NAVIENT CORP (NAVI) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from NAVIENT CORP's 10-K for fiscal year 2021. Filing date: 2022-02-25. Report date: 2021-12-31. Accession: 0001564590-22-007182.

This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.

Extracted from a later financial-section MD&A body after the formal Item 7 span was a short reference. Confidence: high.

Company profile: NAVI · All MD&A years: index · Next year: FY 2022

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

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis also contains forward-looking statements and should be read in conjunction with the disclosures and information contained in “Forward-Looking and Cautionary Statements” and “Risk Factors” in this Annual Report on Form 10-K.

The objective of this discussion and analysis is to allow investors to view the company from management’s perspective. Accordingly, we provide the reader with 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. The discussion that follows is primarily focused on 2021 versus 2020 results. Discussion and analysis of 2020 results compared to 2019 is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on February 26, 2021.

Selected Historical Financial Information and Ratios

	Years Ended December 31,
(In millions, except per share data)	2021			2020			2019
GAAP Basis
Net income(1)	$	717			$	412		$	597
Diluted earnings per common share	$	4.18			$	2.12		$	2.56
Weighted average shares used to compute diluted earnings per share		172				195			233
Return on assets		.88	%			.47	%		.63	%
Dividends per common share	$	.64			$	.64		$	.64
Return on common stockholders’ equity		27	%			17	%		18	%
Dividend payout ratio		15	%			30	%		25	%
Average equity/average assets		3.20	%			2.60	%		3.39	%
Total assets	$	80,605			$	87,412		$	94,903
Total borrowings	$	76,978			$	83,945		$	90,198
Total Navient Corporation stockholders’ equity	$	2,597			$	2,433		$	3,336
Book value per common share	$	16.89			$	13.06		$	15.49
Core Earnings Basis(2)
Net income(1)(2)	$	551			$	631		$	607
Diluted earnings per common share(2)	$	3.21			$	3.24		$	2.60
Adjusted diluted earnings per common share(2)	$	4.45			$	3.40		$	2.64
Weighted average shares used to compute diluted earnings per share		172				195			233
Net interest margin, Federal Education Loans segment		.99	%			.99	%		.83	%
Net interest margin, Consumer Lending segment		2.92	%			3.20	%		3.30	%
Return on assets		.68	%			.71	%		.64	%
Education Loan Portfolios
Ending FFELP Loans, net	$	52,641			$	58,284		$	64,575
Ending Private Education Loans, net		20,171				21,079			22,245
Ending total education loans, net	$	72,812			$	79,363		$	86,820
Average FFELP Loans	$	56,018			$	61,522		$	68,271
Average Private Education Loans		21,225				22,720			22,512
Average total education loans	$	77,243			$	84,242		$	90,783

Column 1	Column 2
(1)	Regulatory expenses (which are excluded from Adjusted Core Earnings(2) expenses) for 2021 include $170 million, on an after-tax basis, related to the resolution of previously disclosed State Attorneys General litigation and investigations. See “Results of Operations – GAAP Comparison of 2021 Results with 2020” for further details. This expense equals $0.99 per share for 2021.

Column 1	Column 2
(2)	Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures – Core Earnings.”

The Year 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.

2021 GAAP net income was $717 million(1) ($4.18 diluted earnings per share), compared with $412 million ($2.12 diluted earnings per share) in the prior year. See “Results of Operations – Comparison of 2021 Results with 2020” for a discussion of the primary contributors to the change in GAAP earnings between periods.

2021 Core Earnings(2) net income was $551 million(1) ($3.21 diluted Core Earnings per share), compared with $631 million ($3.24 diluted Core Earnings per share) for 2020. Full-year 2021 and 2020 adjusted Core Earnings(2) diluted earnings per share were $4.45 and $3.40 respectively. See “Segment Results” for a discussion of the primary contributors to the change in Core Earnings between periods.

2021 was a year where we exceeded all of our original ﬁnancial targets, demonstrated the value of our education loan portfolio, leveraged our technology and infrastructure to grow our business processing segment, increased returns to shareholders, strengthened capital and took signiﬁcant steps to simplify and de-risk the business. Financial highlights of 2021 versus 2020 include:

Federal Education Loans segment:

Column 1	Column 2	Column 3
	•	Net income decreased $83 million, or 15%, from $537 million to $454 million;

Column 1	Column 2	Column 3
	•	FFELP Loan delinquency rate increased from 9.2% to 10.6% and is below pre-pandemic levels;

Column 1	Column 2	Column 3
	•	Transferred the servicing contract for ED owned student loan accounts to a third party in October 2021;

Consumer Lending segment:

Column 1	Column 2	Column 3
	•	Net income increased $132 million, or 37%, from $360 million to $492 million;

Column 1	Column 2	Column 3
	•	Originated $6.0 billion of Private Education Loans, a 30% increase over the prior year;

Column 1	Column 2	Column 3
	•	Private Education Loan delinquency rate increased from 2.6% to 3.2% and is below pre-pandemic levels;

Business Processing segment:

Column 1	Column 2	Column 3
	•	EBITDA(2) increased $79 million, or 139%, from $57 million to $136 million;

Column 1	Column 2	Column 3
	•	Revenue increased $184 million, or 61%, to $488 million;

Capital, funding and liquidity:

Column 1	Column 2	Column 3
	•	Adjusted tangible equity ratio(2) increased to 5.9% from 5.0%;

Column 1	Column 2	Column 3
	•	Repurchased $600 million of common shares. Authorized $1 billion in a new multi-year share repurchase program in December, all of which remains outstanding;

Column 1	Column 2	Column 3
	•	Paid $107 million in common stock dividends;

Column 1	Column 2	Column 3
	•	Issued $9.5 billion in term ABS and $1.3 billion in unsecured debt;

Column 1	Column 2	Column 3
	•	Repurchased $2.6 billion of unsecured debt, resulting in a pre-tax loss of $73 million ($0.33 per share), compared with $768 million repurchased at a $6 million loss ($0.02 per share) in the year-ago period; and

Expenses:

Column 1	Column 2	Column 3
	•	Adjusted Core Earnings expenses(2) increased $43 million to $974 million. This increase was primarily a result of a $106 million increase in expenses in the Business Processing segment related to the increase in revenue discussed above.

Column 1	Column 2
(1)	Regulatory expenses (which are excluded from Adjusted Core Earnings(2) expenses) for 2021 include $170 million, on an after-tax basis, related to the resolution of previously disclosed State Attorneys General litigation and investigations. See “Results of Operations – GAAP Comparison of 2021 Results with 2020” for further details. This expense equals $0.99 per share for 2021.

Column 1	Column 2
(2)	Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”

Navient’s Response to COVID-19

Since its emergence in early 2020, the COVID-19 pandemic has been dynamic and unpredictable. Variants continue to emerge while efforts to mitigate and contain the impact of the pandemic continue to evolve. In response to the COVID-19 pandemic, we have prioritized the safety of our employees and business partners, while continually striving to support the needs of our customers and communities during this unprecedented period. During 2021, the COVID-19 pandemic continued to affect our business operations, as set forth below.

Our Team Members

Since the onset of the pandemic, we have taken decisive 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 December 31, 2021, approximately 85% of our team remains on work-from-home status. To facilitate the work-from-home experience, we have implemented various digital platforms and virtual collaboration tools to maintain productivity and to remain in contact with one another and our business partners. As a result of these steps, the pandemic has not adversely affected our ability to maintain our operations or service our customers and borrowers. While we had anticipated that some of our team members would begin returning to the office in the second half of 2021, the Delta and Omicron variants of the virus caused us to delay their return for the immediate future. Once we begin the return-to-office process, we anticipate that many of our team members may continue to work remotely or utilize a hybrid work model. The return-to-office 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

Our FFELP and Private Education Loan portfolios have been impacted and may continue to be impacted by the pandemic. To date, we have offered COVID-19 relief options such as the use of forbearance to those borrowers. Private Education Loans in forbearance decreased to $535 million or 2.6% of the portfolio at December 31, 2021, after peaking at $3.4 billion or 14.7% during the second quarter of 2020. Despite the COVID-19 crisis, we have seen most borrowers continue to make payments according to their payment plans. As a result, the delinquency and forbearance rates on the Private Education portfolio as of December 31, 2021, are below pre-pandemic levels as of December 31, 2019. 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 largely due to the strength of the economy heading into March 2020 and the COVID-19 forbearance granted to borrowers. We see this continued decline with charge-offs of $153 million in 2021. Our allowance for loan losses covers our expectation that defaults will begin to increase in 2022 given the default timing impact related to the use of forbearance and the end of various payment relief and stimulus benefit programs recently, and in the near future. Our total reserves were $1.6 billion (excluding the expected future recoveries on charged-off loans) at December 31, 2021, which represent reserves equal to 6.3% of our Private Education Loans and 0.5% of our FFELP Loan portfolio.

The pandemic initially required us to reduce our marketing efforts and tighten credit related to our Private Education Loan origination business 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 increased 30% from 2020 to 2021 with $6.0 billion, $4.6 billion and $4.9 billion of originations in 2021, 2020 and 2019, respectively.

Clients and Business Processing Segment Performance

Our Business Processing Segment (BPS) has experienced record revenue and profitability during the pandemic. EBITDA(1) for this segment increased from $57 million a year ago to $136 million in 2021. This rapid increase in revenue has been largely the result of our ability to transition our technology-enabled solutions and team members to support state clients working to help residents access various benefits implemented in connection with the CARES Act. BPS has also provided contact tracing and vaccine administration services to numerous state and local governments during the pandemic. The revenue derived from these new service offerings has greatly exceeded the negative revenue impact BPS experienced as a result of COVID-19 on the traditional services provided. While the revenue from these new business opportunities has declined as the impact of the pandemic abates, we also expect new opportunities for this segment as a result of services provided to these clients during the pandemic.

Liquidity, Financings and Capital

The impact of the pandemic on the capital markets was significant during the early part of the pandemic, 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 2021, we issued $1.3 billion of unsecured debt and $9.5 billion of ABS below pre-COVID-19 cost of funds levels. Throughout the pandemic we have maintained a strong liquidity position. As of December 31, 2021, we had $1.4 billion of primary sources of liquidity, $905 million of which was cash. We also had, as of December 31, 2021, additional capacity in our funding facilities of $2.2 billion for Private Education Loans and $546 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 2021 with an Adjusted Tangible Equity Ratio(1) of 5.9% 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 $616 million (after tax) as of December 31, 2020 and $299 million (after tax) as of December 31, 2021. These losses will reverse over time as these derivatives mature.

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” 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.

Column 1	Column 2
(1)	Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”

Results of Operations

GAAP Income Statements

										Increase (Decrease)
	Years Ended December 31,			2021 vs. 2020			2020 vs. 2019
(Dollars in millions, except per share amounts)	2021			2020			2019		$	%			$		%
Interest income
FFELP Loans	$	1,464			$	1,837		$	2,847	$	(373	)		(20	)%	$	(1,010	)	(35	)%
Private Education Loans		1,181				1,445			1,731		(264	)		(18	)		(286	)	(17	)
Other loans		—				—			2		—			—			(2	)	(100	)
Cash and investments		3				16			93		(13	)		(81	)		(77	)	(83	)
Total interest income		2,648				3,298			4,673		(650	)		(20	)		(1,375	)	(29	)
Total interest expense		1,316				2,046			3,488		(730	)		(36	)		(1,442	)	(41	)
Net interest income		1,332				1,252			1,185		80			6			67		6
Less: provisions for loan losses		(61	)			155			258		(216	)		(139	)		(103	)	(40	)
Net interest income after provisions for loan losses		1,393				1,097			927		296			27			170		18
Other income (loss):
Servicing revenue		168				214			240		(46	)		(21	)		(26	)	(11	)
Asset recovery and business processing revenue		539				458			488		81			18			(30	)	(6	)
Other income		30				20			45		10			50			(25	)	(56	)
Gains on sales of loans		78				—			16		78			100			(16	)	(100	)
Gains (losses) on debt repurchases		(73	)			(6	)		45		(67	)		1,117			(51	)	(113	)
Gains (losses) on derivative and hedging activities, net		64				(256	)		22		320			125			(278	)	(1,264	)
Total other income		806				430			856		376			87			(426	)	(50	)
Expenses:
Operating expenses		1,207				964			984		243			25			(20	)	(2	)
Goodwill and acquired intangible assets impairment and amortization expense		30				22			30		8			36			(8	)	(27	)
Restructuring/other reorganization expenses		26				9			6		17			189			3		50
Total expenses		1,263				995			1,020		268			27			(25	)	(2	)
Income before income tax expense		936				532			763		404			76			(231	)	(30	)
Income tax expense		219				120			166		99			83			(46	)	(28	)
Net income	$	717			$	412		$	597	$	305			74	%	$	(185	)	(31	)%
Basic earnings per common share	$	4.23			$	2.14		$	2.59	$	2.09			98	%	$	(.45	)	(17	)%
Diluted earnings per common share	$	4.18			$	2.12		$	2.56	$	2.06			97	%	$	(.44	)	(17	)%
Dividends per common share	$	.64			$	.64		$	.64	$	—			—	%	$	—		—	%

GAAP Comparison of 2021 Results with 2020

For the year ended December 31, 2021, net income was $717 million, or $4.18 diluted earnings per common share, compared with net income of $412 million, or $2.12 diluted earnings per common share, for the year-ago period.

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

Column 1	Column 2	Column 3
	•	Net interest income increased by $80 million, primarily as a result of a $105 million increase in mark-to-market gains on fair value hedges recorded in interest expense. Also contributing to the increase is 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, as well as the $1.6 billion of Private Education Loans sales in first-quarter 2021.

Column 1	Column 2	Column 3
	•	Provisions for loan losses decreased $216 million from $155 million to $(61) million:

Column 1	Column 2	Column 3
	○	The provision for FFELP loan losses decreased $13 million to $0.

Column 1	Column 2	Column 3
	○	The provision for Private Education Loan losses decreased $203 million from $142 million to $(61) million.

The negative provision for 2021 of $(61) million was comprised of $64 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 $18 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 recently and 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.

Column 1	Column 2	Column 3
	•	Servicing revenue decreased $46 million primarily related to the transfer of the servicing contract for 5.6 million ED owned student loan accounts from Navient to a third party on October 6, 2021. As a result, Navient no longer is a party to the ED servicing contract. To aid in the transition, Navient will provide certain services into 2022 to the third party through a transition services agreement (see discussion below related to “Other income”). As part of the transaction, approximately 700 Navient employees were transferred to the third party. This transaction provided a seamless transition for millions of borrowers ensuring the ongoing servicing capacity for the Department of ED through the knowledge transfer and ongoing employment of 700 employees. Additional benefits to Navient of this transaction are the simplification of our business, reducing our overall risk profile and avoiding significant severance expense.

Column 1	Column 2	Column 3
	•	Asset recovery and business processing revenue increased $81 million primarily as a result of a $184 million increase in revenue earned in our Business Processing segment, primarily due to contracts to support states in providing pandemic relief services, as well as revenue from our traditional Business Processing segment services we perform for our government and healthcare services clients. These increases were partially offset by the impact of COVID-19 on certain collection activities and the planned wind-down of the ED asset recovery contract in the Federal Education Loan segment.

Column 1	Column 2	Column 3
	•	Other income increased $10 million primarily related to the transition services being performed in connection with the transfer of the ED servicing contract to a third party discussed above.

Column 1	Column 2	Column 3
	•	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:

Column 1	Column 2	Column 3
	○	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

Column 1	Column 2	Column 3
	○	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.

Column 1	Column 2	Column 3
	•	Losses on debt repurchases increased $67 million. We repurchased $2.6 billion of debt at a $73 million loss in the current period compared to $768 million repurchased at a $6 million loss in the year-ago period. As a part of our asset liability management, we regularly repurchase debt to optimize the funding of our portfolio of educations loans to better match asset and liability maturities and reduce our interest costs.

Column 1	Column 2	Column 3
	•	Net gains on derivative and hedging activities increased $320 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

Column 1	Column 2	Column 3
		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 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. In 2021, interest rates have increased which has resulted in mark-to-market gains on these instruments.

Column 1	Column 2	Column 3
	•	Excluding net regulatory-related expenses of $233 million and $33 million in 2021 and 2020, respectively, operating expenses were $974 million and $931 million in 2021 and 2020, respectively. This $43 million increase was primarily a result of a $106 million increase in expenses in the Business Processing segment in connection with the increase in segment revenue, with an offsetting $64 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.

Included in current period regulatory expenses is $205 million related to the settlements with State Attorneys General, which were entered into on January 13, 2022, to resolve all matters in dispute related to certain previously disclosed Attorneys General litigation and investigations. In fourth-quarter 2021, when such loss became probable, the Company recognized this contingent liability. The $205 million expense is comprised of approximately $155 million of cash payments and $50 million in connection with forgiving certain loans and the related amount of the expected future recoveries of these charged-off loans carried on the balance sheet. Prior to the fourth quarter, this contingent liability was neither probable nor reasonably estimable and, as a result, no contingent liability had been previously established. See “Note 12 – Commitments, Contingencies and Guarantees” for further discussion.

Column 1	Column 2	Column 3
	•	Goodwill and acquired intangible asset impairment and amortization expense increased $8 million primarily related to $8 million of goodwill that was written off in connection with the transfer of the ED servicing contract discussed above.

Column 1	Column 2	Column 3
	•	During 2021 and 2020, the Company incurred $26 million and $9 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, severance-related costs and the impairment of a facility held for sale. The increase from the year-ago period is primarily related to the impairment of a facility held for sale.

We repurchased 34.4 million and 30.6 million shares of our common stock during the years ended December 31, 2021 and 2020, respectively. As a result of repurchases, our average outstanding diluted shares decreased by 23 million common shares (or 12%) from the year-ago period.

Segment Results

Federal Education Loans Segment

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

	Years Ended December 31,		% Increase (Decrease)
(Dollars in millions)	2021		2020			2019		2021 vs. 2020	2020 vs. 2019
Interest income:
FFELP Loans	$	1,405		$	1,813		$	2,907		(23	)%	(38	)%
Other loans		—			—			1		—		(100	)
Cash and investments		—			7			50		(100	)	(86	)
Total interest income		1,405			1,820			2,958		(23	)	(38	)
Total interest expense		830			1,194			2,376		(30	)	(50	)
Net interest income		575			626			582		(8	)	8
Less: provision for loan losses		—			13			30		(100	)	(57	)
Net interest income after provision for loan losses		575			613			552		(6	)	11
Other income (loss):
Servicing revenue		162			208			229		(22	)	(9	)
Asset recovery and business processing revenue		51			154			230		(67	)	(33	)
Other income		25			9			28		178		(68	)
Total other income		238			371			487		(36	)	(24	)
Direct operating expenses		223			287			359		(22	)	(20	)
Income before income tax expense		590			697			680		(15	)	3
Income tax expense		136			160			155		(15	)	3
Core Earnings	$	454		$	537		$	525		(15	)%	2	%

Highlights of 2021 vs. 2020

Column 1	Column 2
•	Core Earnings were $454 million compared to $537 million.

Column 1	Column 2
•	Net interest income decreased $51 million, primarily due to a less favorable interest environment as a result of an increase in interest rates, as well as the natural paydown of the portfolio.

Column 1	Column 2
•	Provision for loan losses decreased $13 million.

○ Charge-offs were $26 million compared with $49 million.

○ Delinquencies greater than 30 days were $4.7 billion compared with $4.4 billion.

○ Forbearances were $6.3 billion, down $1.4 billion from $7.7 billion.

Column 1	Column 2
•	Other revenue decreased $133 million which was primarily a result of the impact of COVID-19 on certain collection activities, the planned winddown of the ED asset recovery contract, as well as the transfer of the ED servicing contract to a third party in October 2021.

Column 1	Column 2
•	Expenses were $64 million lower primarily as a result of the decrease in other revenue discussed above.

Key performance metrics are as follows:

	Years Ended December 31,
(Dollars in millions)	2021			2020			2019
Segment net interest margin		.99	%			.99	%		.83	%
FFELP Loans:
FFELP Loan spread		1.06	%			1.06	%		.89	%
Provision for loan losses	$	—			$	13		$	30
Charge-offs	$	26			$	49		$	42
Charge-off rate		.06	%			.10	%		.07	%
Greater than 30-days delinquency rate		10.6	%			9.2	%		11.7	%
Greater than 90-days delinquency rate		4.8	%			4.6	%		5.8	%
Forbearance rate		12.4	%			13.8	%		12.2	%
Average FFELP Loans	$	56,018			$	61,522		$	68,271
Ending FFELP Loans, net	$	52,641			$	58,284		$	64,575
(Dollars in billions)
Number of accounts serviced for ED (in millions)(1)		—				5.6			5.6
Total federal loans serviced(1)	$	61			$	284		$	287
Contingent collections receivables inventory	$	11.7			$	10.2		$	19.0

Column 1	Column 2	Column 3
	(1)	Closed on the novation and transfer of our ED servicing contract to a third party in October 2021. As of year-end 2021, we serviced $61 billion in FFELP (federally guaranteed) loans.

Net Interest Margin

The following table details the net interest margin.

	Years Ended December 31,
	2021			2020		2019
FFELP Loan yield		1.91	%		2.30	%	3.79	%
Hedged Floor Income		.41			.40		.42
Unhedged Floor Income		.19			.25		.05
FFELP Loan net yield		2.51			2.95		4.26
FFELP Loan cost of funds		(1.45	)		(1.89	)	(3.37	)
FFELP Loan spread		1.06			1.06		.89
Other interest-earning asset spread impact		(.07	)		(.07	)	(.06	)
Net interest margin(1)		.99	%		.99	%	.83	%

Column 1	Column 2	Column 3
	(1)	The average balances of the interest-earning assets for the respective periods are:

	Years Ended December 31,
(Dollars in millions)	2021		2020			2019
FFELP Loans	$	56,018		$	61,522		$	68,271
Other interest-earning assets		1,816			1,847			2,297
Total FFELP Loan interest-earning assets	$	57,834		$	63,369		$	70,568

As of December 31, 2021, our FFELP Loan portfolio totaled $52.6 billion, comprised of $18.2 billion of FFELP Stafford Loans and $34.4 billion of FFELP Consolidation Loans. The weighted-average life of these portfolios as of December 31, 2021 was 6 years and 7 years, respectively, assuming a Constant Prepayment Rate (CPR) of 9% and 5%, respectively.

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 December 31, 2021 and 2020, based on interest rates as of those dates.

(Dollars in billions)	December 31, 2021
Education loans eligible to earn Floor Income	$	52.4		$	57.8
Less: post-March 31, 2006 disbursed loans required to rebate Floor Income		(24.3	)		(26.5	)
Less: economically hedged Floor Income		(11.7	)		(18.1	)
Education loans eligible to earn Floor Income after rebates and economically hedged	$	16.4		$	13.2
Education loans earning Floor Income	$	11.3		$	13.0

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 January 1, 2022 to December 31, 2026.

(Dollars in billions)		2022			2023			2024			2025			2026
Average balance of FFELP Consolidation Loans whose Floor Income is economically hedged		$	12.4			$	7.8			$	2.0			$	1.0			$	1.0

Provision for Loan Losses

The provision for FFELP Loan losses was $0 in 2021, down $13 million from 2020. There has been an improvement in the current and forecasted economic conditions since the prior year, 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 recently and in the future. The provision in 2020 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.

Servicing Revenue

Servicing revenue decreased $46 million primarily related to the transfer of the servicing contract for 5.6 million ED owned student loan accounts from Navient to a third party on October 6, 2021. As a result, Navient no longer is a party to the ED servicing contract. To aid in the transition, Navient will provide certain services into 2022 to the third party through a transition services agreement (see discussion below related to “Other income”). As part of the transaction, approximately 700 Navient employees were transferred to the third party. This transaction provided a seamless transition for millions of borrowers ensuring the ongoing servicing capacity for the Department of ED through the knowledge transfer and ongoing employment of 700 employees. Additional benefits to Navient of this transaction are the simplification of our business, reducing our overall risk profile and avoiding significant severance expense.

Third-party loan servicing fees in 2021 and 2020 included $104 million and $141 million, respectively, of servicing revenue related to the ED servicing contract.

Asset Recovery and Business Processing Revenue

Asset recovery and business processing revenue decreased $103 million primarily as a result of the impact of COVID-19 on certain collection and processing activities (temporary stoppage or other restrictions on certain activities) and the planned wind-down of the ED asset recovery contract.

Other Income

Other income increased $16 million primarily related to the transition services being performed in connection with the transfer of the ED Servicing contract to a third party as discussed above.

Operating Expenses

Operating expenses for the Federal Education Loans segment primarily include costs incurred to perform servicing and asset recovery activities on our FFELP Loan portfolio and federal education loans held by other institutions. Expenses were $64 million lower primarily as a result of the decrease in asset recovery revenue discussed above.

Consumer Lending Segment

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

	Years Ended December 31,			% Increase (Decrease)
(Dollars in millions)	2021			2020			2019		2021 vs. 2020	2020 vs. 2019
Interest income:
Private Education Loans	$	1,181			$	1,445		$	1,731		(18	)%	(17	)%
Other Loans		—				—			1		—		(100	)
Cash and investments		2				3			16		(33	)	(81	)
Interest income		1,183				1,448			1,748		(18	)	(17	)
Interest expense		541				699			980		(23	)	(29	)
Net interest income		642				749			768		(14	)	(2	)
Less: provision for loan losses		(61	)			142			228		(143	)	(38	)
Net interest income after provision for loan losses		703				607			540		16		12
Other income (loss):
Servicing revenue		6				6			11		—		(45	)
Other income		—				—			1		—		(100	)
Gains on sales of loans		91				—			16		100		(100	)
Total other income		97				6			28		1,517		(79	)
Direct operating expenses		162				146			156		11		(6	)
Income before income tax expense		638				467			412		37		13
Income tax expense		146				107			96		36		11
Core Earnings	$	492			$	360		$	316		37	%	14	%

Highlights of 2021 vs. 2020

Column 1	Column 2
•	Originated $6.0 billion of Private Education Loans, an increase of 30% compared to $4.6 billion.

Column 1	Column 2
•	Core Earnings were $492 million compared to $360 million.

Column 1	Column 2
•	Net interest income decreased $107 million primarily due to the natural paydown of the non-refinance loan portfolio, as well as the $1.6 billion of loan sales in first-quarter 2021. Partially offsetting this decrease was the growth of the Private Education Refinance Loan portfolio.

Column 1

Column 2

•

Column 1	Column 2	Column 3
	○	Excluding the $16 million and $23 million, respectively, related to the change in the portion of the loan amount charged off at default, charge-offs were $153 million compared with $184 million.

Column 1	Column 2	Column 3
	○	Private Education Loan delinquencies greater than 90 days: $297 million, up $80 million from $217 million.

Column 1	Column 2	Column 3
	○	Private Education Loan delinquencies greater than 30 days: $650 million, up $96 million from $554 million.

Column 1	Column 2	Column 3
	○	Private Education Loan forbearances: $535 million, down $309 million from $844 million.

Column 1	Column 2
•	Gains on sales of loans increased $91 million in connection with the sale of approximately $1.6 billion of Private Education Loans in 2021. There were no such sales in the prior year.

Column 1	Column 2
•	Expenses were $16 million higher primarily as a result of the increase in refinance and in-school loan originations.

Key performance metrics are as follows:

	Years Ended December 31,
(Dollars in millions)	2021			2020			2019
Segment net interest margin		2.92	%			3.20	%		3.30	%
Private Education Loans (including Refinance Loans):
Private Education Loan spread		3.12	%			3.40	%		3.52	%
Provision for loan losses	$	(61	)		$	142		$	226
Charge-offs(1)	$	153			$	184		$	364
Charge-off rate(1)		.76	%			.88	%		1.67	%
Greater than 30-days delinquency rate		3.2	%			2.6	%		4.6	%
Greater than 90-days delinquency rate		1.5	%			1.0	%		2.0	%
Forbearance rate		2.6	%			3.9	%		2.7	%
Average Private Education Loans	$	21,225			$	22,720		$	22,512
Ending Private Education Loans, net	$	20,171			$	21,079		$	22,245
Private Education Refinance Loans:
Charge-offs	$	11			$	8		$	3
Greater than 90-day delinquency rate		.1	%			.1	%		—	%
Average balance of Private Education Refinance Loans	$	8,876			$	7,700		$	4,669
Ending balance of Private Education Refinance Loans	$	9,791			$	8,202		$	6,423
Private Education Refinance Loan originations	$	5,811			$	4,564		$	4,893

Column 1	Column 2
(1)	Excludes the $16 million, $23 million and $21 million of charge-offs in 2021, 2020 and 2019, respectively, on the expected future recoveries of charged-off loans that occurred as a result of changing the charge-off rate from 81.4% to 81.7%, 81% to 81.4% and 80.5% to 81% in 2021, 2020 and 2019, respectively.

Net Interest Margin

The following table details the net interest margin.

	Years Ended December 31,
	2021			2020		2019
Private Education Loan yield		5.57	%		6.36	%	7.69	%
Private Education Loan cost of funds		(2.45	)		(2.96	)	(4.17	)
Private Education Loan spread		3.12			3.40		3.52
Other interest-earning asset spread impact		(.20	)		(.20	)	(.22	)
Net interest margin(1)		2.92	%		3.20	%	3.30	%

Column 1	Column 2
(1)	The average balances of the interest-earning assets for the respective periods are:

	Years Ended December 31,
(Dollars in millions)	2021		2020			2019
Private Education Loans	$	21,225		$	22,720		$	22,512
Other interest-earning assets		787			751			772
Total Private Education Loan interest-earning assets	$	22,012		$	23,471		$	23,284

The decrease in the net interest margin from the prior year is primarily a result of the refinance loan portfolio becoming a larger percentage of the overall portfolio.

As of December 31, 2021, our Private Education Loan portfolio totaled $20.2 billion, comprised of $9.8 billion of refinance loans and $10.4 billion of non-refinance loans. The weighted-average life of this portfolio as of December 31, 2021 was 3 years and 5 years, respectively, assuming a Constant Prepayment Rate (CPR) of 20% and 9%, respectively.

Provision for Loan Losses

The provision for Private Education Loan losses decreased $203 million. The negative provision of $(61) million in 2021 was comprised of $64 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 $18 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 the prior year, 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 recently and in the future. The provision in 2020 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.

Gains on Sales of Loans

The sales of Private Education Loans for 2021 were comprised of the following transactions that occurred in the first quarter:

Column 1	Column 2	Column 3
	○	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

Column 1	Column 2	Column 3
	○	Approximately $1.03 billion of Refinance Loans, resulting in a $43 million gain on sale.

Operating Expenses

Operating expenses for our Consumer Lending segment include costs incurred to originate, acquire, service and collect on our consumer loan portfolio. Operating expenses were $16 million higher as a result of the increase in refinance and in-school loan originations.

Business Processing Segment

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

	Years Ended December 31,		% Increase (Decrease)
(Dollars in millions)	2021		2020			2019		2021 vs. 2020	2020 vs. 2019
Business processing revenue	$	488		$	304		$	258		61	%	18	%
Direct operating expenses		360			254			215		42		18
Income before income tax expense		128			50			43		156		16
Income tax expense		29			11			10		164		10
Core Earnings	$	99		$	39		$	33		154	%	18	%

Highlights of 2021 vs. 2020

Column 1	Column 2
•	Core Earnings were $99 million compared to $39 million.

Column 1	Column 2
•	Revenue increased $184 million, or 61%, primarily due to contracts to provide unemployment benefits, contact tracing and vaccine administration services, as well as revenue increases from traditional services we perform for our government and healthcare services clients.

Column 1	Column 2
•	EBITDA(1) was $136 million, up $79 million, or 139%. The increase in EBITDA(1) is primarily the result of the revenue increase discussed above. The EBITDA(1) margin increased to 28% from 19%.

Key performance metrics are as follows:

	As of December 31,
(Dollars in billions)	2021			2020			2019
Revenue from government services	$	258			$	191		$	154
Revenue from healthcare services		230				113			104
Total fee revenue	$	488			$	304		$	258
EBITDA(1)	$	136			$	57		$	49
EBITDA margin(1)		28	%			19	%		19	%
Contingent collections receivables inventory (in billions)	$	9.6			$	16.0		$	14.9

Column 1	Column 2
(1)	Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”

Other Segment

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

	Years Ended December 31,			% Increase (Decrease)
(Dollars in millions)	2021			2020			2019		2021 vs. 2020		2020 vs. 2019
Net interest loss after provision for loan losses	$	(69	)		$	(114	)	$	(134	)		(39	)%	(15	)%
Other income:
Other income		5				11			14			(55	)	(21	)
Gains (losses) on debt repurchases		(73	)			(6	)		33			1,117		(118	)
Total other income		(68	)			5			47			(1,460	)	(89	)
Expenses:
Unallocated shared services expenses:
Unallocated information technology costs		65				87			80			(25	)	9
Unallocated corporate costs		397				190			174			109		9
Total unallocated shared services expenses		462				277			254			67		9
Restructuring/other reorganization expenses		26				9			6			189		50
Total expenses		488				286			260			71		10
Loss before income tax benefit		(625	)			(395	)		(347	)		58		14
Income tax benefit		(131	)			(90	)		(80	)		46		13
Core Earnings (loss)	$	(494	)		$	(305	)	$	(267	)		62	%	14	%

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 size of the liquidity portfolio as well as a decrease in the cost of funds of the debt funding the corporate liquidity portfolio.

Gains (Losses) on Debt Repurchases

Losses on debt repurchases increased $67 million. We repurchased $2.6 billion of debt at a $73 million loss in 2021 compared to $768 million at a $6 million loss in the prior year. As a part of our asset liability management, we regularly repurchase debt to optimize the funding of our portfolio of educations loans to better match asset and liability maturities and reduce our interest costs.

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 decreased $15 million from the prior year. Adjusted expenses exclude $233 million and $33 million, respectively, of regulatory-related expenses in 2021 and 2020.

Included in current period regulatory expenses is $205 million related to the settlements with State Attorneys General, which were entered into on January 13, 2022, to resolve all matters in dispute related to certain previously disclosed Attorneys General litigation and investigations. In the fourth quarter, when such loss became probable, the Company recognized this contingent liability. The $205 million expense is comprised of approximately $155 million of cash payments and $50 million in connection with forgiving certain loans and the related amount of the expected future recoveries of these charged-off loans carried on the balance sheet. Prior to the fourth quarter, this contingent liability was neither probable nor reasonably estimable and, as a result, no contingent liability had been previously established. See “Note 12 – Commitments, Contingencies and Guarantees” for further discussion.

See “Note 12 – 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 2021 and 2020, the Company incurred $26 million and $9 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, severance-related costs and the impairment of a facility held for sale. The increase from the year-ago period is primarily related to the impairment of a facility held for sale.

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

	December 31, 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)	$	20			$	—		$	20		$	19		$	39
Grace, repayment and other(2)		18,379				34,504			52,883			21,161			74,044
Total(3)		18,399				34,504			52,903			21,180			74,083
Allowance for loan losses(3)		(180	)			(82	)		(262	)		(1,009	)		(1,271	)
Total education loan portfolio	$	18,219			$	34,422		$	52,641		$	20,171		$	72,812
% of total FFELP		35	%			65	%		100	%
% of total		25	%			47	%		72	%		28	%		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(3)		19,801				38,771			58,572			22,168			80,740
Allowance for loan losses(3)		(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	%

	December 31, 2019
(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)	$	41			$	—		$	41		$	19		$	60
Grace, repayment and other(2)		21,387				42,666			64,053			23,303			87,356
Total, gross		21,428				42,666			64,094			23,322			87,416
Unamortized premium/(discount)		337				208			545			(617	)		(72	)
Receivable for partially charged-off loans		—				—			—			588			588
Allowance for loan losses		(42	)			(22	)		(64	)		(1,048	)		(1,112	)
Total education loan portfolio	$	21,723			$	42,852		$	64,575		$	22,245		$	86,820
% of total FFELP		34	%			66	%		100	%
% of total		25	%			49	%		74	%		26	%		100	%

Column 1	Column 2
(1)	Loans for customers still attending school and are not yet required to make payments on the loan.

Column 1	Column 2
(2)	Includes loans in deferment or forbearance.

Column 1

Column 2

(3)

In connection with the adoption of CECL on January 1, 2020, (1) the $448 million premium and $356 million discount on the FFELP Loans and Private Education Loans, respectively, as of December 31, 2021 and the $497 million premium and $475 million discount on the FFELP Loans and Private Education Loans, respectively, as of December 31, 2020, are now included as part of the respective balance for this disclosure and (2) the receivable for partially charged-off loans has been reclassified from the Private Education Loan balance to the allowance for loan losses. Both of these changes are prospective in nature as prior balances are not restated under CECL.

Education Loan Activity

	Year Ended December 31, 2021
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans		Private Education Loans		Total Portfolio
Beginning balance	$	19,607			$	38,677		$	58,284		$	21,079		$	79,363
Acquisitions (originations and purchases)(1)		70				41			111			5,993			6,104
Capitalized interest and premium/discount amortization		666				762			1,428			186			1,614
Refinancings and consolidations to third parties		(906	)			(1,819	)		(2,725	)		(529	)		(3,254	)
Loan sales		—				—			—			(1,613	)		(1,613	)
Repayments and other		(1,218	)			(3,239	)		(4,457	)		(4,945	)		(9,402	)
Ending balance	$	18,219			$	34,422		$	52,641		$	20,171		$	72,812

	Year Ended December 31, 2020
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans		Private Education Loans		Total Portfolio
Beginning balance	$	21,723			$	42,852		$	64,575		$	22,245		$	86,820
Acquisitions (originations and purchases)(1)		19				18			37			4,604			4,641
Capitalized interest and premium/discount amortization		715				737			1,452			231			1,683
Refinancings and consolidations to third parties		(934	)			(1,285	)		(2,219	)		(578	)		(2,797	)
Repayments and other		(1,916	)			(3,645	)		(5,561	)		(5,423	)		(10,984	)
Ending balance	$	19,607			$	38,677		$	58,284		$	21,079		$	79,363

	Year Ended December 31, 2019
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans		Private Education Loans		Total Portfolio
Beginning balance	$	24,641			$	47,612		$	72,253		$	22,245		$	94,498
Acquisitions (originations and purchases)		210				226			436			4,975			5,411
Capitalized interest and premium/discount amortization		754				775			1,529			337			1,866
Refinancings and consolidations to third parties		(1,432	)			(1,618	)		(3,050	)		(618	)		(3,668	)
Repayments and other		(2,450	)			(4,143	)		(6,593	)		(4,694	)		(11,287	)
Ending balance	$	21,723			$	42,852		$	64,575		$	22,245		$	86,820

Column 1	Column 2
(1)	Includes the origination of $1.7 billion and $1.0 billion of Private Education Refinance Loans in 2021 and 2020, respectively, that refinanced FFELP and Private Education Loans that were on our balance sheet.

FFELP Loan Portfolio Performance

	December 31,
	2021			2020		2019
(Dollars in millions)	Balance			%		Balance		%		Balance			%
Loans in-school/grace/deferment(1)	$	2,220					$	2,791						$	3,114
Loans in forbearance(2)		6,292						7,725							7,442
Loans in repayment and percentage of each status:
Loans current		39,679			89.4	%		43,623			90.8	%			47,255		88.3	%
Loans delinquent 31-60 days(3)		1,696			3.8			1,374			2.9				2,094		3.9
Loans delinquent 61-90 days(3)		904			2.0			836			1.7				1,082		2.0
Loans delinquent greater than 90 days(3)		2,112			4.8			2,223			4.6				3,107		5.8
Total FFELP Loans in repayment		44,391			100	%		48,056			100	%			53,538		100	%
Total FFELP Loans, gross		52,903						58,572							64,094
FFELP Loan unamortized premium (4)		—						—							545
Total FFELP Loans		52,903						58,572							64,639
FFELP Loan allowance for losses		(262	)					(288	)						(64	)
FFELP Loans, net	$	52,641					$	58,284						$	64,575
Percentage of FFELP Loans in repayment					83.9	%					82.0	%					83.5	%
Delinquencies as a percentage of FFELP Loans in repayment					10.6	%					9.2	%					11.7	%
FFELP Loans in forbearance as a percentage of loans in repayment and forbearance					12.4	%					13.8	%					12.2	%

Column 1

Column 2

(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.

Column 1	Column 2
(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.

Column 1	Column 2
(3)	The period of delinquency is based on the number of days scheduled payments are contractually past due.

Column 1	Column 2
(4)	In connection with the adoption of CECL on January 1, 2020, the $448 million and $497 million premium as of December 31, 2021 and 2020, respectively, associated with the loans is now included as part of the respective loan balance for this disclosure. This change is prospective in nature as prior balances are not restated under CECL.

Private Education Loan Portfolio Performance

	December 31,
	2021			2020		2019
(Dollars in millions)	Balance			%		Balance		%		Balance			%
Loans in-school/grace/deferment(1)	$	361					$	483						$	629
Loans in forbearance(2)		535						844							604
Loans in repayment and percentage of each status:
Loans current		19,634			96.8	%		20,287			97.4	%			21,083		95.4	%
Loans delinquent 31-60 days(3)		222			1.1			211			1.0				349		1.6
Loans delinquent 61-90 days(3)		131			.6			126			.6				218		1.0
Loans delinquent greater than 90 days(3)		297			1.5			217			1.0				439		2.0
Total Private Education Loans in repayment		20,284			100	%		20,841			100	%			22,089		100	%
Total Private Education Loans, gross		21,180						22,168							23,322
Private Education Loan unamortized discount(4)		—						—							(617	)
Total Private Education Loans		21,180						22,168							22,705
Private Education Loan receivable for partially charged-off loans (4)		—						—							588
Private Education Loan allowance for losses		(1,009	)					(1,089	)						(1,048	)
Private Education Loans, net	$	20,171					$	21,079						$	22,245
Percentage of Private Education Loans in repayment					95.8	%					94.0	%					94.7	%
Delinquencies as a percentage of Private Education Loans in repayment					3.2	%					2.6	%					4.6	%
Loans in forbearance as a percentage of loans in repayment and forbearance					2.6	%					3.9	%					2.7	%
Percentage of Private Education Loans with a cosigner (5)					35	%					41	%					47	%

Column 1	Column 2
(1)	Loans for customers who are attending school or are in other permitted educational activities and are not yet required to make payments on their loans, e.g., internship periods, as well as loans for customers who have requested and qualify for other permitted program deferments such as various military eligible deferments.

Column 1	Column 2
(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.

Column 1	Column 2
(3)	The period of delinquency is based on the number of days scheduled payments are contractually past due.

Column 1

Column 2

(4)

In connection with the adoption of CECL on January 1, 2020, (1) the $356 million and $475 million discount as of December 31, 2021 and 2020, respectively, associated with the loans is now included as part of the respective loan balance for this disclosure and (2) the receivable for partially charged-off loans has been reclassified from the Private Education Loan balance to the allowance for loan loss. Both of these changes are prospective in nature as prior balances are not restated under CECL.

Column 1	Column 2
(5)	Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 65% for all periods presented.

Allowance for Loan Losses

	Year Ended December 31, 2021
(Dollars in millions)	FFELP Loans			Private Education Loans			Total
Beginning balance	$	288			$	1,089		$	1,377
Provision:
Reversal of allowance related to loan sales(1)		—				(107	)		(107	)
Remaining provision		—				46			46
Total provision		—				(61	)		(61	)
Charge-offs:
Net adjustment resulting from the change in the charge-off rate(2)		—				(16	)		(16	)
Net charge-offs remaining(3)		(26	)			(153	)		(179	)
Total charge-offs(3)		(26	)			(169	)		(195	)
Decrease in expected future recoveries on charged-off loans(4)		—				150			150
Allowance at end of period		262				1,009			1,271
Plus: expected future recoveries on charged-off loans(4)		—				329			329
Allowance at end of period excluding expected future recoveries on charged-off loans(5)	$	262			$	1,338		$	1,600
Net charge-offs as a percentage of average loans in repayment, excluding the net adjustment resulting from the change in the charge-off rate(2)		.06	%			.76	%
Net adjustment resulting from the change in charge-off rate as a percentage of average loans in repayment(2)		—	%			.08	%
Allowance coverage of charge-offs(5)		10.0				7.9
Allowance as a percentage of the ending total loan balance(5)		.5	%			6.3	%
Allowance as a percentage of the ending loans in repayment(5)		.6	%			6.6	%
Ending total loans	$	52,903			$	21,180
Average loans in repayment	$	45,781			$	20,150
Ending loans in repayment	$	44,390			$	20,284

Column 1	Column 2
(1)	In connection with the sale of approximately $1.6 billion of Private Education Loans in 2021.

Column 1	Column 2
(2)	In 2021, the portion of the loan amount charged off at default on Private Education Loans increased from 81.4% to 81.7%. This change resulted in a $16 million reduction to the balance of the expected future recoveries on charged-off loans.

Column 1	Column 2
(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.

Column 1

Column 2

(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 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:

	Year Ended December 31,
(Dollars in millions)	2021
Beginning of period expected recoveries	$	479
Expected future recoveries of current period defaults		22
Recoveries		(87	)
Charge-offs		(35	)
Reduction in expected recoveries related to regulatory settlement(6)		(50	)
End of period expected recoveries	$	329
Change in balance during period	$	(150	)

Column 1	Column 2
(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.

Column 1	Column 2
(6)	See “Results of Operations – GAAP Comparison of 2021 Results with 2020” for further details.

	Year Ended December 31, 2020
(Dollars in millions)	FFELP Loans			Private Education Loans			Total
Allowance at beginning of period	$	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		324				1,045			1,369
Total provision		13				142			155
Charge-offs:
Net adjustment resulting from the change in the charge-off rate(2)		—				(23	)		(23	)
Net charge-offs remaining(3)		(49	)			(184	)		(233	)
Total charge-offs(3)		(49	)			(207	)		(256	)
Decrease in expected future recoveries on charged-off loans(4)		—				109			109
Allowance at end of period		288				1,089			1,377
Plus: expected future recoveries on charged-off loans(4)		—				479			479
Allowance at end of period excluding expected future recoveries on charged-off loans(5)	$	288			$	1,568		$	1,856
Net charge-offs as a percentage of average loans in repayment, excluding the net adjustment resulting from the change in the charge-off rate(2)		.10	%			.88	%
Net adjustment resulting from the change in charge-off rate as a percentage of average loans in repayment(2)		—	%			.11	%
Allowance coverage of charge-offs(5)		5.9				7.6
Allowance as a percentage of the ending total loan balance(5)		.5	%			7.1	%
Allowance as a percentage of the ending loans in repayment(5)		.6	%			7.5	%
Ending total loans	$	58,572			$	22,168
Average loans in repayment	$	48,130			$	20,790
Ending loans in repayment	$	48,057			$	20,841

Column 1	Column 2
(1)	For a further discussion of our adoption of CECL, see “Note 2 – Significant Accounting Policies.”

Column 1	Column 2
(2)	In 2020, the portion of the loan amount charged off at default on our Private Education Loans increased from 81% to 81.4%. This change resulted in a $23 million reduction to the balance of the receivable for partially charged-off loans in 2020.

Column 1	Column 2
(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.

Column 1

Column 2

(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 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.

	Year Ended December 31,
(Dollars in millions)	2020
Beginning of period expected recoveries	$	588
Expected future recoveries of current period defaults		32
Recoveries		(107	)
Charge-offs		(34	)
End of period expected recoveries	$	479
Change in balance during period	$	(109	)

Column 1	Column 2
(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.

	Year Ended December 31, 2019
(Dollars in millions)	FFELP Loans			Private Education Loans			Total
Allowance at beginning of period	$	76			$	1,201		$	1,277
Total provision		30				226			256
Charge-offs:
Net adjustment resulting from the change in the charge-off rate(1)		—				(21	)		(21	)
Net charge-offs remaining(2)		(42	)			(364	)		(406	)
Total charge-offs(2)		(42	)			(385	)		(427	)
Reclassification of interest reserve(3)		—				7			7
Loan sales		—				(1	)		(1	)
Allowance at end of period	$	64			$	1,048		$	1,112
Net charge-offs as a percentage of average loans in repayment, excluding the net adjustment resulting from the change in the charge-off rate(1)		.07	%			1.67	%
Net adjustment resulting from the change in charge-off rate as a percentage of average loans in repayment(1)		—	%			.10	%
Allowance coverage of charge-offs		1.5				2.7
Allowance as a percentage of the ending total loan balance		.10	%			4.38	%
Allowance as a percentage of the ending loans in repayment		.12	%			4.74	%
Ending total loans(4)	$	64,094			$	23,910
Average loans in repayment	$	55,978			$	21,859
Ending loans in repayment	$	53,538			$	22,089

Column 1	Column 2
(1)	In 2019, the portion of the loan amount charged off at default on our Private Education Loans increased from 80.5% to 81%. This change resulted in a $21 million reduction to the balance of the receivable for partially charged-off loans in 2019.

Column 1

Column 2

(2)

Charge-offs are reported net of expected recoveries. For Private Education Loans, the expected recovery amount is transferred to the receivable for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be collected and any shortfalls in what was actually collected in the period. The table below summarizes the activity in the Private Education Loan receivable for partially charged-off loans. For FFELP Loans, the recovery is received at the time of charge-off.

	Year Ended December 31,
(Dollars in millions)	2019
Receivable at beginning of period	$	674
Expected future recoveries of current period defaults		74
Recoveries		(126	)
Charge-offs		(34	)
Receivable at end of period	$	588

Column 1	Column 2
(3)	Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period to the allowance for loan losses when interest is capitalized to a loan’s principal balance.

Column 1	Column 2
(4)	Ending total loans represents gross Private Education Loans, plus the receivable for partially charged-off loans.

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 rating 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 rating 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 $7.0 billion at December 31, 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 $7.0 billion of senior unsecured notes that

mature in 2023 to 2043, with 84% maturing by 2029, through a number of sources. These sources primarily are our cash on hand, unencumbered FFELP Loan and Private Education Refinance Loan portfolios (see “Sources of Primary Liquidity” below), the predictable operating cash flows provided by operating activities ($702 million in 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 (a portion of which are done through a forward purchase agreement). 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 repurchased 34.4 million shares of common stock for $600 million in 2021 and have $1.0 billion of unused share repurchase authority as of December 31, 2021.

Sources of Primary Liquidity

	Ending Balances		Average Balances
	December 31,		Years Ended December 31,
(Dollars in millions)	2021		2020			2021		2020	2019
Unrestricted cash and liquid investments	$	905		$	1,183		$	1,209	$	1,358	$	1,261
Unencumbered FFELP Loans		124			208			220		320		433
Unencumbered Private Education Refinance Loans		383			274			642		582		670
Total	$	1,412		$	1,665		$	2,071	$	2,260	$	2,364

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 the additional borrowing capacity of these facilities with maturity dates ranging from June 2022 to June 2023.

	Maximum		Average Maximum
	Additional Capacity		Additional Capacity
	December 31,		Years Ended December 31,
(Dollars in millions)	2021		2020			2019		2021	2020		2019
FFELP Loan ABCP facilities	$	546		$	506		$	867	$	514		$	482	$	1,266
Private Education Loan ABCP facilities		2,235			2,221			384		2,351			1,586		1,020
Total	$	2,781		$	2,727		$	1,251	$	2,865		$	2,068	$	2,286

At December 31, 2021, we had a total of $4.5 billion of unencumbered tangible assets inclusive of those listed in the table above as sources of primary liquidity. Total unencumbered education loans comprised $2.1 billion principal of our unencumbered tangible assets of which $2.0 billion and $124 million related to Private Education Loans and FFELP Loans, respectively. In addition, as of December 31, 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 $0.5 billion outstanding as of December 31, 2021. These repurchase facilities are collateralized by the net assets in previously issued Private Education Loan ABS trusts and have had a cost of funds lower than that of a new unsecured debt issuance.

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

(Dollars in billions)	December 31, 2021
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)		4.5			5.4
Senior unsecured debt		(7.0	)		(8.4	)
Mark-to-market on unsecured hedged debt(2)		(.3	)		(.7	)
Other liabilities, net		(.8	)		(.6	)
Total Tangible Equity(1)	$	1.9		$	1.7

Column 1	Column 2	Column 3
	(1)	Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”

Column 1	Column 2	Column 3
	(2)	At December 31, 2021 and 2020, there were $324 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

	December 31, 2021		December 31, 2020			December 31, 2019
(Dollars in millions)	Short Term		Long Term			Total		Short Term	Long Term		Total			Short Term		Long Term	Total
Unsecured borrowings:
Senior unsecured debt	$	—		$	7,014		$	7,014	$	677		$	7,714		$	8,391	$	1,052	$	8,461		$	9,513
Total unsecured borrowings		—			7,014			7,014		677			7,714			8,391		1,052		8,461			9,513
Secured borrowings:
FFELP Loan securitizations		—			51,841			51,841		—			54,697			54,697		72		59,735			59,807
Private Education Loan securitizations		543			14,074			14,617		960			13,891			14,851		2,120		11,430			13,550
FFELP Loan ABCP facilities		282			150			432		2,053			479			2,532		2,783		617			3,400
Private Education Loan ABCP facilities		1,363			1,152			2,515		2,582			—			2,582		2,114		1,513			3,627
Other		302			—			302		337			—			337		338		—			338
Total secured borrowings		2,490			67,217			69,707		5,932			69,067			74,999		7,427		73,295			80,722
Core Earnings basis borrowings(1)		2,490			74,231			76,721		6,609			76,781			83,390		8,479		81,756			90,235
Adjustment for GAAP accounting treatment		—			257			257		4			551			555		4		(41	)		(37	)
GAAP basis borrowings	$	2,490		$	74,488		$	76,978	$	6,613		$	77,332		$	83,945	$	8,483	$	81,715		$	90,198

Average Balances

	Years Ended December 31,
	2021		2020		2019
(Dollars in millions)	Average Balance		Average Rate		Average Balance		Average Rate	Average Balance			Average Rate
Unsecured borrowings:
Senior unsecured debt	$	7,978		4.43	%	$	9,461		5.05	%		$	10,798	6.63	%
Total unsecured borrowings		7,978		4.43			9,461		5.05				10,798	6.63
Secured borrowings:
FFELP Loan securitizations		53,661		1.27			56,950		1.74				62,636	3.21
Private Education Loan securitizations		14,273		2.40			14,159		2.90				13,740	4.06
FFELP Loan ABCP facilities		1,012		1.55			3,134		1.67				4,128	3.42
Private Education Loan ABCP facilities		2,429		1.86			3,203		2.53				2,259	3.67
Other		303		.34			343		.68				307	3.59
Total secured borrowings		71,678		1.52			77,789		1.97				83,070	3.37
Core Earnings basis borrowings(1)		79,656		1.81			87,250		2.31				93,868	3.75
Adjustment for GAAP accounting treatment		—		(.16	)		—		.03				—	(.03	)
GAAP basis borrowings	$	79,656		1.65	%	$	87,250		2.34	%		$	93,868	3.72	%

Column 1	Column 2
(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.

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). “Note 2 — Significant Accounting Policies” includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of income and expenses during the reporting periods. Actual results may differ from these estimates under varying assumptions or conditions. On a quarterly basis, management evaluates its estimates, particularly those that include the most difficult, subjective or complex judgments and are often about matters that are inherently uncertain. Critical accounting estimates involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of our operations. Our critical accounting policies and estimates are the allowance for loan losses, goodwill impairment assessment, and premium and discount amortization. As part of the discussion below, we have described how COVID-19 impacted the allowance for loan losses as well as how COVID-19 was considered in our assessment of goodwill impairment.

Allowance for Loan Losses

We measure and recognize an allowance for loan losses that estimates the remaining current expected credit losses (CECL) for financial assets measured at amortized cost held at the reporting date. We have determined that, for modeling current expected credit losses, in general, we can reasonably estimate expected losses that incorporate current and forecasted economic conditions over a “reasonable and supportable” period. For Private Education Loans, we incorporate a reasonable and supportable forecast of various macro-economic variables over the remaining life of the loans. The development of the reasonable and supportable forecast incorporates an assumption that each macro-economic variable will revert to a long-term expectation starting in years 2-4 of the forecast and largely completing within the first five years of the forecast. For FFELP Loans, after a three-year reasonable and supportable period, there is an immediate reversion to a long-term expectation.

The models used to project losses utilize key credit quality indicators of the loan portfolios and predict how those attributes are expected to perform in connection with the forecasted economic conditions. In connection with this methodology, our modeling of current expected credit losses utilizes historical loan repayment experience since 2008 identifying loan variables (key credit quality indicators) that are significantly predictive of loans that will default and predicts how loans will perform in connection with the forecasted economic conditions.

The key credit quality indicators used by the model for Private Education loans are credit scores (FICO scores), loan status, loan seasoning, whether a loan is a TDR, the existence of a cosigner and school type:

Column 1	Column 2	Column 3
	•	Credit scores are an indicator of the credit risk of a customer and generally the higher the credit score the more likely it is the customer will be able to make all of their contractual payments.

Column 1	Column 2	Column 3
	•	Loan status affects the credit risk because generally a past due loan is more likely to default than an up-to-date loan. Additionally, loans in a deferred payment status have different credit risk profiles compared with those in current payment status.

Column 1	Column 2	Column 3
	•	Of the portfolio in repayment, loan seasoning affects credit risk because a loan with a history of making payments generally has a lower incidence of default than a loan with a history of making infrequent or no payments.

Column 1	Column 2	Column 3
	•	A TDR loan is where an economic concession (forbearance, lower interest rate, extension of term) has been given to a borrower experiencing financial difficulties. A TDR loan is generally more likely to result in a default than a non-TDR loan.

Column 1	Column 2	Column 3
	•	The existence of a cosigner generally lowers the likelihood of default, thus lowering the credit risk.

Column 1	Column 2	Column 3
	•	The type of school customers attended can have an impact on their graduation rate and job prospects after graduation and therefore can affect their ability to make payments, which impacts the credit risk.

For FFELP loans, the key credit quality indicators are loan status and loan type (Stafford, Consolidation and Rehab loans).

We project losses over the contractual term of our loans, including any extension options within the control of the borrower. Further, we make estimates regarding prepayments when determining our expected credit losses which are derived in the same manner discussed above.

The forecasted economic conditions used in our modeling of expected losses are provided by a third party. The primary economic metrics we use in the economic forecast are unemployment, GDP, interest rates, consumer loan delinquency rates and consumer income. Several forecast scenarios are provided which represent the baseline economic expectations as well as favorable and adverse scenarios. We analyze and evaluate the alternative scenarios for reasonableness and determine the appropriate weighting of these alternative scenarios based upon the current economic conditions and our view of the likelihood and risks of the alternative scenarios.

We use historical customer payment experience to estimate the amount of future recoveries on defaulted private education loans. We use judgment in determining whether historical performance is representative of what we expect to collect in the future. The amount of expected future recoveries on defaulted FFELP loans is based on the contractual government guarantee (which generally limits the maximum loss to 3% of the loan balance).

Once our loss model calculations are performed, we determine if qualitative adjustments are needed for factors not reflected in the quantitative model. These adjustments may include, but are not limited to, changes in lending, servicing and collection policies and practices as well as the effect of other external factors such as the economy and changes in legal or regulatory requirements that impact the amount of future credit losses.

The negative provision for 2021 of $(61) million was comprised of $64 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 $18 million related to a decrease in expected losses for the overall portfolio. We evaluated and considered several forecasted economic scenarios when determining our allowance for loan losses and provision. We also considered the characteristics of our loan portfolio and its expected behavior in the forecasted economic scenarios. There has been an improvement in the current and forecasted economic conditions since December 31, 2020, as is seen in a decrease in both the current and forecasted unemployment

rates and consumer loan delinquency rates and an increase in GDP and in consumer income. However, 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 that recently occurred or are currently forecasted to end in 2022. These conclusions and adjustments were based on an evaluation of current and forecasted economic conditions directly taking into consideration the impact of COVID-19 on the U.S. economy. If future economic conditions as a result of COVID-19 are significantly worse than what was assumed as a part of this assessment, it could result in additional provision for loan loss being recorded in future periods.

The evaluation of the allowance for loan losses is inherently subjective, as it requires material estimates and assumptions that may be susceptible to significant changes. If actual future performance in delinquency, charge-offs and recoveries are significantly different than estimated, or management’s assumptions or practices were to change, this could materially affect our estimate of the allowance for loan losses and the related provision for loan losses on our income statement.

Goodwill Impairment Assessment

In determining annually (or more frequently if required) whether goodwill is impaired, we complete a goodwill impairment analysis which may be a qualitative or a quantitative analysis depending on the facts and circumstances associated with the reporting unit. Qualitative factors considered in conjunction with a qualitative analysis include: (1) the amount of cushion that existed the last time a quantitative test was completed which requires performing a valuation of the reporting unit, the resulting value of which is compared to the carrying value of the reporting unit, (2) macroeconomic factors (economy), (3) industry specific factors (growth or deterioration of the market; regulatory/political developments), (4) cost factors (margins), (5) financial performance of the reporting unit itself, (6) other specific items (litigation, change in management or key personnel) and (7) whether a sustained decrease in our share price is indicative of a decline in value of the specific reporting unit. There can be significant judgment involved in assessing these qualitative factors. If, based on a qualitative analysis, we determine it is “more-likely-than-not” that the fair value of a reporting unit is less than its carrying amount, we also complete a quantitative impairment analysis. In lieu of performing a qualitative assessment, we may proceed directly to a quantitative impairment analysis. A quantitative goodwill impairment analysis requires a comparison of the fair value of the reporting unit to its carrying value. If the carrying value of the reporting unit exceeds the reporting unit’s fair value (the amount we believe a third party would pay for such reporting unit), the goodwill associated with the reporting unit will be impaired in an amount equal to the difference between the reporting unit’s fair value and its carrying value, not to exceed the carrying value of goodwill attributed to the reporting unit. There are significant judgments involved in determining the fair value of a reporting unit, including determining the appropriate valuation approach or approaches to utilize and the assumptions to apply including estimates of projected future cash flows which incorporate estimated future revenues, expenses, net income and capital expenditures from and related to existing and new business activities and appropriate market multiples, discount rates and growth rates. An appropriate resulting control premium is also considered. The reporting units with goodwill for which we estimate fair value are not publicly traded and for some reporting units directly comparable market data may not be available to aid in its valuation.

Navient tests goodwill as of October 1 each year or at interim dates if an event occurs or circumstances exist such that it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying value (the qualitative test). Such an event or circumstance is a triggering event. If it is concluded that a triggering event has occurred at an interim date, a quantitative impairment test must be performed. Despite the ongoing impacts of COVID-19, the financial results for each of our reporting units were strong in 2021. In addition, these reporting units have substantial cushion before being impaired (see below), Navient’s stock price increased significantly, macroeconomic conditions improved and the economy as a whole and the markets in which our reporting units operate in particular began to rebound. As a result, at September 30, 2021, June 30, 2021 and March 31, 2021, we concluded that COVID-19 and its impact on Navient’s individual reporting units as we perceived them did not constitute a triggering event during 2021.

We performed annual impairment testing as of October 1, 2021. For each of our reporting units with goodwill including our FFELP Loans, Private Education Legacy Loans, Private Education Refinance Loans, Private Education In-School Loans and Federal Education Loan Servicing reporting units (collectively, the Loan reporting units) and our Government Services and Healthcare Services reporting units (collectively, the Business Processing reporting units), we assessed relevant qualitative factors to determine whether it is “more-likely-than-not” that the fair value of an individual reporting unit is less than its carrying value. We considered the amount of excess fair values over the carrying values of each reporting unit as of October 1, 2019 and October 1, 2020 for the Loan reporting units and Business Processing reporting units, respectively, when we last performed a quantitative goodwill impairment test. The concluded fair values of the reporting units at October 1, 2019 and 2020, as applicable, were substantially in excess of their carrying amounts. Additionally, fair values resulting from sensitivity analyses factoring in more conservative discount rates and growth rates for each reporting unit also yielded fair values in excess of the carrying values of each reporting unit.

Despite COVID-19, the outlook and associated long-term cash flow projections of our FFELP Loans, Private Education Legacy Loans, Government Services and Healthcare Services reporting units have not changed significantly since our 2019 and 2020 assessments. Likewise, the outlook and cash flows for the Federal Education Loan Servicing components remaining after removing the cash flows attributed to the ED servicing contract have not changed significantly since 2019. For the Private Education Refinance Loans reporting unit, we considered origination volume and the demand for its refinance loan products as well as Navient’s strong liquidity position and ability to issue Private Education Loan ABS comprised entirely of the reporting unit’s refinance loans with marked improvement in 2021 in cost of funds. For Government Services and Healthcare Services, we considered financial performance in 2021 during which both of these reporting units significantly outperformed expectations due largely to significant contracts acquired in 2020 and 2021 to implement programs under the CARES Act and to perform contact tracing and vaccine administration services. Based on the substantial fair value determined as of October 1, 2019 and 2020, as applicable, in excess of their carrying values and these other qualitative factors, we concluded that it is not “more-likely-than-not” that the fair values of these reporting units were less than their carrying values at October 1, 2021. As a result, with respect to annual impairment testing, we concluded that goodwill attributed to these reporting units was not impaired.

If future economic conditions as a result of COVID-19 are significantly worse than what was assumed in the reporting units’ long term cash flow projections, specifically related to the impact of COVID-19, as well as the inflationary environment stemming from the recovery in certain sectors, and other performance factors do not come to fruition, these factors could result in potential impairment of goodwill in future periods.

Premium and Discount Amortization

The Company had a net unamortized premium balance of $92 million, or 0.12%, in connection with its $74 billion education loan portfolio as of December 31, 2021. The most judgmental estimate for premium and discount amortization on education loans is the Constant Prepayment Rate (CPR), which measures the rate at which loans in the portfolio pay down principal compared to their stated terms. In determining the CPR we only consider payments made in excess of contractually required payments. This would include loans that are refinanced or consolidated and other early payoff activity. These activities are generally affected by changes in our business strategy, changes in our competitors’ business strategies, legislative changes including the ability to consolidate, interest rates and changes to the current economic and credit environment. When we determine the CPR, we begin with historical prepayment rates. We make judgments about which historical period to start with and then make further judgments about whether that historical experience is representative of future expectations and whether additional adjustment may be needed to those historical prepayment rates.

In the past (prior to 2008), the consolidation of FFELP Loans and Private Education Loans significantly affected our CPRs and updating those assumptions often resulted in material adjustments to our premium and discount amortization expense. As a result of the passage of the Health Care and Education Reconciliation Act of 2010 (HCERA), there is no longer the ability to consolidate loans under the FFELP although there are other consolidation options with ED and private refinancing options with Navient and other lenders. As a result, we expect CPRs related to our FFELP Loans to remain relatively stable over time, unless there is a legislative change by ED or by Congress to either (1) forgive loan balances (which would result in Navient receiving cash for the amounts forgiven resulting in a prepayment of principal) or (2) encourage or force consolidation. Some education loan companies, including Navient, offer Private Education Loans to refinance a borrower’s loan (both FFELP and Private Education Loans) and we anticipate more entrants to offer similar products. These products and expectations are built into the CPR assumption we use for FFELP and Private Education Loans. However, it is difficult to accurately project the timing and level at which this activity will continue, and our assumption may need to be updated by a material amount in the future based on changes in the economy, marketplace and legislation.

In 2021, there was a net $13 million decrease in net interest income due to a cumulative adjustment related to an increase in prepayment speed assumptions used to amortize loan premiums and discounts:

Column 1	Column 2	Column 3
	•	The FFELP Loan CPR was increased specifically related to the limited opportunity waiver to the Public Service Loan Forgiveness Program (PSLF) that was announced in October 2021 and is effective from November 2021 to October 2022. FFELP loan borrowers, during this 12-month period, may consolidate their loans to ED in order to have them subsequently forgiven if they qualify under the PSLF program for loan forgiveness. We estimate an incremental $1.3 billion of FFELP loans (2% of the FFELP Loan portfolio as of December 31, 2021) will consolidate under this program.

Column 1	Column 2	Column 3
	•	The Private Education Refinance Loan CPR was increased from 15% to 20%. This CPR assumption increase was primarily a result of increased voluntary payoffs primarily due to increased loan refinance activity and third-party consolidation activity related to the low interest rate environment.

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 (as well as Adjusted 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:

Column 1	Column 2	Column 3
	(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

Column 1	Column 2	Column 3
	(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.

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 15 — Segment Reporting.”

	Year Ended December 31, 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	$	1,405		$	1,181		$	—	$	—			$	2,586		$	98		$	(39	)	$	59		$	2,645
Cash and investments		—			2			—		1				3			—			—			—			3
Total interest income		1,405			1,183			—		1				2,589			98			(39	)		59			2,648
Total interest expense		830			541			—		70				1,441			(8	)		(117	)		(125	)		1,316
Net interest income (loss)		575			642			—		(69	)			1,148			106			78			184			1,332
Less: provisions for loan losses		—			(61	)		—		—				(61	)		—			—			—			(61	)
Net interest income (loss) after provisions for loan losses		575			703			—		(69	)			1,209			106			78			184			1,393
Other income (loss):																	—
Servicing revenue		162			6			—		—				168			—			—			—			168
Asset recovery and business processing revenue		51			—			488		—				539			—			—			—			539
Other income (loss)		25			—			—		5				30			(93	)		157			64			94
Gains on sales of loans		—			91			—		—				91			(13	)		—			(13	)		78
Losses on debt repurchases		—			—			—		(73	)			(73	)		—			—			—			(73	)
Total other income (loss)		238			97			488		(68	)			755			(106	)		157			51			806
Expenses:																	—
Direct operating expenses		223			162			360		—				745			—			—			—			745
Unallocated shared services expenses		—			—			—		462				462			—			—			—			462
Operating expenses		223			162			360		462				1,207			—			—			—			1,207
Goodwill and acquired intangible asset impairment and amortization		—			—			—		—				—			—			30			30			30
Restructuring/other reorganization expenses		—			—			—		26				26			—			—			—			26
Total expenses		223			162			360		488				1,233			—			30			30			1,263
Income (loss) before income tax expense (benefit)		590			638			128		(625	)			731			—			205			205			936
Income tax expense (benefit)(2)		136			146			29		(131	)			180			—			39			39			219
Net income (loss)	$	454		$	492		$	99	$	(494	)		$	551		$	—		$	166		$	166		$	717

Column 1	Column 2
(1)	Core Earnings adjustments to GAAP:

	Year Ended December 31, 2021
(Dollars in millions)	Net Impact of Derivative Accounting		Net Impact of Acquired Intangibles			Total
Net interest income (loss) after provisions for loan losses	$	184		$	—		$	184
Total other income (loss)		51			—			51
Goodwill and acquired intangible asset impairment and amortization		—			30			30
Total Core Earnings adjustments to GAAP	$	235		$	(30	)		205
Income tax expense (benefit)								39
Net income (loss)							$	166

Column 1	Column 2
(2)	Income taxes are based on a percentage of net income before tax for the individual reportable segment.

	Year Ended December 31, 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	$	1,813		$	1,445		$	—	$	—			$	3,258		$	79		$	(55	)	$	24		$	3,282
Cash and investments		7			3			—		6				16			—			—			—			16
Total interest income		1,820			1,448			—		6				3,274			79			(55	)		24			3,298
Total interest expense		1,194			699			—		120				2,013			39			(6	)		33			2,046
Net interest income (loss)		626			749			—		(114	)			1,261			40			(49	)		(9	)		1,252
Less: provisions for loan losses		13			142			—		—				155			—			—			—			155
Net interest income (loss) after provisions for loan losses		613			607			—		(114	)			1,106			40			(49	)		(9	)		1,097
Other income (loss):
Servicing revenue		208			6			—		—				214			—			—			—			214
Asset recovery and business processing revenue		154			—			304		—				458			—			—			—			458
Other income (loss)		9			—			—		11				20			(40	)		(216	)		(256	)		(236	)
Losses on debt repurchases		—			—			—		(6	)			(6	)		—			—			—			(6	)
Total other income (loss)		371			6			304		5				686			(40	)		(216	)		(256	)		430
Expenses:
Direct operating expenses		287			146			254		—				687			—			—			—			687
Unallocated shared services expenses		—			—			—		277				277			—			—			—			277
Operating expenses		287			146			254		277				964			—			—			—			964
Goodwill and acquired intangible asset impairment and amortization		—			—			—		—				—			—			22			22			22
Restructuring/other reorganization expenses		—			—			—		9				9			—			—			—			9
Total expenses		287			146			254		286				973			—			22			22			995
Income (loss) before income tax expense (benefit)		697			467			50		(395	)			819			—			(287	)		(287	)		532
Income tax expense (benefit)(2)		160			107			11		(90	)			188			—			(68	)		(68	)		120
Net income (loss)	$	537		$	360		$	39	$	(305	)		$	631		$	—		$	(219	)	$	(219	)	$	412

Column 1	Column 2
(1)	Core Earnings adjustments to GAAP:

	Year Ended December 31, 2020
(Dollars in millions)	Net Impact of Derivative Accounting			Net Impact of Acquired Intangibles			Total
Net interest income after provisions for loan losses	$	(9	)		$	—		$	(9	)
Total other income (loss)		(256	)			—			(256	)
Goodwill and acquired intangible asset impairment and amortization		—				22			22
Total Core Earnings adjustments to GAAP	$	(265	)		$	(22	)		(287	)
Income tax expense (benefit)									(68	)
Net income (loss)								$	(219	)

Column 1	Column 2
(2)	Income taxes are based on a percentage of net income before tax for the individual reportable segment.

	Year Ended December 31, 2019
																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	$	2,907		$	1,731		$	—	$	—			$	4,638		$	8		$	(68	)	$	(60	)	$	4,578
Other loans		1			1			—		—				2			—			—			—			2
Cash and investments		50			16			—		27				93			—			—			—			93
Total interest income		2,958			1,748			—		27				4,733			8			(68	)		(60	)		4,673
Total interest expense		2,376			980			—		161				3,517			6			(35	)		(29	)		3,488
Net interest income (loss)		582			768			—		(134	)			1,216			2			(33	)		(31	)		1,185
Less: provisions for loan losses		30			228			—		—				258			—			—			—			258
Net interest income (loss) after provisions for loan losses		552			540			—		(134	)			958			2			(33	)		(31	)		927
Other income (loss):
Servicing revenue		229			11			—		—				240			—			—			—			240
Asset recovery and business processing revenue		230			—			258		—				488			—			—			—			488
Other income (loss)		28			1			—		14				43			(41	)		65			24			67
Gains on sales of loans		—			16			—		—				16			—			—			—			16
Gains on debt repurchases		—			—			—		33				33			39			(27	)		12			45
Total other income (loss)		487			28			258		47				820			(2	)		38			36			856
Expenses:
Direct operating expenses		359			156			215		—				730			—			—			—			730
Unallocated shared services expenses		—			—			—		254				254			—			—			—			254
Operating expenses		359			156			215		254				984			—			—			—			984
Goodwill and acquired intangible asset impairment and amortization		—			—			—		—				—			—			30			30			30
Restructuring/other reorganization expenses		—			—			—		6				6			—			—			—			6
Total expenses		359			156			215		260				990			—			30			30			1,020
Income (loss) before income tax expense (benefit)		680			412			43		(347	)			788			—			(25	)		(25	)		763
Income tax expense (benefit)(2)		155			96			10		(80	)			181			—			(15	)		(15	)		166
Net income (loss)	$	525		$	316		$	33	$	(267	)		$	607		$	—		$	(10	)	$	(10	)	$	597

Column 1	Column 2
(1)	Core Earnings adjustments to GAAP:

	Year Ended December 31, 2019
(Dollars in millions)	Net Impact of Derivative Accounting			Net Impact of Acquired Intangibles			Total
Net interest income after provisions for loan losses	$	(31	)		$	—		$	(31	)
Total other income (loss)		36				—			36
Goodwill and acquired intangible asset impairment and amortization		—				30			30
Total Core Earnings adjustments to GAAP	$	5			$	(30	)		(25	)
Income tax expense (benefit)									(15	)
Net income (loss)								$	(10	)

Column 1	Column 2
(2)	Income taxes are based on a percentage of net income before tax for the individual reportable segment.

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.

	Years Ended December 31,
(Dollars in millions)	2021			2020			2019
Core Earnings net income	$	551			$	631		$	607
Core Earnings adjustments to GAAP:
Net impact of derivative accounting		235				(265	)		5
Net impact of goodwill and acquired intangible assets		(30	)			(22	)		(30	)
Net income tax effect		(39	)			68			15
Total Core Earnings adjustments to GAAP		166				(219	)		(10	)
GAAP net income	$	717			$	412		$	597

(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.

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.

	Years Ended December 31,
(Dollars in millions)	2021			2020			2019
Core Earnings derivative adjustments:
Gains (losses) on derivative and hedging activities, net, included in other income	$	64			$	(256	)	$	22
Plus: Gains (losses) on fair value hedging activity included in interest expense		88				(17	)		21
Total gains (losses) in GAAP net income		152				(273	)		43
Plus: Reclassification of settlement expense (income) on derivative and hedging activities, net(1)		93				40			41
Mark-to-market gains (losses) on derivative and hedging activities, net(2)		245				(233	)		84
Amortization of net premiums on Floor Income Contracts in net interest income for Core Earnings		(39	)			(55	)		(68	)
Other derivative accounting adjustments(3)		29				23			(11	)
Total net impact of derivative accounting	$	235			$	(265	)	$	5

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	(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.

	Years Ended December 31,
(Dollars in millions)	2021			2020			2019
Reclassification of settlements on derivative and hedging activities:
Net settlement expense on Floor Income Contracts reclassified to net interest income	$	(98	)		$	(79	)	$	(8	)
Net settlement income (expense) on interest rate swaps reclassified to net interest income		(8	)			39			6
Net realized gains (losses) on terminated derivative contracts reclassified to other income		13				—			(39	)
Total reclassifications of settlements on derivative and hedging activities	$	(93	)		$	(40	)	$	(41	)

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

	Years Ended December 31,
(Dollars in millions)	2021		2020			2019
Floor Income Contracts	$	133		$	(130	)	$	(15	)
Basis swaps		8			3			—
Foreign currency hedges		49			9			65
Other		55			(115	)		34
Total mark-to-market gains (losses) on derivative and hedging activities, net	$	245		$	(233	)	$	84

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	(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.

Cumulative Impact of Derivative Accounting under GAAP compared to Core Earnings

As of December 31, 2021, derivative accounting has decreased GAAP equity by approximately $299 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.

	Years Ended December 31,
(Dollars in millions)	2021			2020			2019
Beginning impact of derivative accounting on GAAP equity	$	(616	)		$	(235	)	$	(34	)
Net impact of net mark-to-market gains (losses) under derivative accounting(1)		317				(381	)		(201	)
Ending impact of derivative accounting on GAAP equity	$	(299	)		$	(616	)	$	(235	)

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

	Years Ended December 31,
(Dollars in millions)	2021			2020			2019
Total pre-tax net impact of derivative accounting recognized in net income(2)	$	235			$	(265	)	$	5
Tax and other impacts of derivative accounting adjustments		(59	)			67			(2	)
Change in mark-to-market gains (losses) on derivatives, net of tax recognized in other comprehensive income		141				(183	)		(204	)
Net impact of net mark-to-market gains (losses) under derivative accounting	$	317			$	(381	)	$	(201	)

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

Hedging Embedded Floor Income

We use Floor Income Contracts, pay-fixed swaps and fixed rate debt to economically hedge embedded floor income in our FFELP loans. Historically, we have used these instruments on a periodic basis and depending upon market conditions and pricing, we may enter into additional hedges in the future. Under GAAP, the Floor Income Contracts do not qualify for hedge accounting and the pay-fixed swaps are accounted for as cashflow hedges. The table below shows the amount of Hedged Floor Income that will be recognized in Core Earnings in future periods based on these hedge strategies.

		December 31,
(Dollars in millions)		2021			2020			2019
Total hedged Floor Income, net of tax(1)(2)		$	325			$	401			$	552

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	(1)	$422 million, $520 million and $717 million on a pre-tax basis as of December 31, 2021, 2020 and 2019, respectively.

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	(2)	Of the $325 million as of December 31, 2021, approximately $130 million, $99 million, $39 million and $22 million will be recognized as part of Core Earnings in 2022, 2023, 2024 and 2025, 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.

		Years Ended December 31,
(Dollars in millions)		2021			2020			2019
Core Earnings goodwill and acquired intangible asset adjustments		$	(30	)		$	(22	)		$	(30	)

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:

	Years Ended December 31,
(Dollars in millions)	2021		2020			2019
Restructuring/other reorganization expenses	$	26		$	9		$	6
Regulatory-related expenses(1)		233			33			6
Total	$	259		$	42		$	12

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	(1)	2021 includes $205 million related to the resolution of previously disclosed State Attorneys General litigation and investigations. See “Results of Operations – GAAP Comparison of 2021 Results with 2020” for further details.

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 billions)	December 31, 2021
Navient Corporation's stockholders' equity	$	2,597		$	2,433
Less: Goodwill and acquired intangible assets		725			735
Tangible Equity		1,872			1,698
Less: Equity held for FFELP Loans		263			291
Adjusted Tangible Equity	$	1,609		$	1,407
Divided by:
Total assets	$	80,605		$	87,412
Less:
Goodwill and acquired intangible assets		725			735
FFELP Loans		52,641			58,284
Adjusted tangible assets	$	27,239		$	28,393
Adjusted Tangible Equity Ratio(1)		5.9	%		5.0	%

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	(1)	The following provides the Adjusted Tangible Equity Ratio on a pro forma basis assuming 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)	December 31, 2021
Adjusted Tangible Equity (from above table)	$	1,609		$	1,407
Plus: ending impact of derivative accounting on GAAP equity		299			616
Pro forma Adjusted Tangible Equity	$	1,908		$	2,023
Divided by: adjusted tangible assets (from above table)	$	27,239		$	28,393
Pro forma Adjusted Tangible Equity Ratio		7.0	%		7.1	%

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:

	Years Ended December 31,
(Dollars in millions)	2021			2020			2019
Pre-tax income	$	128			$	50		$	43
Plus:
Depreciation and amortization expense(1)		8				7			6
EBITDA	$	136			$	57		$	49
Divided by:
Total revenue	$	488			$	304		$	258
EBITDA margin		28	%			19	%		19	%

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

Risk Management

Our Approach

Navient’s identification, understanding and effective management of the risks inherent in our business are critical to our continued success. We assign risk oversight, management and assessment responsibilities at various levels within our organization and continuously coordinate these activities. We maintain comprehensive risk management practices to identify, measure, monitor, evaluate, control and report on our significant risks and we routinely evaluate these practices to determine whether they are functioning properly and can be improved.

Risk Management Philosophy

Navient’s risk management philosophy is to ensure all significant risks inherent in our business are identified, measured, monitored, evaluated, controlled and reported. In furtherance of these goals, Navient

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	•	maintains a comprehensive and uniform risk management framework;

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	•	follows a “three lines of defense” structure based upon: (1) accountability and ownership at the business area level for risks inherent in their activities (first line of defense); (2) supporting areas, such as Human Resources, Legal, Compliance, Finance and Accounting, Information Technology and Information Security, monitor, guide and advise the business areas in their respective areas of expertise (second line of defense); and (3) Internal Audit independently reviews business and support areas to ensure compliance with applicable laws, regulations and internal policies and procedures (third line of defense);

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	•	provides appropriate reporting to management and our board of directors and their respective committees; and

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	•	trains our employees on our risk management processes and philosophy.

Risk Oversight, Roles and Responsibilities

Responsibility for risk management is assigned at several different levels of our organization, including our board of directors and its committees. Each business area within our organization is primarily responsible for managing its specific risks. In addition, our second line of defense support areas are responsible for providing our business areas with the training, systems and specialized expertise necessary to properly perform their risk management responsibilities.

Board of Directors. The Navient board of directors and its standing committees oversee our strategic direction, including setting our risk management philosophy, tolerance and parameters; and assessing the risks our businesses face as well as our risk management practices. It approves our annual business plan, periodically reviews our strategic approach and priorities and spends significant time considering our capital requirements and our dividend and share repurchase levels and activities. We escalate to our board of directors any significant departures from established tolerances and parameters and review new and emerging risks with them. Standing committees of our board of directors include Executive, Audit, Compensation and Human Resources, Nominations and Governance, and Risk. Charters for each committee providing their specific responsibilities and areas of risk oversight are published on our website together with the names of the directors serving on these committees.

Chief Executive Officer. Our Chief Executive Officer is responsible for establishing our risk management culture and ensuring business areas operate within risk parameters and in accordance with our annual business plan.

Chief Risk and Compliance Officer. Our Chief Risk and Compliance Officer is responsible for ensuring proper oversight, management and reporting to our board of directors and management regarding our risk management practices.

Enterprise Risk and Compliance Committee. Our Enterprise Risk and Compliance Committee is an executive management-level committee where senior management reviews our significant risks, receives reports on adherence to established risk parameters, provides direction on mitigation of our risks and closure of issues and supervises our enterprise risk management program. This committee also oversees regulatory compliance risk management activities including compliance regulatory training, compliance regulatory change management, compliance risk assessment, transactional testing and monitoring, customer complaint monitoring, policies and procedures, privacy and information sharing practices, compliance with the Sarbanes-Oxley Act of 2002, and our Code of Business Conduct. This committee also evaluates risks associated with new or modified business and makes recommendations regarding proposed business initiatives based on their inherent risks and controls.

Credit and Loan Loss Committee. Our Credit and Loan Loss Committee is an executive management-level committee that oversees our credit and portfolio management monitoring and strategies, the sufficiency of our loan loss reserves, and current or emerging issues affecting delinquency and default trends which may result in adjustments in our allowances for loan losses.

Disclosure Committee. Our Disclosure Committee reviews our periodic SEC reporting documents, earnings releases and related disclosure policies and procedures, and evaluates whether modified or additional disclosures are required.

Asset and Liability Committee. Our Asset and Liability Committee oversees our investment portfolio and strategy and our compliance with our investment policy.

Other Management-Level Committees. We have other management-level committees that oversee various other Navient business activities including critical accounting assumptions, human resources management, and incentive compensation governance.

Internal Audit Risk Assessment

Navient’s Internal Audit function monitors Navient’s various risk management and compliance efforts, identifies areas that may require increased focus and resources, and reports its findings and recommendations to executive management and the Audit Committee of our board of directors. Internal Audit performs an annual risk assessment evaluating the risk of all significant components of our company and uses the results to develop an annual risk-based internal audit plan as well as a multi-year rotational audit schedule.

Risk Appetite Framework

Navient’s Risk Appetite Framework establishes the level of risk we are willing to accept within each risk category in pursuit of our business strategy. The Risk Committee of our board of directors reviews our Risk Appetite Framework annually, helping to ensure consistency in our business decisions, monitoring and reporting. Our management-level Enterprise Risk and Compliance Committee monitors approved risk limits and thresholds to ensure our businesses are operating within approved risk limits. Through ongoing monitoring of risk exposures, management identifies potential risks and develops appropriate responses and mitigation strategies.

Risk Categories

Our Risk Appetite Framework segments Navient’s risks across nine domains: (1) credit; (2) market; (3) funding and liquidity; (4) operational; (5) compliance; (6) legal; (7) governance; (8) reputational/political; and (9) strategic.

Credit Risk. Credit risk is the risk to earnings or capital resulting from an obligor’s failure to meet the terms of any contract with us or otherwise fail to perform as agreed. Navient has credit or counterparty risk exposure with borrowers and cosigners of our Private Education Loans and Private Education Refinance Loans, counterparties with whom we have entered derivative or other similar contracts and entities with whom we make investments. Credit and counterparty risks are overseen by our Chief Risk and Compliance Officer and our management-level Credit and Loan Loss Committee. The credit risk related to our Private Education Loans and Private Education Refinance Loans is managed within a credit risk infrastructure which includes: (i) a well-defined underwriting, asset quality and collection policy framework; (ii) an ongoing monitoring and review process of portfolio concentration and trends; (iii) assignment and management of credit and loss forecasting authorities and responsibilities; and (iv) establishment of an allowance for loan losses. Credit risk related to derivative contracts is managed by reviewing counterparties for credit strength on an ongoing basis and through our credit policies, which place limits on our exposure with any single counterparty and, in most cases, require collateral to secure the position. Our Chief Risk and Compliance Officer reports regularly to our board of directors and both the Risk and Audit Committees of the board on credit risk management.

Market Risk. Market risk is the risk to earnings or capital resulting from changes in market conditions, such as interest rates, index mismatches, credit spreads, commodity prices or volatilities. Navient is exposed to various types of market risk, including mismatches between the maturity/duration of assets and liabilities, interest rate risk and other risks that arise through the management of our investment, debt and education loan portfolios. Market risk exposure is overseen by our Chief Financial Officer and our management-level Asset and Liability Committee, which are responsible for managing market risks associated with our assets and liabilities and recommending limits to be included in our risk appetite and investment structure. These activities are closely tied to those related to the management of our funding and liquidity risks. The Risk Committee of our board of directors periodically reviews and approves the investment, asset and liability management policies, establishes and monitors various tolerances or other risk measurements, as well as contingency funding plans developed and administered by our Asset and Liability Committee. The Risk Committee and our Chief Financial Officer report to the full board of directors on matters of market risk management.

Funding and Liquidity Risk. Funding and liquidity risk is the risk to earnings, capital or the conduct of our business arising from the inability to meet our obligations when they become due without incurring unacceptable losses, such as the ability to fund liability maturities or invest in future asset growth and business operations at reasonable market rates. Our primary liquidity risks are any mismatch between the maturity of our assets and liabilities and the servicing of our indebtedness. Navient’s Chief Financial Officer oversees our funding and liquidity management activities and is responsible for planning and executing our funding activities and strategies, analyzing and monitoring our liquidity risk, maintaining excess liquidity and accessing diverse funding sources depending on current market conditions.

Funding and liquidity risks are overseen and recommendations approved primarily through our management-level Asset and Liability Committee. The Risk Committee of our board of directors periodically reviews and approves our funding and liquidity positions and the contingency funding plan developed and administered by our Asset and Liability Committee. The Risk Committee also receives regular reports on our performance against funding and liquidity plans at each of its meetings.

Operational Risk. Operational risk is the risk to earnings or the conduct of our business resulting from inadequate or failed internal processes, people or systems or from external events. Operational risk is pervasive, existing in all business areas, functional units, legal entities and geographic locations, and it includes information technology risk, cybersecurity risk, physical security risk on tangible assets, third-party vendor risk, legal risk, compliance risk and reputational risk. Operational risk exposures are managed by business area management and our second and third lines of defense, with oversight by our management-level committees. The Risk Committee of our board of directors receives operations reports at each regularly scheduled meeting. The Risk Committee also receives business development updates regarding our various business initiatives, receives periodic information security and cybersecurity updates and reviews operational and systems-related matters to ensure their implementation produces no significant internal control issues.

Compliance, Legal and Governance Risk. Compliance, legal and governance risks are subsets of operational risk but are recognized as a separate and complementary risk category given their importance in our business. Compliance risk is the risk to earnings, capital or reputation arising from violations of, or non-conformance with, laws, rules, regulations, prescribed practices, internal policies and procedures, or ethical standards. Legal risk is the risk to earnings, capital or reputation manifested by claims made through the legal system and may arise from a product or service, a transaction, a business relationship, property (real, personal or intellectual), conduct of an employee or change in law or regulation. Governance risk is the risk of not establishing and maintaining a control environment that aligns with stakeholder and regulatory expectations, including tone at the top and board performance. These risks are inherent in all of our businesses. The Audit Committee of our board of directors oversees our monitoring and control of legal and compliance risks. The Audit Committee annually reviews our Compliance Plan and significant breaches of our Code of Business Conduct and receives regular reports from executive management responsible for the regulatory and compliance risk management functions. The board of directors and the Audit Committee receive reports on significant litigation and regulatory matters at each regularly scheduled meeting.

Reputational/Political Risk. Reputational risk is the risk to earnings or capital arising from damage to our reputation in the view of, or loss of the trust of, customers and the general public. Political risk is the closely related risk to earnings or capital arising from damage to our relationships with governmental entities, regulators and political leaders and candidates. These risks can arise due to both our own acts and omissions (both real and perceived), and the acts and omissions of other industry participants or other third parties, and they are inherent in all of our businesses. Reputational risk and political risk are managed through a combination of business area management and our second and third lines of defense. The Nominations and Governance Committee of our board of directors oversees our reputational and political risk and regularly receives reports on these matters.

Strategic Risk. Strategic risk is the risk to earnings or capital arising from our potential inability to successfully carry out our strategy. This risk can arise due to both our own acts or omissions, and the acts or omissions of other industry participants or other third parties, and it is inherent in all of our businesses. Strategic risk is managed through a combination of business area management and our second and third lines of defense.

Supervision and Regulation

Regulatory Oversight

We operate in a highly regulated industry where many aspects of our businesses are subject to federal and state regulation and administrative oversight. The following is a summary of the material statutes and regulations currently applicable to us and our subsidiaries. We may become subject to additional laws, rules or regulations in the future. This summary is not a comprehensive analysis of all applicable laws and is qualified by reference to the full text of the statutes and regulations referenced below.

The Dodd-Frank Act was adopted to reform and strengthen regulation and supervision of the U.S. financial services industry. It contains comprehensive provisions that govern the practices and oversight of financial institutions and other participants in the financial markets. It imposes additional regulations, requirements and oversight on almost every aspect of the U.S. financial services industry, including increased capital and liquidity requirements, limits on leverage and enhanced supervisory authority. Some of these provisions apply to Navient and its various businesses and securitization vehicles.

The Consumer Financial Protection Act established the Consumer Financial Protection Bureau (CFPB), which has authority to write regulations under federal consumer financial protection laws and to directly or indirectly enforce those laws and examine financial institutions for compliance. The CFPB is authorized to impose fines and provide consumer restitution in the event of violations, engage in consumer financial education, track consumer complaints, request data and promote the availability of financial services to underserved consumers and communities. It also has authority to prevent unfair, deceptive or abusive practices. Since its creation, the CFPB has been active in its supervision, examination and enforcement of financial services companies. In January 2017, the CFPB filed a lawsuit against Navient alleging several unfair, deceptive or abusive practices, and other violations of consumer protection statutes. Additional information on the CFPB lawsuit is included in “Note 12 – Commitments, Contingencies and Guarantees” in this Form 10-K.

The Dodd-Frank Act also authorizes state officials to enforce regulations issued by the CFPB and to enforce the Dodd-Frank Act’s general prohibition against unfair, deceptive and abusive practices. The Attorneys General of the State of Illinois, the State of Washington, the Commonwealth of Pennsylvania, the State of California, the State of Mississippi and the State of New Jersey have also filed lawsuits against Navient and some of its subsidiaries containing similar alleged violations of consumer protection laws as those alleged in the CFPB lawsuit as well as several additional areas. These cases were recently settled by mutual agreement between the Company and various State Attorneys General. Additional information on these lawsuits is included in “Note 12 – Commitments, Contingencies and Guarantees” in this Form 10-K.

Higher Education Act. The HEA is the primary law that authorizes and regulates federal student aid programs for higher education. Navient is subject to the HEA and its education loan operations are periodically reviewed by ED and Guarantors or entities acting on their behalf. As a servicer of federal education loans, Navient is subject to ED regulations regarding financial responsibility and administrative capability that govern all third-party servicers of insured education loans. In connection with its servicing operations on behalf of Guarantor clients, Navient must comply with ED regulations that govern Guarantor activities as well as agreements for reimbursement between ED and our Guarantor clients. While the HEA is required to be reviewed and "reauthorized" by Congress every five years, Congress has not reauthorized the HEA since 2008, choosing to temporarily extend the Act each year since 2013. We cannot predict whether or when legislation will be passed or how it would impact us.

Federal Financial Institutions Examination Council. As a service provider to financial institutions, Navient is also subject to periodic examination by the Federal Financial Institutions Examination Council (FFIEC). FFIEC is a formal interagency body of the U.S. government empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions by the Federal Reserve Banks (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration, the Office of the Comptroller of the Currency and the CFPB and to make recommendations to promote uniformity in the supervision of financial institutions.

Consumer Protection and Privacy. Navient’s Consumer Lending and Federal Education Loan segments are subject to federal and state consumer protection, privacy and related laws and regulations and are subject to supervision and examination by the CFPB and various state agencies. Some of the more significant federal laws and regulations include:

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	•	various laws governing unfair, deceptive or abusive acts or practices;

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	•	the Truth-In-Lending Act and Regulation Z, which govern disclosures of credit terms to consumer borrowers;

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	•	the Fair Credit Reporting Act and Regulation V, which govern the use and provision of information to consumer reporting agencies;

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	•	the Equal Credit Opportunity Act and Regulation B, which prohibit discrimination on the basis of race, creed or other prohibited factors in extending credit;

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	•	the Servicemembers Civil Relief Act (SCRA), which applies to all debts incurred prior to commencement of active military service (including education loans) and limits the amount of interest, including certain fees or charges that are related to the obligation or liability; and

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	•	the Telephone Consumer Protection Act (TCPA), which governs communication methods that may be used to contact customers.

Navient’s Business Processing segment is subject to federal and state consumer protection, privacy and related laws and regulations, as well as certain activities, supervision and examination by the CFPB and various state agencies. Some of the more significant federal statutes are the Fair Debt Collection Practices Act and additional provisions of the acts listed above, as well as the HEA and the various laws and regulations that pertain to government contractors. These activities are also subject to state laws and regulations similar to the federal laws and regulations listed above.

Regulatory Outlook

In 2022, we expect the regulatory environment for the business in which we operate will continue to be challenging. We anticipate that regulators will be more focused on conducting regulatory audits and initiating enforcement actions.

We anticipate a number of prominent themes will emerge:

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	•	The number and configuration of regulators, particularly the CFPB, State Attorneys General and various state legislators, is likely to change which may add to the complexity, cost and unpredictability of timing for resolution of particular regulatory issues.

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	•	The regulatory, compliance and risk control structures of financial institutions subject to enforcement actions by state and federal regulators are frequently cited, regardless of whether past practices have been changed, and enforcement orders have often included detailed demands for increased compliance, audit and board supervision, as well as the use of third-party consultants or monitors to recommend further changes or monitor remediation efforts.

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	•	Issues first identified with respect to one consumer product class or distribution channel are sometimes applied to other product classes or channels.

We expect that consumer protection regulations, standards, supervision, examination and enforcement practices will continue to evolve in both detail and scope as well as being more unpredictable than in previous periods. This evolution has added and may continue to significantly add to Navient’s compliance, servicing and operating costs. We have invested in compliance through multiple steps including realignment of Navient’s compliance management system to a servicing, collections and business services business model; dedicated compliance resources for certain topics (such as the SCRA; the TCPA; unfair, deceptive, or abusive acts and practices (UDAAP); and third-party vendor management) to focus on consumer expectations; formation of business support operations to enhance risk, control and compliance functions in each business area; additional regulatory training for front-line employees to ensure obligations are understood and followed during interactions with customers, as well as additional regulatory training for our board of directors to enhance their ability to oversee the Company’s risk framework and compliance as it and the regulatory environment changes; and expanded oversight and analysis of complaint trends to identify and remediate, if necessary, areas of potential consumer harm. Despite these increased activities, our current operations and compliance processes may not satisfy evolving regulatory standards. Past practices or products may continue to be the focus of examinations, inquiries or lawsuits including even for the work we performed under our federal loan servicing contract.

As described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Risk Management,” Navient has implemented a coordinated, formal enterprise risk management system aimed at reducing business and regulatory risks.

Listed below are some of the most significant recent and pending regulatory changes that have the potential to affect Navient.

Education Loan Servicing and Consumer Lending. The CFPB has been active in the education loan industry and undertook a number of initiatives in recent years relative to the private education loan market and education loan servicing. In addition, several states have enacted various state servicing and licensing requirements. We anticipate that these state activities will continue. It is possible that more states will propose or pass similar or different requirements on either holders of education loans or their servicers. Depending on the nature of these laws or rules, they may impose additional or different requirements than Navient faces at the federal level.

Debt Collection Supervision. The CFPB also maintains supervisory authority over larger consumer debt collectors and has recently implemented changes to Regulation F governing the collection of third-party consumer debt. The issuance of the CFPB’s rules does not preempt the various and varied levels of state consumer and collection regulations to which the activities of Navient’s subsidiaries are currently subject. Navient also utilizes third-party debt collectors to collect defaulted and charged-off education loans and will continue to be responsible for oversight of their procedures and controls.

Oversight of Derivatives. The Dodd-Frank Act created a comprehensive new regulatory framework for derivatives transactions under the Commodity Futures Trading Commission (CFTC), other prudential regulators and the SEC. This framework, among other things, subjects certain swap participants to new capital and margin requirements, recordkeeping and business conduct standards and imposes registration and regulation of swap dealers and major swap participants. The scope of the rules and exemptions continues to be defined through agency rulemakings. Even where Navient or a securitization trust sponsored by Navient qualifies for an exemption, many of its derivatives counterparties are subject to capital, margin and business conduct requirements and therefore Navient’s business may be impacted. Where Navient or the securitization trusts it sponsors do not qualify for an exemption, Navient or an existing or future securitization trust sponsored by Navient may be unable to enter into new swaps to hedge interest rate or currency risk or the costs associated with such swaps may increase. With respect to existing securitization trusts, an inability to amend, novate or otherwise materially modify existing swap contracts could result in a downgrade of its outstanding asset-backed securities. As a result, Navient’s business, ability to access the capital markets for financing and costs may be impacted by these regulations.

Legal Proceedings

For a discussion of legal matters as of December 31, 2021, please refer to “Note 12 – Commitments, Contingencies and Guarantees” to our consolidated financial statements included in this report, which is incorporated into this item by reference.

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