.3	$	17.03		11.8

⁽¹⁾  The total number of shares purchased includes: (i) shares purchased under the stock repurchase program discussed below and (ii) shares of our common stock tendered to us to satisfy the exercise price in connection with cashless exercise of stock options, and tax withholding obligations in connection with exercise of stock options and vesting of restricted stock and restricted stock units.

⁽²⁾  Our board of directors approved a $1 billion multi-year share repurchase program in October 2019.

Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our Principal Executive and Principal Financial Officers, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of June 30, 2021. Based on this evaluation, our Principal Executive and Principal Financial Officers concluded that, as of June 30, 2021, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) accumulated and communicated to our management, including our Principal Executive and Principal Financial Officers as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

45

Exhibits

31.1*	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*	Inline XBRL Taxonomy Extension Schema Document.
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

^† Management Contract or Compensatory Plan or Arrangement

* Filed herewith

** Furnished herewith

46

Financial Statements

NAVIENT CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except per share amounts)

(Unaudited)

	June 30, 2021			December 31, 2020
Assets
FFELP Loans (net of allowance for losses of $277 and $288, respectively)	$	55,550		$	58,284
Private Education Loans (net of allowance for losses of $976 and $1,089,    respectively)		19,725			21,079
Investments
Held-to-maturity		88			15
Other		225			270
Total investments		313			285
Cash and cash equivalents		1,453			1,183
Restricted cash and cash equivalents		2,309			2,354
Goodwill and acquired intangible assets, net		726			735
Other assets		3,272			3,492
Total assets	$	83,348		$	87,412
Liabilities
Short-term borrowings	$	4,068		$	6,613
Long-term borrowings		75,814			77,332
Other liabilities		754			1,020
Total liabilities		80,636			84,965
Commitments and contingencies
Equity
Common stock, par value $0.01 per share, 1.125 billion shares authorized:    458 million and 454 million shares issued, respectively		4			4
Additional paid-in capital		3,268			3,226
Accumulated other comprehensive loss (net of tax benefit of $68 and $90,    respectively)		(209	)		(274	)
Retained earnings		3,828			3,331
Total Navient Corporation stockholders’ equity before treasury stock		6,891			6,287
Less: Common stock held in treasury at cost: 290 million and 267 million    shares, respectively		(4,190	)		(3,854	)
Total Navient Corporation stockholders’ equity		2,701			2,433
Noncontrolling interest		11			14
Total equity		2,712			2,447
Total liabilities and equity	$	83,348		$	87,412

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

	June 30, 2021		December 31, 2020
FFELP Loans	$	55,228	$	58,068
Private Education Loans		17,324		18,658
Restricted cash		2,275		2,322
Other assets, net		1,579		1,420
Short-term borrowings		2,026		5,595
Long-term borrowings		68,850		68,900
Net assets of consolidated variable interest entities	$	5,530	$	5,973

See accompanying notes to consolidated financial statements.

47

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share amounts)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Interest income:
FFELP Loans	$	365		$	455		$	737		$	1,025
Private Education Loans		295			362			614			767
Cash and investments		1			2			1			15
Total interest income		661			819			1,352			1,807
Total interest expense		339			519			667			1,234
Net interest income		322			300			685			573
Less: provisions for loan losses		(1	)		44			(88	)		139
Net interest income after provisions for loan losses		323			256			773			434
Other income (loss):
Servicing revenue		50			52			102			109
Asset recovery and business processing revenue		142			102			281			212
Other income (loss)		4			9			5			17
Gains on sales of loans		2			—			78			—
Losses on debt repurchases		(12	)		—			(12	)		—
Gains (losses) on derivative and hedging activities, net		(10	)		(30	)		26			(253	)
Total other income (loss)		176			133			480			85
Expenses:
Salaries and benefits		142			117			292			241
Other operating expenses		110			96			218			222
Total operating expenses		252			213			510			463
Goodwill and acquired intangible asset impairment and    amortization expense		5			5			10			11
Restructuring/other reorganization expenses		2			1			8			6
Total expenses		259			219			528			480
Income before income tax expense		240			170			725			39
Income tax expense		55			45			170			20
Net income	$	185		$	125		$	555		$	19
Basic earnings per common share	$	1.07		$	.65		$	3.12		$	.10
Average common shares outstanding		174			194			178			197
Diluted earnings per common share	$	1.05		$	.64		$	3.08		$	.10
Average common and common equivalent shares    outstanding		176			195			180			198
Dividends per common share	$	.16		$	.16		$	.32		$	.32

See accompanying notes to consolidated financial statements.

48

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2021		2020			2021		2020
Net income	$	185	$	125		$	555	$	19
Net changes in cash flow hedges, net of taxes(1)		17		(17	)		65		(226	)
Total comprehensive income (loss)	$	202	$	108		$	620	$	(207	)

⁽¹⁾  See “Note 4 – Derivative Financial Instruments.”

See accompanying notes to consolidated financial statements.

49

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In millions, except share and per share amounts)

(Unaudited)

													Accumulated
	Common Stock Shares										Additional		Other									Total
									Common		Paid-In		Comprehensive			Retained			Treasury			Stockholders'			Noncontrolling			Total
	Issued		Treasury			Outstanding			Stock		Capital		Income (Loss)			Earnings			Stock			Equity			Interest			Equity
Balance at March 31, 2020		453,366,433		(259,534,353	)		193,832,080		$	4	$	3,212	$	(300	)	$	2,905		$	(3,786	)	$	2,035		$	13		$	2,048
Comprehensive income (loss):
Net income		—		—			—			—		—		—			125			—			125			—			125
Other comprehensive income (loss), net of tax		—		—			—			—		—		(17	)		—			—			(17	)		—			(17	)
Total comprehensive income (loss)		—		—			—			—		—		—			—			—			108			—			108
Cash dividends:
Common stock ($.16 per share)		—		—			—			—		—		—			(31	)		—			(31	)		—			(31	)
Dividend equivalent units related to employee    stock-based compensation plans		—		—			—			—		—		—			—			—			—			—			—
Issuance of common shares		90,689		—			90,689			—		1		—			—			—			1			—			1
Stock-based compensation expense		—		—			—			—		2		—			—			—			2			—			2
Common stock repurchased		—		—			—			—		—		—			—			—			—			—			—
Shares repurchased related to employee    stock-based compensation plans		—		(4,125	)		(4,125	)		—		—		—			—			—			—			—			—
Net activity in noncontrolling interest		—		—			—			—		—		—			—			—			—			(2	)		(2	)
Balance at June 30, 2020		453,457,122		(259,538,478	)		193,918,644		$	4	$	3,215	$	(317	)	$	2,999		$	(3,786	)	$	2,115		$	11		$	2,126
Balance at March 31, 2021		457,403,561		(277,890,279	)		179,513,282		$	4	$	3,255	$	(226	)	$	3,670		$	(3,980	)	$	2,723		$	14		$	2,737
Comprehensive income (loss):
Net income		—		—			—			—		—		—			185			—			185			—			185
Other comprehensive income (loss), net of tax		—		—			—			—		—		17			—			—			17			—			17
Total comprehensive income (loss)		—		—			—			—		—		—			—			—			202			—			202
Cash dividends:		—
Common stock ($.16 per share)		—		—			—			—		—		—			(27	)		—			(27	)		—			(27	)
Dividend equivalent units related to employee    stock-based compensation plans		—		—			—			—		—		—			—			—			—			—			—
Issuance of common shares		641,126		—			641,126			—		10		—			—			—			10			—			10
Stock-based compensation expense		—		—			—			—		3		—			—			—			3			—			3
Common stock repurchased		—		(11,754,640	)		(11,754,640	)		—		—		—			—			(200	)		(200	)		—			(200	)
Shares repurchased related to employee    stock-based compensation plans		—		(559,580	)		(559,580	)		—		—		—			—			(10	)		(10	)		—			(10	)
Net activity in noncontrolling interest		—		—			—			—		—		—			—			—			—			(3	)		(3	)
Balance at June 30, 2021		458,044,687		(290,204,499	)		167,840,188		$	4	$	3,268	$	(209	)	$	3,828		$	(4,190	)	$	2,701		$	11		$	2,712

See accompanying notes to consolidated financial statements.

50

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In millions, except share and per share amounts)

(Unaudited)

													Accumulated
	Common Stock Shares										Additional		Other									Total
									Common		Paid-In		Comprehensive			Retained			Treasury			Stockholders'			Noncontrolling			Total
	Issued		Treasury			Outstanding			Stock		Capital		Income (Loss)			Earnings			Stock			Equity			Interest			Equity
Balance at December 31, 2019		451,094,879		(235,658,196	)		215,436,683		$	4	$	3,198	$	(91	)	$	3,664		$	(3,439	)	$	3,336		$	13		$	3,349
Cumulative adjustment for the adoption of    ASU No. 2016-13		—		—			—			—		—		—			(620	)		—			(620	)		—			(620	)
Comprehensive income (loss):
Net income		—		—			—			—		—		—			19			—			19			—			19
Other comprehensive income (loss), net of tax		—		—			—			—		—		(226	)		—			—			(226	)		—			(226	)
Total comprehensive income (loss)		—		—			—			—		—		—			—			—			(207	)		—			(207	)
Cash dividends:
Common stock ($.32 per share)		—		—			—			—		—		—			(62	)		—			(62	)		—			(62	)
Dividend equivalent units related to employee    stock-based compensation plans		—		—			—			—		—		—			(2	)		—			(2	)		—			(2	)
Issuance of common shares		2,362,243		—			2,362,243			—		6		—			—			—			6			—			6
Stock-based compensation expense		—		—			—			—		11		—			—			—			11			—			11
Common stock repurchased		—		(22,975,880	)		(22,975,880	)		—		—		—			—			(335	)		(335	)		—			(335	)
Shares repurchased related to employee    stock-based compensation plans		—		(904,402	)		(904,402	)		—		—		—			—			(12	)		(12	)		—			(12	)
Net activity in noncontrolling interest		—		—			—			—		—		—			—			—			—			(2	)		(2	)
Balance at June 30, 2020		453,457,122		(259,538,478	)		193,918,644		$	4	$	3,215	$	(317	)	$	2,999		$	(3,786	)	$	2,115		$	11		$	2,126
Balance at December 31, 2020		453,778,975		(267,476,521	)		186,302,454		$	4	$	3,226	$	(274	)	$	3,331		$	(3,854	)	$	2,433		$	14		$	2,447
Comprehensive income (loss):
Net income		—		—			—			—		—		—			555			—			555			—			555
Other comprehensive income (loss), net of tax		—		—			—			—		—		65			—			—			65			—			65
Total comprehensive income (loss)		—		—			—			—		—		—			—			—			620			—			620
Cash dividends:		—
Common stock ($.32 per share)		—		—			—			—		—		—			(56	)		—			(56	)		—			(56	)
Dividend equivalent units related to employee    stock-based compensation plans		—		—			—			—		—		—			(2	)		—			(2	)		—			(2	)
Issuance of common shares		4,265,712		—			4,265,712			—		29		—			—			—			29			—			29
Stock-based compensation expense		—		—			—			—		13		—			—			—			13			—			13
Common stock repurchased		—		(19,932,740	)		(19,932,740	)		—		—		—			—			(300	)		(300	)		—			(300	)
Shares repurchased related to employee    stock-based compensation plans		—		(2,795,238	)		(2,795,238	)		—		—		—			—			(36	)		(36	)		—			(36	)
Net activity in noncontrolling interest		—		—			—			—		—		—			—			—			—			(3	)		(3	)
Balance at June 30, 2021		458,044,687		(290,204,499	)		167,840,188		$	4	$	3,268	$	(209	)	$	3,828		$	(4,190	)	$	2,701		$	11		$	2,712

See accompanying notes to consolidated financial statements.

51

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

	Six Months Ended June 30,
	2021			2020
Operating activities
Net income	$	555		$	19
Adjustments to reconcile net income to net cash provided by operating activities:
(Gains) on sales of education loans		(78	)		—
Losses on debt repurchases		12			—
Goodwill and acquired intangible asset impairment and amortization expense		10			11
Stock-based compensation expense		13			11
Mark-to-market (gains) losses on derivative and hedging activities, net		(234	)		471
Provisions for loan losses		(88	)		139
Decrease (increase) in accrued interest receivable		33			(45	)
(Decrease) in accrued interest payable		(27	)		(76	)
Decrease in other assets		126			161
Increase (decrease) in other liabilities		11			(96	)
Total adjustments		(222	)		576
Total net cash provided by operating activities		333			595
Investing activities
Education loans acquired and originated		(3,050	)		(2,170	)
Proceeds from payments on education loans		5,643			5,678
Proceeds from sales of education loans		1,588			—
Other investing activities, net		38			(116	)
Total net cash provided by investing activities		4,219			3,392
Financing activities
Borrowings collateralized by loans in trust - issued		3,971			3,277
Borrowings collateralized by loans in trust - repaid		(5,577	)		(5,711	)
Asset-backed commercial paper conduits, net		(2,201	)		(659	)
Long-term unsecured notes issued		495			682
Long-term unsecured notes repaid		(782	)		(719	)
Other financing activities, net		123			(252	)
Common stock repurchased		(300	)		(335	)
Common dividends paid		(56	)		(62	)
Total net cash used in financing activities		(4,327	)		(3,779	)
Net increase in cash, cash equivalents, restricted cash and restricted cash equivalents		225			208
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period		3,537			3,781
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	3,762		$	3,989
Cash disbursements made (refunds received) for:
Interest	$	723		$	1,214
Income taxes paid	$	96		$	3
Income taxes received	$	—		$	—
Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated    Balance Sheets:
Cash and cash equivalents	$	1,453		$	1,632
Restricted cash and restricted cash equivalents		2,309			2,357
Total cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	3,762		$	3,989
Supplemental cash flow information:
Noncash activity:
Investing activity - Held-to-maturity asset backed securities retained related to sales of    education loans	$	83		$	—
Operating activity - Servicing assets recognized upon sales of education loans	$	21		$	—

See accompanying notes to consolidated financial statements.

52

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 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 six months ended June 30, 2021 are not necessarily indicative of the results for the year ending December 31, 2020 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, 2020 (the 2020 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 2020 Form 10-K.

53

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

2.   Allowance for Loan Losses

Allowance for Loan Losses Metrics

	Three Months Ended June 30, 2021
(Dollars in millions)	FFELP Loans			Private Education Loans			Total
Allowance at beginning of period	$	282		$	992		$	1,274
Provision:
Reversal of allowance related to loan sales(1)		—			(5	)		(5	)
Remaining provision		—			4			4
Total provision		—			(1	)		(1	)
Charge-offs(2)		(5	)		(35	)		(40	)
Decrease in expected future recoveries on charged-off loans(3)		—			20			20
Allowance at end of period		277			976			1,253
Plus: expected future recoveries on charged-off loans(3)		—			434			434
Allowance at end of period excluding expected future recoveries on    charged-off loans(4)	$	277		$	1,410		$	1,687
Charge-offs as a percentage of average loans in repayment    (annualized)		.04	%		.71	%
Allowance coverage of charge-offs (annualized)(4)		15.5			10.0
Allowance as a percentage of the ending total loan balance(4)		.5	%		6.8	%
Allowance as a percentage of ending loans in repayment(4)		.6	%		7.2	%
Ending total loans	$	55,827		$	20,701
Average loans in repayment	$	46,348		$	19,667
Ending loans in repayment	$	45,854		$	19,692

⁽¹⁾  In connection with the sale of approximately $30 million of Private Education Loans.

⁽²⁾  Charge-offs are reported net of expected recoveries. For Private Education Loans, at the time of charge-off, the expected recovery amount is transferred from the education loan balance to the allowance for loan loss and is referred to as the expected future recoveries on charged-off loans. For FFELP Loans, the recovery is received at the time of charge-off.

⁽³⁾  At the end of each month, for Private Education 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 as the “expected future recoveries on 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 expected future recoveries for charged-off 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. The following table summarizes the activity in the expected future recoveries on charged-off loans:

	Three Months Ended June 30,
(Dollars in millions)	2021
Beginning of period expected recoveries	$	454
Expected future recoveries of current period defaults		5
Recoveries		(22	)
Charge-offs		(3	)
End of period expected recoveries	$	434
Change in balance during period	$	(20	)

⁽⁴⁾  The allowance used for these metrics excludes the expected future recoveries on charged-off loans to better reflect the current expected credit losses remaining in the portfolio.

54

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

2.   Allowance for Loan Losses (Continued)

	Three Months Ended June 30, 2020
(Dollars in millions)	FFELP Loans			Private Education Loans			Other Loans
Allowance at beginning of period	$	311		$	1,083		$	1,394
Total provision		3			41			44
Charge-offs(1)		(12	)		(48	)		(60	)
Decrease in expected future recoveries on charged-off loans(2)		—			22			22
Allowance at end of period		302			1,098			1,400
Plus: expected future recoveries on charged-off loans(2)		—			549			549
Allowance at end of period excluding expected future recoveries on    charged-off loans(3)	$	302		$	1,647		$	1,949
Charge-offs as a percentage of average loans in repayment    (annualized)		.11	%		.97	%
Allowance coverage of charge-offs (annualized)(3)		6.3			8.6
Allowance as a percentage of the ending total loan balance(3)		.5	%		7.3	%
Allowance as a percentage of ending loans in repayment(3)		.7	%		8.2	%
Ending total loans	$	61,223		$	22,560
Average loans in repayment	$	44,144		$	19,731
Ending loans in repayment	$	42,640		$	20,201

⁽¹⁾  Charge-offs are reported net of expected recoveries. For Private Education Loans, at the time of charge-off, the expected recovery amount is transferred from the education loan balance to the allowance for loan loss and is referred to as the expected future recoveries on charged-off loans. For FFELP Loans, the recovery is received at the time of charge-off.

⁽²⁾  At the end of each month, for Private Education 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 as the “expected future recoveries on 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 expected future recoveries for charged-off 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. The following table summarizes the activity in the expected future recoveries on charged-off loans:

	Three Months Ended June 30,
(Dollars in millions)	2020
Beginning of period expected recoveries	$	571
Expected future recoveries of current period defaults		9
Recoveries		(28	)
Charge-offs		(3	)
End of period expected recoveries	$	549
Change in balance during period	$	(22	)

⁽³⁾  The allowance used for these metrics excludes the expected future recoveries on charged-off loans to better reflect the current expected credit losses remaining in the portfolio.

55

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

2.   Allowance for Loan Losses (Continued)

	Six Months Ended June 30, 2021
(Dollars in millions)	FFELP Loans			Private Education Loans			Total
Allowance at beginning of period	$	288		$	1,089		$	1,377
Provision:
Reversal of allowance related to loan sales(1)		—			(107	)		(107	)
Remaining provision		—			19			19
Total provision		—			(88	)		(88	)
Charge-offs(2)		(11	)		(70	)		(81	)
Decrease in expected future recoveries on charged-off loans(3)		—			45			45
Allowance at end of period		277			976			1,253
Plus: expected future recoveries on charged-off loans(3)		—			434			434
Allowance at end of period excluding expected future recoveries on    charged-off loans(4)	$	277		$	1,410		$	1,687
Charge-offs as a percentage of average loans in repayment    (annualized)		.05	%		.70	%
Allowance coverage of charge-offs (annualized)(4)		12.5			10.0
Allowance as a percentage of the ending total loan balance(4)		.5	%		6.8	%
Allowance as a percentage of ending loans in repayment(4)		.6	%		7.2	%
Ending total loans	$	55,827		$	20,701
Average loans in repayment	$	46,694		$	20,272
Ending loans in repayment	$	45,854		$	19,692

⁽¹⁾  In connection with the sale of approximately $1.6 billion of Private Education Loans.

⁽²⁾  Charge-offs are reported net of expected recoveries. For Private Education Loans, at the time of charge-off, the expected recovery amount is transferred from the education loan balance to the allowance for loan loss and is referred to as the expected future recoveries on charged-off loans. For FFELP Loans, the recovery is received at the time of charge-off.

⁽³⁾  At the end of each month, for Private Education 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 as the “expected future recoveries on 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 expected future recoveries for charged-off 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. The following table summarizes the activity in the expected future recoveries on charged-off loans:

	Six Months Ended June 30,
(Dollars in millions)	2021
Beginning of period expected recoveries	$	479
Expected future recoveries of current period defaults		10
Recoveries		(47	)
Charge-offs		(8	)
End of period expected recoveries	$	434
Change in balance during period	$	(45	)

⁽⁴⁾  The allowance used for these metrics excludes the expected future recoveries on charged-off loans to better reflect the current expected credit losses remaining in the portfolio.

56

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

2.   Allowance for Loan Losses (Continued)

	Six Months Ended June 30, 2020
(Dollars in millions)	FFELP Loans			Private Education Loans			Other Loans
Allowance as of December 31, 2019	$	64		$	1,048		$	1,112
Transition adjustment made under CECL on January 1, 2020(1)		260			(3	)		257
Allowance as of January 1, 2020 after transition adjustment to CECL		324			1,045			1,369
Total provision		9			130			139
Charge-offs(2)		(31	)		(116	)		(147	)
Decrease in expected future recoveries on charged-off loans(3)		—			39			39
Allowance at end of period		302			1,098			1,400
Plus: expected future recoveries on charged-off loans(3)		—			549			549
Allowance at end of period excluding expected future recoveries on    charged-off loans(4)	$	302		$	1,647		$	1,949
Charge-offs as a percentage of average loans in repayment    (annualized)		.13	%		1.13	%
Allowance coverage of charge-offs (annualized)(4)		4.8			7.1
Allowance as a percentage of the ending total loan balance(4)		.5	%		7.3	%
Allowance as a percentage of ending loans in repayment(4)		.7	%		8.2	%
Ending total loans	$	61,223		$	22,560
Average loans in repayment	$	48,302		$	20,666
Ending loans in repayment	$	42,640		$	20,201

⁽¹⁾  For a further discussion of our adoption of CECL, see “Note 2 – Significant Accounting Policies” in our 2020 Annual Report on Form 10-K.

⁽²⁾  Charge-offs are reported net of expected recoveries. For Private Education Loans, at the time of charge-off, the expected recovery amount is transferred from the education loan balance to the allowance for loan loss and is referred to as the expected future recoveries on charged-off loans. For FFELP Loans, the recovery is received at the time of charge-off.

⁽³⁾  At the end of each month, for Private Education 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 as the “expected future recoveries on 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 expected future recoveries for charged-off 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. The following table summarizes the activity in the expected future recoveries on charged-off loans:

	Six Months Ended June 30,
(Dollars in millions)	2020
Beginning of period expected recoveries	$	588
Expected future recoveries of current period defaults		22
Recoveries		(57	)
Charge-offs		(4	)
End of period expected recoveries	$	549
Change in balance during period	$	(39	)

⁽⁴⁾  The allowance used for these metrics excludes the expected future recoveries on charged-off loans to better reflect the current expected credit losses remaining in the portfolio.

57

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

2.   Allowance for Loan Losses (Continued)

Troubled Debt Restructurings (“TDRs”)

We sometimes modify the terms of loans 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 73% and 72% of the loans granted forbearance have qualified as a TDR loan at June 30, 2021 and December 31, 2020, respectively. The unpaid principal balance of TDR loans that were in an interest rate reduction program as of June 30, 2021 and December 31, 2020 was $802 million and $948 million, respectively.

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 June 30,				Six Months Ended June 30,
(Dollars in millions)	2021		2020		2021		2020
Modified loans	$	29	$	70	$	69	$	165
Charge-offs	$	27	$	35	$	53	$	93
Payment default	$	4	$	11	$	9	$	32

58

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

2.   Allowance for Loan Losses (Continued)

Key Credit Quality Indicators

We assess and determine the collectability of our education loan portfolios by evaluating certain risk characteristics we refer to as key credit quality indicators. Key credit quality indicators are incorporated into the allowance for loan losses calculation.

FFELP Loans

FFELP Loans are substantially insured and guaranteed as to their principal and accrued interest in the event of default. The key credit quality indicators are loan status and loan type.

	FFELP Loan Delinquencies
	June 30, 2021						December 31, 2020						June 30, 2020
(Dollars in millions)	Balance			%			Balance			%			Balance			%
Loans in-school/grace/deferment(1)	$	2,576					$	2,791					$	3,130
Loans in forbearance(2)		7,397						7,725						15,453
Loans in repayment and percentage of each status:
Loans current		42,026			91.7	%		43,623			90.8	%		39,152			91.8	%
Loans delinquent 31-60 days(3)		1,398			3.0			1,374			2.9			1,222			2.9
Loans delinquent 61-90 days(3)		685			1.5			836			1.7			657			1.5
Loans delinquent greater than 90 days(3)		1,745			3.8			2,223			4.6			1,609			3.8
Total FFELP Loans in repayment		45,854			100	%		48,056			100	%		42,640			100	%
Total FFELP Loans		55,827						58,572						61,223
FFELP Loan allowance for losses		(277	)					(288	)					(302	)
FFELP Loans, net	$	55,550					$	58,284					$	60,921
Percentage of FFELP Loans in repayment					82.1	%					82.0	%					69.6	%
Delinquencies as a percentage of FFELP Loans in    repayment					8.3	%					9.2	%					8.2	%
FFELP Loans in forbearance as a percentage of    loans in repayment and forbearance					13.9	%					13.8	%					26.6	%

⁽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, including COVID-19 relief programs, 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.

   Loan type:

(Dollars in millions)	June 30, 2021		June 30, 2020		Change
Stafford Loans	$	16,996	$	18,364	$	(1,368	)
Consolidation Loans		34,011		37,829		(3,818	)
Rehab Loans		4,820		5,030		(210	)
Total	$	55,827	$	61,223	$	(5,396	)

59

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

2.   Allowance for Loan Losses (Continued)

Private Education Loans

The key credit quality indicators are credit scores (FICO scores), loan status, loan seasoning, whether a loan is a TDR, the existence of a cosigner and school type. The FICO score is the higher of the borrower or co-borrower score and is updated at least every six months while school type is assessed at origination. The other Private Education Loan key quality indicators are updated quarterly.

	Private Education Loan Credit Quality Indicators by Origination Year
	June 30, 2021
(Dollars in millions)	June 30, 2021		2020		2019		2018		2017		Prior		Total			% of Total
Credit Quality    Indicators
FICO Scores:
640 and above	$	2,713	$	2,517	$	2,291	$	839	$	259	$	10,467	$	19,086			92	%
Below 640		15		9		31		20		8		1,532	$	1,615			8
Total	$	2,728	$	2,526	$	2,322	$	859	$	267	$	11,999	$	20,701			100	%
Loan Status:
In-school/grace/    deferment/forbearance	$	12	$	29	$	37	$	19	$	7	$	905	$	1,009			5	%
Current/90 days or    less delinquent		2,716		2,496		2,283		839		259		10,906		19,499			94
Greater than 90 days    delinquent		—		1		2		1		1		188		193			1
Total	$	2,728	$	2,526	$	2,322	$	859	$	267	$	11,999	$	20,701			100	%
Seasoning(1):
1-12 payments	$	2,720	$	1,497	$	50	$	6	$	2	$	152	$	4,427			22	%
13-24 payments		—		1,010		1,869		27		4		181		3,091		15
25-36 payments		—		—		381		621		16		297		1,315			6
37-48 payments		—		—		—		195		197		463		855		4
More than 48    payments		—		—		—		—		46		10,564		10,610			51
Loans in-school/    grace/deferment		8		19		22		10		2		342		403		2
Total	$	2,728	$	2,526	$	2,322	$	859	$	267	$	11,999	$	20,701			100	%
TDR Status:
TDR	$	—	$	3	$	20	$	26	$	30	$	7,504	$	7,583			37	%
Non-TDR		2,728		2,523		2,302		833		237		4,495		13,118			63
Total	$	2,728	$	2,526	$	2,322	$	859	$	267	$	11,999	$	20,701			100	%
Cosigners:
With cosigner(2)	$	8	$	36	$	13	$	1	$	39	$	7,883	$	7,980			39	%
Without cosigner		2,720		2,490		2,309		858		228		4,116		12,721			61
Total	$	2,728	$	2,526	$	2,322	$	859	$	267	$	11,999	$	20,701			100	%
School Type:
Not-for-profit	$	2,583	$	2,412	$	2,166	$	792	$	256	$	9,960	$	18,169			88	%
For-profit		145		114		156		67		11		2,039		2,532			12
Total	$	2,728	$	2,526	$	2,322	$	859	$	267	$	11,999	$	20,701			100	%
Allowance for loan    losses														(976	)
Total loans, net													$	19,725

⁽¹⁾  Number of months in active repayment for which a scheduled payment was received.

⁽²⁾  Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 65% for total loans at June 30, 2021.

60

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

2.   Allowance for Loan Losses (Continued)

	Private Education Loan Credit Quality Indicators by Origination Year
	June 30, 2020
(Dollars in millions)	June 30, 2020		2019		2018		2017		2016		Prior		Total			% of Total
Credit Quality    Indicators
FICO Scores:
640 and above	$	2,028	$	3,831	$	1,368	$	445	$	94	$	12,346	$	20,112			89	%
Below 640		8		40		27		11		3		2,359		2,448			11
Total	$	2,036	$	3,871	$	1,395	$	456	$	97	$	14,705	$	22,560			100	%
Loan Status:
In-school/grace/    deferment/forbearance	$	89	$	180	$	80	$	28	$	8	$	1,974	$	2,359			10	%
Current/90 days or    less delinquent		1,947		3,690		1,313		427		89		12,525		19,991			89
Greater than 90 days    delinquent		—		1		2		1		—		206		210			1
Total	$	2,036	$	3,871	$	1,395	$	456	$	97	$	14,705	$	22,560			100	%
Seasoning(1):
1-12 payments	$	2,032	$	3,203	$	14	$	2	$	—	$	214	$	5,465			24	%
13-24 payments		—		651		1,017		14		2		283		1,967		9
25-36 payments		—		—		352		350		6		465		1,173			5
37-48 payments		—		—		—		86		86		698		870		4
More than 48    payments		—		—		—		—		2		12,571		12,573			56
Loans in-school/    grace/deferment		4		17		12		4		1		474		512		2
Total	$	2,036	$	3,871	$	1,395	$	456	$	97	$	14,705	$	22,560			100	%
TDR Status:
TDR	$	—	$	5	$	21	$	31	$	12	$	8,679	$	8,748			39	%
Non-TDR		2,036		3,866		1,374		425		85		6,026		13,812			61
Total	$	2,036	$	3,871	$	1,395	$	456	$	97	$	14,705	$	22,560			100	%
Cosigners:
With cosigner(2)	$	2	$	14	$	1	$	58	$	26	$	9,641	$	9,742			43	%
Without cosigner		2,034		3,857		1,394		398		71		5,064		12,818			57
Total	$	2,036	$	3,871	$	1,395	$	456	$	97	$	14,705	$	22,560			100	%
School Type:
Not-for-profit	$	1,918	$	3,618	$	1,292	$	436	$	96	$	12,155	$	19,515			86	%
For-profit		118		253		103		20		1		2,550		3,045			14
Total	$	2,036	$	3,871	$	1,395	$	456	$	97	$	14,705	$	22,560			100	%
Allowance for loan    losses														(1,098	)
Total loans, net													$	21,462

⁽¹⁾  Number of months in active repayment for which a scheduled payment was received.

⁽²⁾  Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 65% for total loans at June 30, 2020.

61

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

2.   Allowance for Loan Losses (Continued)

	Private Education Loan Delinquencies
	TDRs
	June 30, 2021						December 31, 2020						June 30, 2020
(Dollars in millions)	Balance			%			Balance			%			Balance			%
Loans in-school/grace/deferment(1)	$	220					$	280					$	293
Loans in forbearance(2)		517						703						1,253
Loans in repayment and percentage of each status:
Loans current		6,387			93.3	%		6,952			93.4	%		6,827			94.8	%
Loans delinquent 31-60 days(3)		186			2.7			185			2.5			110			1.5
Loans delinquent 61-90 days(3)		95			1.4			114			1.5			77			1.1
Loans delinquent greater than 90 days(3)		178			2.6			197			2.6			188			2.6
Total TDR loans in repayment		6,846			100	%		7,448			100	%		7,202			100	%
Total TDR loans		7,583						8,431						8,748
TDR loans allowance for losses		(826	)					(929	)					(933	)
TDR loans, net	$	6,757					$	7,502					$	7,815
Percentage of TDR loans in repayment					90.3	%					88.3	%					82.3	%
Delinquencies as a percentage of TDR loans in    repayment					6.7	%					6.6	%					5.2	%
Loans in forbearance as a percentage of TDR    loans in repayment and forbearance					7.0	%					8.6	%					14.8	%

⁽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, including COVID-19 relief programs, 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.

62

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

2.   Allowance for Loan Losses (Continued)

	Private Education Loan Delinquencies
	Non-TDRs
	June 30, 2021						December 31, 2020						June 30, 2020
(Dollars in millions)	Balance			%			Balance			%			Balance			%
Loans in-school/grace/deferment(1)	$	183					$	203					$	219
Loans in forbearance(2)		89						141						594
Loans in repayment and percentage of each status:
Loans current		12,800			99.6	%		13,335			99.6	%		12,948			99.6	%
Loans delinquent 31-60 days(3)		22			.2			26			.2			18			.1
Loans delinquent 61-90 days(3)		9			.1			12			.1			11			.1
Loans delinquent greater than 90 days(3)		15			.1			20			.1			22			.2
Total non-TDR loans in repayment		12,846			100	%		13,393			100	%		12,999			100	%
Total non-TDR loans		13,118						13,737						13,812
Non-TDR loans allowance for losses		(150	)					(160	)					(165	)
Non-TDR loans, net	$	12,968					$	13,577					$	13,647
Percentage of non-TDR loans in repayment					97.9	%					97.5	%					94.1	%
Delinquencies as a percentage of non-TDR    loans in repayment					.4	%					.4	%					.4	%
Loans in forbearance as a percentage of non-    TDR loans in repayment and forbearance					.7	%					1.0	%					4.4	%

⁽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, including COVID-19 relief programs, 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.

63

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

3.   Borrowings

The following table summarizes our borrowings.

	June 30, 2021						December 31, 2020
(Dollars in millions)	Short Term		Long Term		Total		Short Term		Long Term		Total
Unsecured borrowings:
Senior unsecured debt(1)	$	1,658	$	6,465	$	8,123	$	677	$	7,714	$	8,391
Total unsecured borrowings		1,658		6,465		8,123		677		7,714		8,391
Secured borrowings:
FFELP Loan securitizations(2)		—		54,000		54,000		—		54,697		54,697
Private Education Loan securitizations(3)		832		13,154		13,986		960		13,891		14,851
FFELP Loan ABCP facilities		—		462		462		2,053		479		2,532
Private Education Loan ABCP facilities		1,194		1,259		2,453		2,582		—		2,582
Other(4)		354		—		354		337		—		337
Total secured borrowings		2,380		68,875		71,255		5,932		69,067		74,999
Total before hedge accounting adjustments		4,038		75,340		79,378		6,609		76,781		83,390
Hedge accounting adjustments		30		474		504		4		551		555
Total	$	4,068	$	75,814	$	79,882	$	6,613	$	77,332	$	83,945

⁽¹⁾ Includes principal amount of $1.7 billion and $678 million of short-term debt as of June 30, 2021 and December 31, 2020, respectively. Includes principal amount of $6.5 billion and $7.8 billion of long-term debt as of June 30, 2021 and December 31, 2020, respectively.

⁽²⁾ Includes $155 million and $157 million of long-term debt related to the FFELP Loan asset-backed securitization repurchase facilities (“FFELP Loan Repurchase Facilities”) as of June 30, 2021 and December 31, 2020, respectively.

⁽³⁾ Includes $832 million and $960 million of short-term debt related to the Private Education Loan asset-backed securitization repurchase facilities (“Private Education Loan Repurchase Facilities”) as of June 30, 2021 and December 31, 2020, respectively. Includes $0 and $260 million of long-term debt related to the Private Education Loan Repurchase Facilities as of June 30, 2021 and December 31, 2020, respectively.

⁽⁴⁾ “Other” primarily includes the obligation to return cash collateral held related to derivative exposures.

64

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

3.   Borrowings (Continued)

Variable Interest Entities

We consolidated the following financing VIEs as of June 30, 2021 and December 31, 2020, as we are the primary beneficiary. As a result, these VIEs are accounted for as secured borrowings.

	June 30, 2021
	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	$	—	$	54,000		$	54,000		$	54,773	$	1,641	$	1,479		$	57,893
Private Education Loan securitizations		832		13,154			13,986			14,830		551		172			15,553
FFELP Loan ABCP facilities		—		462			462			455		9		17			481
Private Education Loan ABCP facilities		1,194		1,259			2,453			2,494		74		27			2,595
Total before hedge accounting    adjustments		2,026		68,875			70,901			72,552		2,275		1,695			76,522
Hedge accounting adjustments		—		(25	)		(25	)		—		—		(116	)		(116	)
Total	$	2,026	$	68,850		$	70,876		$	72,552	$	2,275	$	1,579		$	76,406

	December 31, 2020
	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	$	—	$	54,697		$	54,697		$	55,535	$	1,606	$	1,438		$	58,579
Private Education Loan securitizations		960		13,891			14,851			15,823		606		187			16,616
FFELP Loan ABCP facilities		2,053		479			2,532			2,533		36		76			2,645
Private Education Loan ABCP facilities		2,582		—			2,582			2,835		74		27			2,936
Total before hedge accounting    adjustments		5,595		69,067			74,662			76,726		2,322		1,728			80,776
Hedge accounting adjustments		—		(167	)		(167	)		—		—		(308	)		(308	)
Total	$	5,595	$	68,900		$	74,495		$	76,726	$	2,322	$	1,420		$	80,468

65

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

4.   Derivative Financial Instruments

Summary of Derivative Financial Statement Impact

The following tables summarize the fair values and notional amounts of all derivative instruments and their impact on net income and other comprehensive income

Impact of Derivatives on Balance Sheet

		Cash Flow				Fair Value(4)						Trading						Total
(Dollars in millions)	Hedged Risk Exposure	Jun 30, 2021		Dec 31, 2020		Jun 30, 2021			Dec 31, 2020			Jun 30, 2021			Dec 31, 2020			Jun 30, 2021			Dec 31, 2020
Fair Values(1)
Derivative Assets:
Interest rate swaps	Interest rate	$	—	$	—	$	260		$	323		$	3		$	6		$	263		$	329
Cross-currency interest rate    swaps	Foreign currency and interest rate		—		—		13			28			—			—			13			28
Total derivative assets(2)			—		—		273			351			3			6			276			357
Derivative Liabilities:
Interest rate swaps	Interest rate		—		—		—			—			(9	)		(14	)		(9	)		(14	)
Floor Income Contracts	Interest rate		—		—		—			—			(139	)		(197	)		(139	)		(197	)
Cross-currency interest rate    swaps	Foreign currency and interest rate		—		—		(121	)		(322	)		—			—			(121	)		(322	)
Other(3)	Interest rate		—		—		—			—			—			—			—			—
Total derivative liabilities(2)			—		—		(121	)		(322	)		(148	)		(211	)		(269	)		(533	)
Net total derivatives		$	—	$	—	$	152		$	29		$	(145	)	$	(205	)	$	7		$	(176	)

⁽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⁾ 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)	June 30, 2021			December 31, 2020			June 30, 2021			December 31, 2020
Gross position	$	276		$	357		$	(269	)	$	(533	)
Impact of master netting agreements		(30	)		(50	)		30			50
Derivative values with impact of master netting    agreements (as carried on balance sheet)		246			307			(239	)		(483	)
Cash collateral (held) pledged		(285	)		(336	)		183			234
Net position	$	(39	)	$	(29	)	$	(56	)	$	(249	)

⁽³⁾ “Other” includes derivatives related to our Total Return Swap Facility.

⁽⁴⁾ The following table shows the carrying value of liabilities in fair value hedges and the related fair value hedging adjustments to these liabilities:

	As of June 30, 2021				As of December 31, 2020
(Dollar in millions)	Carrying Value		Hedge Basis Adjustments		Carrying Value		Hedge Basis Adjustments
Short-term borrowings	$	1,685	$	30	$	631	$	4
Long-term borrowings	$	8,271	$	465	$	11,017	$	541

66

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

4.   Derivative Financial Instruments (Continued)

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 June 30, 2021 and December 31, 2020 by $5 million and $8 million, 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 June 30, 2021 and December 31, 2020 by $3 million and $5 million, respectively.

	Cash Flow				Fair Value				Trading				Total
(Dollars in billions)	Jun 30, 2021		Dec 31, 2020		Jun 30, 2021		Dec 31, 2020		Jun 30, 2021		Dec 31, 2020		Jun 30, 2021		Dec 31, 2020
Notional Values:
Interest rate swaps	$	16.4	$	16.7	$	7.3	$	7.5	$	31.2	$	26.8	$	54.9	$	51.0
Floor Income Contracts		—		—		—		—		12.5		17.0		12.5		17.0
Cross-currency interest rate swaps		—		—		2.2		3.7		—		—		2.2		3.7
Total derivatives	$	16.4	$	16.7	$	9.5	$	11.2	$	43.7	$	43.8	$	69.6	$	71.7

Mark-to-Market Impact of Derivatives on Statements of Income

	Total Gains (Losses)
	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in millions)	2021			2020			2021			2020
Fair Value Hedges:
Interest Rate Swaps
Gains (losses) recognized in net income on derivatives	$	22		$	15		$	(175	)	$	424
Gains (losses) recognized in net income on hedged items		(21	)		(27	)		191			(455	)
Net fair value hedge ineffectiveness gains (losses)		1			(12	)		16			(31	)
Cross currency interest rate swaps
Gains (losses) recognized in net income on derivatives		117			60			186			(31	)
Gains (losses) recognized in net income on hedged items		(102	)		(54	)		(141	)		47
Net fair value hedge ineffectiveness gains (losses)		15			6			45			16
Total fair value hedges(1)(2)		16			(6	)		61			(15	)
Cash Flow Hedges:
Total cash flow hedges(2)		—			—			—			—
Trading:
Interest rate swaps		(7	)		(6	)		15			(47	)
Floor income contracts		(3	)		(24	)		11			(206	)
Cross currency interest rate swaps		—			—			—			—
Other		—			—			—			—
Total trading derivatives(3)		(10	)		(30	)		26			(253	)
Mark-to-market gains (losses) recognized	$	6		$	(36	)	$	87		$	(268	)

⁽¹⁾  Recorded in interest expense in the consolidated statements of income.

⁽²⁾  The accrued interest income (expense) on fair value hedges and cash flow hedges is recorded in interest expense and is excluded from this table.

⁽³⁾  Recorded in “gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.

67

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

4.   Derivative Financial Instruments (Continued)

Impact of Derivatives on Other Comprehensive Income (Equity)

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in millions)	2021			2020			2021		2020
Total gains (losses) on cash flow hedges	$	(5	)	$	(28	)	$	22	$	(237	)
Reclassification adjustments for derivative (gains) losses     included in net income (interest expense)(1)		22			11			43		11
Net changes in cash flow hedges, net of tax	$	17		$	(17	)	$	65	$	(226	)

⁽¹⁾ Includes net settlement income/expense.  

Collateral

The following table details collateral held and pledged related to derivative exposure between us and our derivative counterparties:

(Dollars in millions)	June 30, 2021		December 31, 2020
Collateral held:
Cash (obligation to return cash collateral is recorded in short-term borrowings)	$	285	$	336
Securities at fair value — corporate derivatives (not recorded in financial    statements)(1)		—		—
Securities at fair value — on-balance sheet securitization derivatives (not    recorded in financial statements)(2)		45		78
Total collateral held	$	330	$	414
Derivative asset at fair value including accrued interest	$	293	$	351
Collateral pledged to others:
Cash (right to receive return of cash collateral is recorded in investments)	$	183	$	234
Total collateral pledged	$	183	$	234
Derivative liability at fair value including accrued interest and premium    receivable	$	254	$	504

⁽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.

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 $121 million with our counterparties. Downgrades in our unsecured credit rating would not result in any additional collateral requirements. Trust related derivatives do not contain credit contingent features related to our or the trusts’ credit ratings. At June 30, 2021 and December 31, 2020, we had a net positive exposure (derivative gain positions to us less collateral which has been posted by counterparties to us) related to Navient Corporation derivatives of $14 million and $13 million, respectively. The trusts are not required to post collateral to the counterparties. At June 30, 2021 and December 31, 2020, the net positive exposure on swaps in securitization trusts was $13 million and $28 million, respectively.

The table below highlights credit exposure related to our derivative counterparties at June 30, 2021.

(Dollars in millions)	Corporate Contracts			Securitization Trust Contracts
Exposure, net of collateral	$	14		$	13
Percent of exposure to counterparties with credit ratings    below S&P AA- or Moody’s Aa3		100	%		—	%
Percent of exposure to counterparties with credit ratings    below S&P A- or Moody’s A3		17	%		—	%

68

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

5.   Other Assets

The following table provides the detail of our other assets.

(Dollars in millions)	June 30, 2021		December 31, 2020
Accrued interest receivable	$	1,889	$	1,933
Benefit and insurance-related investments		467		469
Income tax asset, net		358		454
Derivatives at fair value		246		307
Accounts receivable		129		118
Fixed assets, net		113		116
Other		70		95
Total	$	3,272	$	3,492

6.   Stockholders’ Equity

The following table summarizes common share repurchases, issuances and dividends paid.

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars and shares in millions, except per share amounts)	2021		2020		2021		2020
Common stock repurchased(1)		11.8		—		19.9		23.0
Common stock repurchased (in dollars)(1)	$	200	$	—	$	300	$	335
Average purchase price per share(1)	$	17.02	$	—	$	15.05	$	14.61
Remaining common stock repurchase authority(1)	$	300	$	665	$	300	$	665
Shares repurchased related to employee stock-    based compensation plans(2)		.6		—		2.8		.9
Average purchase price per share(2)	$	17.28	$	—	$	12.99	$	13.66
Common shares issued(3)		.6		.1		4.3		2.4
Dividends paid	$	27	$	31	$	56	$	62
Dividends per share	$	.16	$	.16	$	.32	$	.32

⁽¹⁾  Common shares purchased under our share repurchase program. Our board of directors authorized a $1 billion multi-year share repurchase program in October 2019.

⁽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 June 30, 2021 was $19.33.

69

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

7.   Earnings (Loss) per Common Share

Basic earnings (loss) 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 on a GAAP basis follows.

	Three Months Ended June 30,				Six Months Ended June 30,
(In millions, except per share data)	2021		2020		2021		2020
Numerator:
Net income	$	185	$	125	$	555	$	19
Denominator:
Weighted average shares used to compute basic EPS		174		194		178		197
Effect of dilutive securities:
Dilutive effect of stock options, restricted stock,    restricted stock units, performance stock units,    and Employee Stock Purchase Plan (ESPP)(1)		2		1		2		1
Dilutive potential common shares(2)		2		1		2		1
Weighted average shares used to compute    diluted EPS		176		195		180		198
Basic earnings per common share	$	1.07	$	.65	$	3.12	$	.10
Diluted earnings per common share	$	1.05	$	.64	$	3.08	$	.10

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

⁽²⁾ For the three months ended June 30, 2021 and 2020, securities covering approximately 0 and 5 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive. For the six months ended June 30, 2021 and 2020, securities covering approximately 1 million and 4 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive.

8.   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. See “Note 11 – Fair Value Measurements” in our 2020 Form 10-K for a full discussion.

During the three and six months ended June 30, 2021, there were no significant transfers of financial instruments between levels, or changes in our methodology used to value our financial instruments.

70

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

8.   Fair Value Measurements (Continued)

The following table summarizes the valuation of our financial instruments that are marked-to-market on a recurring basis. During second quarter 2021 and 2020, there were no significant transfers of financial instruments between levels.

	Fair Value Measurements on a Recurring Basis
	June 30, 2021											December 31, 2020
(Dollars in millions)	Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3			Total
Assets
Derivative instruments:(1)
Interest rate swaps	$	—	$	260		$	3		$	263		$	—	$	323		$	6		$	329
Cross-currency interest    rate swaps		—		—			13			13			—		—			28			28
Total derivative assets(2)		—		260			16			276			—		323			34			357
Total	$	—	$	260		$	16		$	276		$	—	$	323		$	34		$	357
Liabilities(3)
Derivative instruments(1)
Interest rate swaps	$	—	$	—		$	(9	)	$	(9	)	$	—	$	—		$	(14	)	$	(14	)
Floor Income Contracts		—		(139	)		—			(139	)		—		(197	)		—			(197	)
Cross-currency interest    rate swaps		—		—			(121	)		(121	)		—		—			(322	)		(322	)
Other		—		—			—			—			—		—			—			—
Total derivative liabilities(2)		—		(139	)		(130	)		(269	)		—		(197	)		(336	)		(533	)
Total	$	—	$	(139	)	$	(130	)	$	(269	)	$	—	$	(197	)	$	(336	)	$	(533	)

⁽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 item 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 not reflected in this table.

71

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

8.   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 June 30,
	2021											2020
	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	$	(7	)	$	(225	)	$	—	$	(232	)	$	(12	)	$	(666	)	$	—	$	(678	)
Total gains/(losses):
Included in earnings(1)		1			111			—		112			1			47			—		48
Included in other comprehensive income		—			—			—		—			—			—			—		—
Settlements		—			6			—		6			—			13			—		13
Transfers in and/or out of level 3		—			—			—		—			—			—			—		—
Balance, end of period	$	(6	)	$	(108	)	$	—	$	(114	)	$	(11	)	$	(606	)	$	—	$	(617	)
Change in mark-to-market gains/(losses)    relating to instruments still held at the    reporting date(2)	$	1		$	21		$	—	$	22		$	1		$	60		$	—	$	61

	Six Months Ended June 30,
	2021											2020
	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	$	(8	)	$	(294	)	$	—	$	(302	)	$	(17	)	$	(575	)	$	(1	)	$	(593	)
Total gains/(losses):
Included in earnings(1)		2			173			—		175			6			(65	)		—			(59	)
Included in other comprehensive income		—			—			—		—			—			—			—			—
Settlements		—			13			—		13			—			34			1			35
Transfers in and/or out of level 3		—			—			—		—			—			—			—			—
Balance, end of period	$	(6	)	$	(108	)	$	—	$	(114	)	$	(11	)	$	(606	)	$	—		$	(617	)
Change in mark-to-market gains/(losses)    relating to instruments still held at the    reporting date(2)	$	2		$	(76	)	$	—	$	(74	)	$	3		$	(31	)	$	1		$	(27	)

⁽¹⁾ “Included in earnings” is comprised of the following amounts recorded in the specified line item in the consolidated statements of income:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in millions)	2021		2020		2021		2020
Gains (losses) on derivative and hedging activities, net	$	1	$	1	$	2	$	6
Interest expense		111		47		173		(65	)
Total	$	112	$	48	$	175	$	(59	)

⁽²⁾ Recorded in “gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.

72

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

8.   Fair Value Measurements (Continued)

The following table presents the significant inputs that are unobservable or from inactive markets used in the recurring valuations of the level 3 financial instruments detailed above.

(Dollars in millions)	Fair Value at June 30, 2021			Valuation Technique	Input	Range and Weighted Average
Derivatives
Prime/LIBOR basis swaps	$	(6	)	Discounted cash flow	Constant Prepayment Rate	9%
					Bid/ask adjustment to discount rate	.08%
Cross-currency interest rate swaps		(108	)	Discounted cash flow	Constant Prepayment Rate	5%
Other		—
Total	$	(114	)

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

	June 30, 2021									December 31, 2020
(Dollars in millions)	Fair Value			Carrying Value			Difference			Fair Value			Carrying Value			Difference
Earning assets
FFELP Loans	$	57,002		$	55,550		$	1,452		$	59,117		$	58,284		$	833
Private Education Loans		20,858			19,725			1,133			22,462			21,079			1,383
Cash and investments		4,075			4,075			—			3,822			3,822			—
Total earning assets		81,935			79,350			2,585			85,401			83,185			2,216
Interest-bearing liabilities
Short-term borrowings		4,111			4,068			(43	)		6,626			6,613			(13	)
Long-term borrowings		76,156			75,814			(342	)		76,719			77,332			613
Total interest-bearing liabilities		80,267			79,882			(385	)		83,345			83,945			600
Derivative financial instruments
Floor Income Contracts		(139	)		(139	)		—			(197	)		(197	)		—
Interest rate swaps		254			254			—			315			315			—
Cross-currency interest rate swaps		(108	)		(108	)		—			(294	)		(294	)		—
Other		—			—			—			—			—			—
Excess of net asset fair value over carrying value							$	2,200								$	2,816

73

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

9.   Commitments and Contingencies

Legal Proceedings

We and our subsidiaries and affiliates are subject to various claims, lawsuits and other actions that arise in the normal course of business. We believe that these claims, lawsuits and other actions will not, individually or in the aggregate, have a material adverse effect on our business, financial condition or results of operations, except as otherwise disclosed. Most of these matters are claims including individual and class action lawsuits against our servicing or business processing subsidiaries alleging the violation of state or federal laws in connection with servicing or collection activities on their education loans and other debts.

In the ordinary course of our business, the Company and our subsidiaries and affiliates receive information and document requests and investigative demands from various entities including State Attorneys General, U.S. Attorneys, legislative committees, individual members of Congress and administrative agencies. These requests may be informational, regulatory or enforcement in nature and may relate to our business practices, the industries in which we operate, or companies with whom we conduct business. Generally, our practice has been and continues to be to cooperate with these bodies and to be responsive to any such requests.

The number of these inquiries and the volume of related information demands continue to increase and therefore continue to increase the time, costs and resources we must dedicate to timely respond to these requests and may, depending on their outcome, result in payments of restitution, fines and penalties.

Certain Cases

During the first quarter of 2016, Navient Corporation, certain Navient officers and directors, and the underwriters of certain Navient securities offerings were sued in three putative securities class action lawsuits filed on behalf of certain investors in Navient stock or Navient unsecured debt. These three cases, which were filed in the U.S. District Court for the District of Delaware, were consolidated by the District Court, with Lord Abbett Funds appointed as Lead Plaintiff. The caption of the consolidated case is Lord Abbett Affiliated Fund, Inc., et al. v. Navient Corporation, et al. The plaintiffs filed their amended and consolidated complaint in September 2016. In September 2017, the Court granted the Navient defendants’ motion and dismissed the complaint in its entirety with leave to amend. The plaintiffs filed a second amended complaint with the court in November 2017 and the Navient defendants filed a motion to dismiss the second amended complaint in January 2018. In January 2019, the Court granted-in-part and denied-in-part the Navient defendants’ motion to dismiss. In July 2021, we filed a Motion for Summary judgement in the case. The Navient defendants deny the allegations and intend to vigorously defend against the allegation in this lawsuit.  Additionally, two putative class actions have been filed in the U.S. District Court for the District of New Jersey captioned Eli Pope v. Navient Corporation, John F. Remondi, Somsak Chivavibul and Christian Lown, and Melvin Gross v. Navient Corporation, John F. Remondi, Somsak Chivavibul and Christian M. Lown, both of which allege violations of the federal securities laws under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. After the cases were consolidated by the Court in February 2018 under the caption In Re Navient Corporation Securities Litigation, the plaintiffs filed a consolidated amended complaint in April 2018 and the Company filed a motion to dismiss in June 2018. In December 2019, the Court denied the Company’s motion to dismiss. The Company continues to deny the allegations and intends to vigorously defend itself.

In addition, the Company has been named as defendant in a number of putative class action cases alleging violations of various state and federal consumer protection laws including the Telephone Consumer Protection Act (TCPA), the Consumer Financial Protection Act of 2010 (CFPA), the Fair Credit Reporting Act (FCRA), the Fair Debt Collection Practices Act (FDCPA) and various other state consumer protection laws.

At this point in time, the Company is unable to anticipate the timing of a resolution or the impact that these legal proceedings discussed above may have on the Company’s consolidated financial position, liquidity, results of operation or cash flows. As a result, it is not possible at this time to estimate a range of potential exposure, if any, for amounts that may be payable in connection with these matters and reserves have not been established. It is possible that an adverse ruling or rulings may have a material adverse impact on the Company.

74

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

9.   Commitments and Contingencies (Continued)

In January 2017, the Consumer Financial Protection Bureau (the CFPB) and Attorneys General for the State of Illinois and the State of Washington initiated civil actions naming Navient Corporation and several of its subsidiaries as defendants alleging violations of certain Federal and State consumer protection statutes, including the CFPA, FCRA, FDCPA and various state consumer protection laws. In October 2017, the Attorney General for the Commonwealth of Pennsylvania initiated a civil action against Navient Corporation and Navient Solutions, LLC (Solutions), containing similar alleged violations of the CFPA and the Pennsylvania Unfair Trade Practices and Consumer Protection Law. The Attorneys General for the States of California, Mississippi and, in October 2020, New Jersey have also initiated actions against the Company and certain subsidiaries alleging violations of various state and federal consumer protection laws based upon similar alleged acts or failures to act. We refer to the Illinois, Pennsylvania, Washington, California, Mississippi and New Jersey Attorneys General collectively as the “State Attorneys General.” In addition to these matters, a number of lawsuits have been filed by nongovernmental parties or, in the future, may be filed by additional governmental or nongovernmental parties seeking damages or other remedies related to similar issues raised by the CFPB and the State Attorneys General. As the Company has previously stated, we believe the suits improperly seek to impose penalties on Navient based on new, previously unannounced servicing standards applied retroactively against only one servicer, and that the allegations are false. We therefore have denied these allegations and are vigorously defending against the allegations in each of these cases. At this point in time, it is reasonably possible that a loss contingency exists; however, the Company is unable to anticipate the timing of a resolution or the impact that these legal proceedings may have on the Company’s consolidated financial position, liquidity, results of operation or cash flows. As a result, it is not possible at this time to estimate a range of potential exposure, if any, for amounts that may be payable in connection with these matters and reserves have not been established. It is possible that an adverse ruling or rulings may have a material adverse impact on the Company.

Regulatory Matters

In addition, Navient and its subsidiaries are subject to examination or regulation by various federal regulatory, state licensing or other regulatory agencies as part of its ordinary course of business including the SEC, CFPB, FFIEC and ED. Items or matters similar to or different from those described above may arise during the course of those examinations. We also routinely receive inquiries or requests from various regulatory entities or bodies or government agencies concerning our business or our assets. Generally, the Company endeavors to cooperate with each such inquiry or request. The Company subsequently received separate  CIDs or subpoenas from the Attorneys General for the District of Columbia, Kansas, Oregon, Colorado, New Jersey, New York and Indiana that are similar to the CIDs or subpoenas that preceded the lawsuits referenced above. We have and, in the future, may receive additional CIDs or subpoenas and other inquiries from these or other Attorneys General with respect to similar or different matters.

Under the terms of the Separation and Distribution Agreement between the Company and SLM BankCo, Navient agreed to indemnify SLM BankCo for claims, actions, damages, losses or expenses that may arise from the conduct of activities of pre-Spin-Off SLM BankCo occurring prior to the Spin-Off other than those specifically excluded in that agreement. Also, as part of the Separation and Distribution Agreement, SLM BankCo agreed to indemnify Navient for certain claims, actions, damages, losses or expenses subject to the terms, conditions and limitations set forth in that agreement. As a result, subject to the terms, conditions and limitations set forth in that agreement, Navient agreed to indemnify and hold harmless Sallie Mae and its subsidiaries, including Sallie Mae Bank from liabilities arising out of the regulatory matters and CFPB and State Attorneys General lawsuits mentioned above. In addition, we asserted various claims for indemnification against Sallie Mae and Sallie Mae Bank for such specifically excluded items arising out of the CFPB and the State Attorneys General lawsuits if and to the extent any indemnified liabilities exist now or in the future. We expect these various indemnification claims to be resolved at a future date as the cases move toward conclusion. Navient has no reserves related to indemnification matters with SLM BankCo as of June 30, 2021.

75

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

9.   Commitments and Contingencies (Continued)

OIG Audit

The Office of the Inspector General (the OIG) of ED commenced an audit regarding Special Allowance Payments (SAP) on September 10, 2007. In September 2013, we received the final audit determination of Federal Student Aid (the Final Audit Determination) on the final audit report issued by the OIG in August 2009 related to this audit. The Final Audit Determination concurred with the final audit report issued by the OIG and instructed us to make adjustment to our government billing to reflect the policy determination. In August 2016, we filed our notice of appeal to the Administrative Actions and Appeals Service Group of ED, and a hearing was held in April 2017. In March 2019, the administrative law judge hearing the appeal affirmed the audit’s findings, holding the then-existing Dear Colleague letter relied upon by the Company and other industry participants was inconsistent with the statutory framework creating the SAP rules applicable to loans funded by certain types of debt obligations at issue. We appealed the administrative law judge’s decision to the Secretary of Education given Navient’s adherence to ED-issued guidance and the potential impact on participants in any ED program student loan servicers if such guidance is deemed unreliable and may not be relied upon. In January 2021, the Acting Secretary of Education upheld the decision of the administrative law judge. In March 2021, we filed a complaint for declaratory judgment in federal court seeking to set aside the Acting Secretary’s decision. We continue to believe that our SAP billing practices were proper, considering then-existing ED guidance and lack of applicable regulations. We filed a lawsuit in federal court challenging the Acting Secretary’s decision. That case is pending. The Company first established a reserve for this matter in 2014 and increased the reserve in 2020 in response to the decision by the Acting Secretary. We do not believe, at this time, that an adverse ruling will have a material effect on the Company as a whole.

Contingencies

In the ordinary course of business, we and our subsidiaries are defendants in or parties to pending and threatened legal actions and proceedings including actions brought on behalf of various classes of claimants. These actions and proceedings may be based on alleged violations of consumer protection, securities, employment and other laws. In certain of these actions and proceedings, claims for substantial monetary damage are asserted against us and our subsidiaries. We and our subsidiaries are also subject to potential unasserted claims by third parties.

In the ordinary course of business, we and our subsidiaries are subject to regulatory examinations, information gathering requests, inquiries and investigations. In connection with formal and informal inquiries in these cases, we and our subsidiaries receive requests, subpoenas and orders for documents, testimony and information in connection with various aspects of our regulated activities.

We are required to establish reserves for litigation and regulatory matters where those matters present loss contingencies that are both probable and estimable. When loss contingencies are not both probable and estimable, we do not establish reserves.

In view of the inherent difficulty of predicting the outcome of litigation and regulatory matters, we may not be able to predict what the eventual outcome of the pending matters will be, what the timing or the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties, if any, related to each pending matter may be.

Based on current knowledge, reserves have been established for certain litigation, regulatory matters, and unasserted contract claims where the loss is both probable and estimable. Based on current knowledge, management does not believe that loss contingencies, if any, arising from pending investigations, litigation or regulatory matters will have a material adverse effect on our consolidated financial position, liquidity, results of operations or cash flows, except as otherwise disclosed.

76

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

10.   Revenue from Contracts with Customers Accounted for in Accordance with ASC 606

The following tables illustrate the disaggregation of revenue from contracts with customers accounted for under ASC 606 according to service type and client type by reportable operating segment.

Revenue by Service Type

	Three Months Ended June 30,
	2021						2020
(Dollars in millions)	Federal Education Loans		Business Processing		Total Revenue		Federal Education Loans		Business Processing		Total Revenue
Federal Education Loan    asset recovery services	$	4	$	—	$	4	$	21	$	—	$	21
Government services		—		66		66		—		43		43
Healthcare services		—		64		64		—		21		21
Total	$	4	$	130	$	134	$	21	$	64	$	85
	Six Months Ended June 30,
	2021						2020
(Dollars in millions)	Federal Education Loans		Business Processing		Total Revenue		Federal Education Loans		Business Processing		Total Revenue
Federal Education Loan    asset recovery services	$	9	$	—	$	9	$	51	$	—	$	51
Government services		—		129		129		—		77		77
Healthcare services		—		126		126		—		45		45
Total	$	9	$	255	$	264	$	51	$	122	$	173

77

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

10.   Revenue from Contracts with Customers Accounted for in Accordance with ASC 606 (Continued)

Revenue by Client Type

	Three Months Ended June 30,
	2021						2020
(Dollars in millions)	Federal Education Loans		Business Processing		Total Revenue		Federal Education Loans		Business Processing		Total Revenue
Federal government	$	—	$	6	$	6	$	11	$	3	$	14
Guarantor agencies		4		—		4		9		—		9
Other institutions		—		—		—		1		—		1
State and local government		—		46		46		—		29		29
Tolling authorities		—		14		14		—		11		11
Hospitals and other    healthcare providers		—		64		64		—		21		21
Total	$	4	$	130	$	134	$	21	$	64	$	85
	Six Months Ended June 30,
	2021						2020
(Dollars in millions)	Federal Education Loans		Business Processing		Total Revenue		Federal Education Loans		Business Processing		Total Revenue
Federal government	$	1	$	14	$	15	$	29	$	8	$	37
Guarantor agencies		8		—		8		21		—		21
Other institutions		—		—		—		1		—		1
State and local government		—		88		88		—		45		45
Tolling authorities		—		27		27		—		24		24
Hospitals and other    healthcare providers		—		126		126		—		45		45
Total	$	9	$	255	$	264	$	51	$	122	$	173

As of June 30, 2021 and June 30, 2020, there was $97 million and $72 million, respectively, of net accounts receivable related to these contracts. Navient had no material contract assets or contract liabilities.

78

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

11.   Segment Reporting

We monitor and assess our ongoing operations and results based on the following four reportable operating segments: Federal Education Loans, Consumer Lending, Business Processing and Other.

These segments meet the quantitative thresholds for reportable operating segments.  Accordingly, the results of operations of these reportable operating segments are presented separately. The underlying operating segments are used by the Company’s chief operating decision maker to manage the business, review operating performance and allocate resources, and qualify to be aggregated as part of the primary reportable operating segments. As discussed further below, we measure the profitability of our operating segments based on Core Earnings net income. Accordingly, information regarding our reportable operating segments net income is provided on a Core Earnings basis.

Federal Education Loans Segment

In this segment, Navient owns FFELP Loans and performs servicing and asset recovery services on this portfolio. We also service and perform asset recovery services on federal education loans owned by ED and other institutions. Our servicing quality, data-driven strategies, and multichannel education about federal repayment options translates into positive results for the millions of borrowers we serve.

We generate revenue primarily through net interest income on the FFELP Loan portfolio as well as servicing and asset recovery services revenue. This segment is expected to generate significant earnings and cash flow over the remaining life of the portfolio.

The following table includes asset information for our Federal Education Loans segment.

(Dollars in millions)	June 30, 2021		December 31, 2020
FFELP Loans, net	$	55,550	$	58,284
Cash and investments(1)		1,694		1,685
Other		2,138		2,241
Total assets	$	59,382	$	62,210

⁽¹⁾  Includes restricted cash and investments.

Consumer Lending Segment

In this segment, Navient owns, originates, acquires and services high-quality private education loans. We believe our more than 45 years of experience, product design, digital marketing strategies, and origination and servicing platform provide a unique competitive advantage. We see meaningful opportunities in originating Private Education Loans to financially responsible consumers, generating attractive long-term risk adjusted returns. We generate revenue primarily through net interest income on our Private Education Loan portfolio.  

The following table includes asset information for our Consumer Lending segment.

(Dollars in millions)	June 30, 2021		December 31, 2020
Private Education Loans, net	$	19,725	$	21,079
Cash and investments(1)		878		828
Other		883		964
Total assets	$	21,486	$	22,871

⁽¹⁾  Includes restricted cash and investments.

79

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

11.   Segment Reporting (Continued)

Business Processing Segment

In this segment, Navient performs business processing services for over 500 government and healthcare clients.

• Government services: We provide state governments, agencies, court systems, municipalities, and parking and tolling authorities with expert service, leveraging  our scale, integrated technology solutions and data-driven approach. Our support enables our clients to better serve their constituents, meet rapidly changing needs, reduce their operating expenses, manage risk and maximize revenue opportunities.

• Healthcare services: We perform revenue cycle outsourcing, accounts receivable management, extended business office support, consulting engagements and public health programs. We offer customizable solutions for our clients that include hospitals, hospital systems, medical centers, large physician groups, other healthcare providers and departments of public health.

At June 30, 2021 and December 31, 2020, the Business Processing segment had total assets of $416 million and $425 million, respectively.

Other Segment

This segment primarily consists of our corporate liquidity portfolio, gains and losses incurred on the repurchase of debt, unallocated expenses of shared services and restructuring/other reorganization expenses.

Unallocated shared services expenses are comprised of costs primarily related to information technology costs related to infrastructure and operations, stock-based compensation expense, accounting, finance, legal, compliance and risk management, regulatory-related expenses, human resources, certain executive management and the board of directors. Regulatory-related expenses include actual settlement amounts as well as third-party professional fees we incur in connection with such regulatory matters and are presented net of any insurance reimbursements for covered costs related to such matters.

At June 30, 2021 and December 31, 2020, the Other segment had total assets of $2.1 billion and $1.9 billion, respectively.

80

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

11.   Segment Reporting (Continued)

Measure of Profitability

We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate our business segments and present financial results on a basis that differs from GAAP. We refer to this different basis of presentation as Core Earnings. We provide this Core Earnings basis of presentation on a consolidated basis and for each business segment because this is what we review internally when making management decisions regarding our performance and how we allocate resources. We also refer to this information in our presentations with credit rating agencies, lenders and investors. Because our Core Earnings basis of presentation corresponds to our segment financial presentations, we are required by GAAP to provide Core Earnings disclosure in the notes to our consolidated financial statements for our business segments.

Core Earnings are not a substitute for reported results under GAAP. We use Core Earnings to manage our business segments because Core Earnings reflect adjustments to GAAP financial results for two items, discussed below, that can create significant volatility mostly due to timing factors generally beyond the control of management. Accordingly, we believe that Core Earnings provide management with a useful basis from which to better evaluate results from ongoing operations against the business plan or against results from prior periods. Consequently, we disclose this information because we believe it provides investors with additional information regarding the operational and performance indicators that are most closely assessed by management. When compared to GAAP results, the two items we remove to result in our Core Earnings presentations are:

1. Mark-to-market gains/losses resulting from our use of derivative instruments to hedge our economic risks that do not qualify for hedge accounting treatment or do qualify for hedge accounting treatment but result in ineffectiveness; and

2. The accounting for goodwill and acquired intangible assets.

While GAAP provides a uniform, comprehensive basis of accounting, for the reasons described above, our Core Earnings basis of presentation does not. Core Earnings are subject to certain general and specific limitations that investors should carefully consider. For example, there is no comprehensive, authoritative guidance for management reporting. Our Core Earnings are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. Accordingly, our Core Earnings presentation does not represent a comprehensive basis of accounting. Investors, therefore, may not be able to compare our performance with that of other financial services companies based upon Core Earnings. Core Earnings results are only meant to supplement GAAP results by providing additional information regarding the operational and performance indicators that are most closely used by management, our board of directors, credit rating agencies, lenders and investors to assess performance.

81

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

11.   Segment Reporting (Continued)

Segment Results and Reconciliations to GAAP

	Three Months Ended June 30, 2021
														Adjustments
(Dollars in millions)	Federal Education Loans		Consumer Lending			Business Processing		Other			Total Core Earnings			Reclassi- fications			Additions/ (Subtractions)			Total Adjustments(1)			Total GAAP
Interest income:
Education loans	$	351	$	295		$	—	$	—		$	646		$	24		$	(10	)	$	14		$	660
Cash and investments		—		—			—		1			1			—			—			—			1
Total interest income		351		295			—		1			647			24			(10	)		14			661
Total interest expense		210		137			—		18			365			(2	)		(24	)		(26	)		339
Net interest income (loss)		141		158			—		(17	)		282			26			14			40			322
Less: provisions for loan losses		—		(1	)		—		—			(1	)		—			—			—			(1	)
Net interest income (loss) after    provisions for loan losses		141		159			—		(17	)		283			26			14			40			323
Other income (loss):
Servicing revenue		47		3			—		—			50			—			—			—			50
Asset recovery and business    processing revenue		12		—			130		—			142			—			—			—			142
Other income (loss)		2		—			—		2			4			(26	)		16			(10	)		(6	)
Gains on sales of loans		—		2			—		—			2			—			—			—			2
Losses on debt repurchases		—		—			—		(12	)		(12	)		—			—			—			(12	)
Total other income (loss)		61		5			130		(10	)		186			(26	)		16			(10	)		176
Expenses:
Direct operating expenses		55		39			92		—			186			—			—			—			186
Unallocated shared services    expenses		—		—			—		66			66			—			—			—			66
Operating expenses		55		39			92		66			252			—			—			—			252
Goodwill and acquired intangible    asset impairment and    amortization		—		—			—		—			—			—			5			5			5
Restructuring/other reorganization    expenses		—		—			—		2			2			—			—			—			2
Total expenses		55		39			92		68			254			—			5			5			259
Income (loss) before income tax    expense (benefit)		147		125			38		(95	)		215			—			25			25			240
Income tax expense (benefit)(2)		34		29			9		(22	)		50			—			5			5			55
Net income (loss)	$	113	$	96		$	29	$	(73	)	$	165		$	—		$	20		$	20		$	185

⁽¹⁾  Core Earnings adjustments to GAAP:

	Three Months Ended June 30, 2021
(Dollars in millions)	Net Impact of Derivative Accounting			Net Impact of Goodwill and Acquired Intangibles			Total
Net interest income (loss) after provisions for loan losses	$	40		$	—		$	40
Total other income (loss)		(10	)		—			(10	)
Goodwill and acquired intangible asset impairment and amortization		—			5			5
Total Core Earnings adjustments to GAAP	$	30		$	(5	)		25
Income tax expense (benefit)								5
Net income (loss)							$	20

⁽²⁾  Income taxes are based on a percentage of net income before tax for the individual reportable segment.

82

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

11.   Segment Reporting (Continued)

	Three Months Ended June 30, 2020
												Adjustments
(Dollars in millions)	Federal Education Loans		Consumer Lending		Business Processing		Other			Total Core Earnings		Reclassi- fications			Additions/ (Subtractions)			Total Adjustments(1)			Total GAAP
Interest income:
Education loans	$	456	$	362	$	—	$	—		$	818	$	13		$	(14	)	$	(1	)	$	817
Cash and investments		1		—		—		1			2		—			—			—			2
Total interest income		457		362		—		1			820		13			(14	)		(1	)		819
Total interest expense		286		174		—		31			491		25			3			28			519
Net interest income (loss)		171		188		—		(30	)		329		(12	)		(17	)		(29	)		300
Less: provisions for loan losses		3		41		—		—			44		—			—			—			44
Net interest income (loss) after    provisions for loan losses		168		147		—		(30	)		285		(12	)		(17	)		(29	)		256
Other income (loss):
Servicing revenue		51		1		—		—			52		—			—			—			52
Asset recovery and business    processing revenue		38		—		64		—			102		—			—			—			102
Other income (loss)		5		—		—		4			9		12			(42	)		(30	)		(21	)
Total other income (loss)		94		1		64		4			163		12			(42	)		(30	)		133
Expenses:
Direct operating expenses		70		34		57		—			161		—			—			—			161
Unallocated shared services expenses		—		—		—		52			52		—			—			—			52
Operating expenses		70		34		57		52			213		—			—			—			213
Goodwill and acquired intangible asset    impairment and amortization		—		—		—		—			—		—			5			5			5
Restructuring/other reorganization    expenses		—		—		—		1			1		—			—			—			1
Total expenses		70		34		57		53			214		—			5			5			219
Income (loss) before income tax    expense (benefit)		192		114		7		(79	)		234		—			(64	)		(64	)		170
Income tax expense (benefit)(2)		46		27		1		(19	)		55		—			(10	)		(10	)		45
Net income (loss)	$	146	$	87	$	6	$	(60	)	$	179	$	—		$	(54	)	$	(54	)	$	125

⁽¹⁾  Core Earnings adjustments to GAAP:

	Three Months Ended June 30, 2020
(Dollars in millions)	Net Impact of Derivative Accounting			Net Impact of Goodwill and Acquired Intangibles			Total
Net interest income (loss) after provisions for loan losses	$	(29	)	$	—		$	(29	)
Total other income (loss)		(30	)		—			(30	)
Goodwill and acquired intangible asset impairment and amortization		—			5			5
Total Core Earnings adjustments to GAAP	$	(59	)	$	(5	)		(64	)
Income tax expense (benefit)								(10	)
Net income (loss)							$	(54	)

⁽²⁾  Income taxes are based on a percentage of net income before tax for the individual reportable segment.

83

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

11.   Segment Reporting (Continued)

	Six Months Ended June 30, 2021
														Adjustments
(Dollars in millions)	Federal Education Loans		Consumer Lending			Business Processing		Other			Total Core Earnings			Reclassi- fications			Additions/ (Subtractions)			Total Adjustments(1)			Total GAAP
Interest income:
Education loans	$	709	$	614		$	—	$	—		$	1,323		$	48		$	(20	)	$	28		$	1,351
Cash and investments		—		—			—		1			1			—			—			—			1
Total interest income		709		614			—		1			1,324			48			(20	)		28			1,352
Total interest expense		424		287			—		36			747			(3	)		(77	)		(80	)		667
Net interest income (loss)		285		327			—		(35	)		577			51			57			108			685
Less: provisions for loan losses		—		(88	)		—		—			(88	)		—			—			—			(88	)
Net interest income (loss) after    provisions for loan losses		285		415			—		(35	)		665			51			57			108			773
Other income (loss):
Servicing revenue		99		3			—		—			102			—			—			—			102
Asset recovery and business    processing revenue		26		—			255		—			281			—			—			—			281
Other income (loss)		2		1			—		2			5			(38	)		64			26			31
Gains on sales of loans		—		91			—		—			91			(13	)		—			(13	)		78
Losses on debt repurchases		—		—			—		(12	)		(12	)		—			—			—			(12	)
Total other income (loss)		127		95			255		(10	)		467			(51	)		64			13			480
Expenses:
Direct operating expenses		117		79			183		—			379			—			—			—			379
Unallocated shared services expenses		—		—			—		131			131			—			—			—			131
Operating expenses		117		79			183		131			510			—			—			—			510
Goodwill and acquired intangible    asset impairment and amortization		—		—			—		—			—			—			10			10			10
Restructuring/other reorganization    expenses		—		—			—		8			8			—			—			—			8
Total expenses		117		79			183		139			518			—			10			10			528
Income (loss) before income tax    expense (benefit)		295		431			72		(184	)		614			—			111			111			725
Income tax expense (benefit)(2)		70		101			17		(43	)		145			—			25			25			170
Net income (loss)	$	225	$	330		$	55	$	(141	)	$	469		$	—		$	86		$	86		$	555

⁽¹⁾  Core Earnings adjustments to GAAP:

	Six Months Ended June 30, 2021
(Dollars in millions)	Net Impact of Derivative Accounting		Net Impact of Goodwill and Acquired Intangibles			Total
Net interest income (loss) after provisions for loan losses	$	108	$	—		$	108
Total other income (loss)		13		—			13
Goodwill and acquired intangible asset impairment and amortization		—		10			10
Total Core Earnings adjustments to GAAP	$	121	$	(10	)		111
Income tax expense (benefit)							25
Net income (loss)						$	86

⁽²⁾  Income taxes are based on a percentage of net income before tax for the individual reportable segment.

84

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

11.   Segment Reporting (Continued)

	Six Months Ended June 30, 2020
												Adjustments
(Dollars in millions)	Federal Education Loans		Consumer Lending		Business Processing		Other			Total Core Earnings		Reclassi- fications			Additions/ (Subtractions)			Total Adjustments(1)			Total GAAP
Interest income:
Education loans	$	1,037	$	767	$	—	$	—		$	1,804	$	16		$	(28	)	$	(12	)	$	1,792
Cash and investments		7		3		—		5			15		—			—			—			15
Total interest income		1,044		770		—		5			1,819		16			(28	)		(12	)		1,807
Total interest expense		742		385		—		66			1,193		32			9			41			1,234
Net interest income (loss)		302		385		—		(61	)		626		(16	)		(37	)		(53	)		573
Less: provisions for loan losses		9		130		—		—			139		—			—			—			139
Net interest income (loss) after    provisions for loan losses		293		255		—		(61	)		487		(16	)		(37	)		(53	)		434
Other income (loss):
Servicing revenue		106		3		—		—			109		—			—			—			109
Asset recovery and business    processing revenue		90		—		122		—			212		—			—			—			212
Other income (loss)		9		—		—		8			17		16			(269	)		(253	)		(236	)
Total other income (loss)		205		3		122		8			338		16			(269	)		(253	)		85
Expenses:
Direct operating expenses		153		72		111		—			336		—			—			—			336
Unallocated shared services    expenses		—		—		—		127			127		—			—			—			127
Operating expenses		153		72		111		127			463		—			—			—			463
Goodwill and acquired intangible    asset impairment and amortization		—		—		—		—			—		—			11			11			11
Restructuring/other reorganization    expenses		—		—		—		6			6		—			—			—			6
Total expenses		153		72		111		133			469		—			11			11			480
Income (loss) before income tax    expense (benefit)		345		186		11		(186	)		356		—			(317	)		(317	)		39
Income tax expense (benefit)(2)		82		43		3		(44	)		84		—			(64	)		(64	)		20
Net income (loss)	$	263	$	143	$	8	$	(142	)	$	272	$	—		$	(253	)	$	(253	)	$	19

⁽¹⁾  Core Earnings adjustments to GAAP:

	Six Months Ended June 30, 2020
(Dollars in millions)	Net Impact of Derivative Accounting			Net Impact of Goodwill and Acquired Intangibles			Total
Net interest income (loss) after provisions for loan losses	$	(53	)	$	—		$	(53	)
Total other income (loss)		(253	)		—			(253	)
Goodwill and acquired intangible asset impairment and amortization		—			11			11
Total Core Earnings adjustments to GAAP	$	(306	)	$	(11	)		(317	)
Income tax expense (benefit)								(64	)
Net income (loss)							$	(253	)

⁽²⁾  Income taxes are based on a percentage of net income before tax for the individual reportable segment.

85

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2021 and for the three and six months ended

June 30, 2021 and 2020 is unaudited)

11.   Segment Reporting (Continued)

Summary of Core Earnings Adjustments to GAAP

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in millions)	2021			2020			2021			2020
Core Earnings net income	$	165		$	179		$	469		$	272
Core Earnings adjustments to GAAP:
Net impact of derivative accounting(1)		30			(59	)		121			(306	)
Net impact of goodwill and acquired intangible assets(2)		(5	)		(5	)		(10	)		(11	)
Net tax effect(3)		(5	)		10			(25	)		64
Total Core Earnings adjustments to GAAP		20			(54	)		86			(253	)
GAAP net income	$	185		$	125		$	555		$	19

⁽¹⁾ Derivative accounting: Core Earnings exclude periodic gains and losses that are caused by the mark-to-market valuations on derivatives that do not qualify for hedge accounting treatment under GAAP as well as the periodic mark-to-market gains and losses that are a result of ineffectiveness recognized related to effective hedges under GAAP. Under GAAP, for our derivatives that are held to maturity, the mark-to-market gain or loss over the life of the contract will equal $0 except for Floor Income Contracts where the mark-to-market gain will equal the amount for which we sold the contract. In our Core Earnings presentation, we recognize the economic effect of these hedges, which generally results in any net settlement cash paid or received being recognized ratably as an interest expense or revenue over the hedged item’s life.

⁽²⁾ Goodwill and acquired intangible assets: Our Core Earnings exclude goodwill and intangible asset impairment and amortization of acquired intangible assets.

⁽³⁾ Net tax effect: Such tax effect is based upon our Core Earnings effective tax rate for the year.

86

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

NAVIENT CORPORATION (Registrant)
By:	/s/ JOE FISHER
	Joe Fisher
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

Date: July 28, 2021

87

 APPENDIX A

form 10-Q cross-reference index

Page

Number

Part I. Financial Information
Item 1.	Financial Statements	47-86
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7-39
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41-44
Item 4.	Controls and Procedures	45
Part II. Other Information
Item 1.	Legal Proceedings	40, 74
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	Not Applicable
Item 4.	Mine Safety Disclosures	Not Applicable
Item 5.	Other Information	Not Applicable
Item 6.	Exhibits	46
Signatures		87

88