NAVIENT CORP - FORM 10-Q - April 30, 2015

NAVIENT CORP - FORM 10-Q - April 30, 2015

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Attached files

NAVIENT CORP Reports

file	filename
EXCEL - IDEA: XBRL DOCUMENT - NAVIENT CORP	Financial_Report.xls
EX-10.1 - EX-10.1 - NAVIENT CORP	d893658dex101.htm
EX-32.2 - EX-32.2 - NAVIENT CORP	d893658dex322.htm
EX-10.3 - EX-10.3 - NAVIENT CORP	d893658dex103.htm
EX-10.4 - EX-10.4 - NAVIENT CORP	d893658dex104.htm
EX-31.1 - EX-31.1 - NAVIENT CORP	d893658dex311.htm
EX-31.2 - EX-31.2 - NAVIENT CORP	d893658dex312.htm
EX-10.2 - EX-10.2 - NAVIENT CORP	d893658dex102.htm
EX-12.1 - EX-12.1 - NAVIENT CORP	d893658dex121.htm
EX-10.6 - EX-10.6 - NAVIENT CORP	d893658dex106.htm
EX-10.5 - EX-10.5 - NAVIENT CORP	d893658dex105.htm
EX-32.1 - EX-32.1 - NAVIENT CORP	d893658dex321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2015

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

For the transition period from to

Commission File Number: 001-36228

Navient Corporation

(Exact name of registrant as specified in its charter)


Delaware		46-4054283
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

123 Justison Street, Wilmington, Delaware		19801
(Address of principal executive offices)		(Zip Code)

(302) 283-8000

(Registrant’s telephone number, including area code)

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

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

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

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

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

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


Class		Outstanding at March 31, 2015
Common Stock, $0.01 par value		389,021,445 shares

NAVIENT CORPORATION

Table of Contents


Part I. Financial Information

Item 1.	Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	83

Item 4.	Controls and Procedures	88

PART II. Other Information

Item 1.	Legal Proceedings	89

Item 1A.	Risk Factors	91

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	92

Item 3.	Defaults Upon Senior Securities	92

Item 4.	Mine Safety Disclosures	92

Item 5.	Other Information	92

Item 6.	Exhibits	93

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

NAVIENT CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share amounts)

(Unaudited)


	March 31, 2015			December 31, 2014
Assets
FFELP Loans (net of allowance for losses of $91 and $93, respectively)	$	102,424		$	104,521
Private Education Loans (net of allowance for losses of $1,849 and $1,916 respectively)		28,990			29,796
Investments
Available-for-sale		6			6
Other		597			627

Total investments		603			633
Cash and cash equivalents		2,051			1,443
Restricted cash and investments		3,799			3,926
Goodwill and acquired intangible assets, net		549			369
Other assets		5,456			5,664

Total assets	$	143,872		$	146,352

Liabilities
Short-term borrowings	$	4,090		$	2,663
Long-term borrowings		132,330			136,866
Other liabilities		3,361			2,625

Total liabilities		139,781			142,154

Commitments and contingencies
Equity
Common stock, par value $0.01 per share, 1.125 billion shares authorized: 429 million and 426 million shares issued, respectively		4			4
Additional paid-in capital		2,935			2,893
Accumulated other comprehensive (loss) income (net of tax benefit (expense) of $21 and $(5), respectively)		(36	)		9
Retained earnings		1,951			1,724

Total Navient Corporation stockholders’ equity before treasury stock		4,854			4,630
Less: Common stock held in treasury at cost: 40 million and 24 million shares, respectively		(767	)		(432	)

Total Navient Corporation stockholders’ equity		4,087			4,198
Noncontrolling interest		4			—

Total equity		4,091			4,198

Total liabilities and equity	$	143,872		$	146,352

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


	March 31, 2015		December 31, 2014
FFELP Loans	$	98,369	$	100,367
Private Education Loans		24,526		24,418
Restricted cash and investments		3,607		3,733
Other assets		288		1,230
Short-term borrowings		631		653
Long-term borrowings		114,509		117,678

Net assets of consolidated variable interest entities	$	11,650	$	11,417

See accompanying notes to consolidated financial statements.

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share amounts)

(Unaudited)


	Three Months Ended March 31,
	2015		2014
Interest income:
FFELP Loans	$	637	$	646
Private Education Loans		456		644
Other loans		2		3
Cash and investments		2		3

Total interest income		1,097		1,296
Total interest expense		514		530

Net interest income		583		766
Less: provisions for loan losses		125		185

Net interest income after provisions for loan losses		458		581

Other income (loss):
Gains on sales of loans and investments		5		—
Gains (losses) on derivative and hedging activities, net		71		(8	)
Servicing revenue		77		61
Asset recovery revenue		89		111
Gains on debt repurchases		—		—
Other		7		6

Total other income		249		170

Expenses:
Salaries and benefits		123		142
Other operating expenses		107		224

Total operating expenses		230		366
Goodwill and acquired intangible asset impairment and amortization expense		1		4
Restructuring and other reorganization expenses		3		26

Total expenses		234		396

Income from continuing operations, before income tax expense		473		355
Income tax expense		181		136

Net income from continuing operations		292		219
Income (loss) from discontinued operations, net of tax expense (benefit)		—		—

Net income		292		219
Less: net loss attributable to noncontrolling interest		—		—

Net income attributable to Navient Corporation		292		219
Preferred stock dividends		—		5

Net income attributable to Navient Corporation common stock	$	292	$	214

Basic earnings per common share attributable to Navient Corporation:
Continuing operations	$	.73	$	.50
Discontinued operations		—		—

Total	$	.73	$	.50

Average common shares outstanding		398		427

Diluted earnings per common share attributable to Navient Corporation:
Continuing operations	$	.72	$	.49
Discontinued operations		—		—

Total	$	.72	$	.49

Average common and common equivalent shares outstanding		405		435

Dividends per common share attributable to Navient Corporation	$	.16	$	.15

See accompanying notes to consolidated financial statements.

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)


	Three Months Ended March 31,
	2015			2014
Net income	$	292		$	219
Other comprehensive income (loss):
Unrealized gains (losses) on derivatives:
Unrealized hedging gains (losses) on derivatives		(71	)		(11	)
Reclassification adjustments for derivative losses included in net income (interest expense)		—			3

Total unrealized gains (losses) on derivatives		(71	)		(8	)
Income tax benefit		26			2

Total other comprehensive income (loss), net of tax		(45	)		(6	)

Comprehensive income attributable to Navient Corporation	$	247		$	213

See accompanying notes to consolidated financial statements.

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

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

(Unaudited)


	Preferred Stock Shares		Common Stock Shares								Preferred Stock		Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Stockholders’ Equity			Noncontrolling Interest		Total Equity
	Preferred Stock Shares		Issued		Treasury			Outstanding			Preferred Stock		Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Stockholders’ Equity			Noncontrolling Interest		Total Equity
Balance at December 31, 2013		7,300,000		545,210,941		(116,262,066	)		428,948,875		$	565	$	109	$	4,399	$	13		$	2,584		$	(2,033	)	$	5,637		$	5	$	5,642
Comprehensive income:
Net income		—		—		—			—			—		—		—		—			219			—			219			—		219
Other comprehensive income (loss), net of tax		—		—		—			—			—		—		—		(6	)		—			—			(6	)		—		(6	)

Total comprehensive income		—		—		—			—			—		—		—		—			—			—			213			—		213
Cash dividends:
Common stock ($.15 per share)		—		—		—			—			—		—		—		—			(64	)		—			(64	)		—		(64	)
Preferred stock, series A ($.87 per share)		—		—		—			—			—		—		—		—			(3	)		—			(3	)		—		(3	)
Preferred stock, series B ($.49 per share)		—		—		—			—			—		—		—		—			(2	)		—			(2	)		—		(2	)
Dividend equivalent units related to employee stock-based compensation plans		—		—		—			—			—		—		—		—			(1	)		—			(1	)		—		(1	)
Issuance of common shares		—		4,238,182		—			4,238,182			—		1		33		—			—			—			34			—		34
Tax benefit related to employee stock-based compensation plans		—		—		—			—			—		—		11		—			—			—			11			—		11
Stock-based compensation expense		—		—		—			—			—		—		18		—			—			—			18			—		18
Common stock repurchased		—		—		(8,368,300	)		(8,368,300	)		—		—		—		—			—			(200	)		(200	)		—		(200	)
Shares repurchased related to employee stock-based compensation plans		—		—		(2,115,470	)		(2,115,470	)		—		—		—		—			—			(50	)		(50	)		—		(50	)

Balance at March 31, 2014		7,300,000		549,449,123		(126,745,836	)		422,703,287		$	565	$	110	$	4,461	$	7		$	2,733		$	(2,283	)	$	5,593		$	5	$	5,598

Balance at December 31, 2014		—		425,637,635		(23,902,829	)		401,734,806		$	—	$	4	$	2,893	$	9		$	1,724		$	(432	)	$	4,198		$	—	$	4,198
Comprehensive income:
Net income		—		—		—			—			—		—		—		—			292			—			292			—		292
Other comprehensive income, net of tax		—		—		—			—			—		—		—		(45	)		—			—			(45	)		—		(45	)

Total comprehensive income		—		—		—			—			—		—		—		—			—			—			247			—		247
Cash dividends:
Common stock ($.16 per share)		—		—		—			—			—		—		—		—			(63	)		—			(63	)		—		(63	)
Dividend equivalent units related to employee stock-based compensation plans		—		—		—			—			—		—		—		—			(2	)		—			(2	)		—		(2	)
Issuance of common shares		—		3,585,238		—			3,585,238			—		—		21		—			—			—			21			—		21
Tax benefit related to employee stock-based compensation plans		—		—		—			—			—		—		9		—			—			—			9			—		9
Stock-based compensation expense		—		—		—			—			—		—		12		—			—			—			12			—		12
Common stock repurchased		—		—		(14,653,835	)		(14,653,835	)		—		—		—		—			—			(300	)		(300	)		—		(300	)
Shares repurchased related to employee stock-based compensation plans		—		—		(1,644,764	)		(1,644,764	)		—		—		—		—			—			(35	)		(35	)		—		(35	)
Noncontrolling interest in asset recovery business		—		—		—			—			—		—		—		—			—			—			—			4		4

Balance at March 31, 2015		—		429,222,873		(40,201,428	)		389,021,445		$	—	$	4	$	2,935	$	(36	)	$	1,951		$	(767	)	$	4,087		$	4	$	4,091

See accompanying notes to consolidated financial statements.

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)


	Three Months Ended March 31,
	2015			2014
Operating activities
Net income	$	292		$	219
Adjustments to reconcile net income to net cash provided by operating activities:
Gains on loans and investments, net		(5	)		—
Goodwill and acquired intangible asset impairment and amortization expense		1			4
Stock-based compensation expense		12			18
Unrealized gains on derivative and hedging activities		(224	)		(181	)
Provisions for loan losses		125			185
(Increase) decrease in restricted cash — other		(7	)		5
Decrease in accrued interest receivable		148			109
Decrease in accrued interest payable		(60	)		(69	)
Decrease in other assets		153			257
Increase in other liabilities		64			11

Total net cash provided by operating activities		499			558

Investing activities
Student loans acquired and originated		(830	)		(1,975	)
Reduction of student loans:
Installment payments, claims and other		3,407			3,090
Proceeds from sales of student loans		193			—
Other investing activities, net		24			119
Purchases of available-for-sale securities		—			(25	)
Proceeds from maturities of available-for-sale securities		—			2
Purchases of other securities		—			(65	)
Proceeds from maturities of other securities		1			67
Decrease (increase) in restricted cash — variable interest entities		126			(221	)
Purchase of subsidiary, net of cash acquired		(181	)		—

Total net cash provided by investing activities		2,740			992

Financing activities
Borrowings collateralized by loans in trust — issued		1,678			2,649
Borrowings collateralized by loans in trust — repaid		(3,369	)		(2,834	)
Asset-backed commercial paper conduits, net		(539	)		(1,918	)
Other long-term borrowings issued		493			834
Other long-term borrowings repaid		(590	)		(1,535	)
Other financing activities, net		59			(11	)
Retail and other deposits, net		—			86
Common stock repurchased		(300	)		(200	)
Common stock dividends paid		(63	)		(64	)
Preferred stock dividends paid		—			(5	)

Net cash used in financing activities		(2,631	)		(2,998	)

Net increase (decrease) in cash and cash equivalents		608			(1,448	)
Cash and cash equivalents at beginning of period		1,443			5,190

Cash and cash equivalents at end of period	$	2,051		$	3,742

Cash disbursements made (refunds received) for:
Interest	$	500		$	519

Income taxes paid	$	1		$	38

Income taxes received	$	—		$	(1	)

See accompanying notes to consolidated financial statements.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

1.	The Separation

On April 30, 2014, the spin-off of Navient from SLM Corporation (the “Spin-Off”) was completed and Navient became an independent, publicly traded company focused on loan management, servicing and asset recovery. The separation was completed through the distribution of 100 percent of the outstanding shares of Navient common stock, on the basis of one share of Navient common stock for each share of SLM Corporation common stock. SLM Corporation continues operation as a separate publicly traded company and includes Sallie Mae Bank and its Private Education Loan originations business and the Private Education Loans the bank held at the time of the separation.

Due to the relative significance of Navient to SLM Corporation prior to the Spin-Off, for financial reporting purposes, Navient is treated as the “accounting spinnor” and therefore is the “accounting successor” to SLM Corporation as constituted prior to the Spin-Off, notwithstanding the legal form of the Spin-Off. Since Navient is the accounting successor, the historical financial statements of SLM Corporation prior to the distribution on April 30, 2014 are the historical financial statements of Navient. As a result, the GAAP financial results reported in this Quarterly Report on Form 10-Q include the historical financial results of SLM Corporation prior to the Spin-Off on April 30, 2014 (i.e., such consolidated results include our loan management, servicing and asset recovery business and the consumer banking business associated with Sallie Mae Bank (“SLM BankCo”)) and reflect the deemed distribution of SLM BankCo to SLM Corporation’s stockholders on April 30, 2014.

2.	Significant Accounting Policies

Basis of Presentation

The accompanying unaudited, consolidated financial statements of Navient have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. The consolidated financial statements include the accounts of Navient and its majority-owned and controlled subsidiaries and those Variable Interest Entities (“VIEs”) for which we are the primary beneficiary, after eliminating the effects of intercompany accounts and transactions. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three-month period ended March 31, 2015 are not necessarily indicative of the results for the year ending December 31, 2015 or for any other period. These unaudited financial statements should be read in conjunction with the audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2014 (the “2014 Form 10-K”). Definitions for certain capitalized terms used but not otherwise defined in this Quarterly Report on Form 10-Q can be found in our 2014 Form 10-K.

Reclassifications

Certain reclassifications have been made to the balances as of and for the three months ended March 31, 2014 to be consistent with classifications adopted for 2015, and had no effect on net income, total assets, or total liabilities.

Recently Issued Accounting Pronouncements

Revenue Recognition

On May 28, 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

2.	Significant Accounting Policies (Continued)

entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet determined the effect of the standard on our ongoing financial reporting but do not expect it to be material.

3.	Allowance for Loan Losses

The financial statements of Navient reflect the deemed distribution of SLM BankCo on April 30, 2014. As a result of the deemed distribution, all disclosures in this footnote as of a date prior to April 30, 2014 include SLM BankCo’s FFELP and Private Education Loans, whereas the disclosures as of December 31, 2014 and March 31, 2015 do not contain SLM BankCo’s FFELP and Private Education Loans.

Our provisions for loan losses represent the periodic expense of maintaining an allowance sufficient to absorb incurred probable losses, net of expected recoveries, in the held-for-investment loan portfolios. The evaluation of the provisions for loan losses is inherently subjective as it requires material estimates that may be susceptible to significant changes. We believe that the allowance for loan losses is appropriate to cover probable losses incurred in the loan portfolios. We segregate our Private Education Loan portfolio into two classes of loans — traditional and non-traditional. Non-traditional loans are loans to (i) customers attending for-profit schools with an original Fair Isaac and Company (“FICO”) score of less than 670 and (ii) customers attending not-for-profit schools with an original FICO score of less than 640. The FICO score used in determining whether a loan is non-traditional is the greater of the customer or cosigner FICO score at origination. Traditional loans are defined as all other Private Education Loans that are not classified as non-traditional.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

3.	Allowance for Loan Losses (Continued)

Allowance for Loan Losses Metrics


	Three Months Ended March 31, 2015
(Dollars in millions)	FFELP Loans			Private Education Loans			Other Loans			Total
Allowance for Loan Losses
Beginning balance	$	93		$	1,916		$	24		$	2,033
Total provision		5			120			—			125
Charge-offs⁽¹⁾		(7	)		(190	)		(1	)		(198	)
Reclassification of interest reserve⁽²⁾		—			3			—			3

Ending balance	$	91		$	1,849		$	23		$	1,963

Allowance:
Ending balance: individually evaluated for impairment	$	—		$	1,077		$	18		$	1,095
Ending balance: collectively evaluated for impairment	$	91		$	772		$	5		$	868
Loans:
Ending balance: individually evaluated for impairment⁽³⁾	$	—		$	10,859		$	43		$	10,902
Ending balance: collectively evaluated for impairment⁽³⁾	$	101,347		$	20,561		$	59		$	121,967
Charge-offs as a percentage of average loans in repayment (annualized)		.03	%		2.89	%		3.43	%
Allowance as a percentage of the ending total loan balance		.09	%		5.88	%		22.30	%
Allowance as a percentage of the ending loans in repayment		.12	%		7.04	%		22.30	%
Allowance coverage of charge-offs (annualized)		3.6			2.4			6.3
Ending total loans⁽³⁾	$	101,347		$	31,420		$	102
Average loans in repayment	$	77,474		$	26,644		$	105
Ending loans in repayment	$	76,755		$	26,260		$	102

⁽¹⁾

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

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

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

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

3.	Allowance for Loan Losses (Continued)


	Three Months Ended March 31, 2014
(Dollars in millions)	FFELP Loans			Private Education Loans			Other Loans			Total
Allowance for Loan Losses
Beginning balance	$	119		$	2,097		$	28		$	2,244
Total provision		10			175			—			185
Charge-offs⁽¹⁾		(22	)		(218	)		(1	)		(241	)
Reclassification of interest reserve⁽²⁾		—			5			—			5

Ending balance	$	107		$	2,059		$	27		$	2,193

Allowance:
Ending balance: individually evaluated for impairment	$	—		$	1,081		$	20		$	1,101
Ending balance: collectively evaluated for impairment	$	107		$	978		$	7		$	1,092
Loans:
Ending balance: individually evaluated for impairment	$	—		$	9,590		$	44		$	9,634
Ending balance: collectively evaluated for impairment	$	101,727		$	31,307		$	79		$	133,113
Charge-offs as a percentage of average loans in repayment (annualized)		.12	%		2.82	%		3.62	%
Allowance as a percentage of the ending total loan balance		.10	%		5.03	%		21.80	%
Allowance as a percentage of the ending loans in repayment		.15	%		6.58	%		21.80	%
Allowance coverage of charge-offs (annualized)		1.2			2.3			5.9
Ending total loans⁽³⁾	$	101,727		$	40,897		$	123
Average loans in repayment	$	73,496		$	31,416		$	126
Ending loans in repayment	$	73,061		$	31,309		$	123

⁽¹⁾

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

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

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

Key Credit Quality Indicators

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

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

3.	Allowance for Loan Losses (Continued)

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


	Private Education Loans Credit Quality Indicators
	March 31, 2015					December 31, 2014
(Dollars in millions)	Balance⁽³⁾		% of Balance			Balance⁽³⁾		% of Balance
Credit Quality Indicators
School Type/FICO Scores:
Traditional	$	27,729		92	%	$	28,527		92	%
Non-Traditional⁽¹⁾		2,455		8			2,534		8

Total	$	30,184		100	%	$	31,061		100	%

Cosigners:
With cosigner	$	19,460		64	%	$	20,001		64	%
Without cosigner		10,724		36			11,060		36

Total	$	30,184		100	%	$	31,061		100	%

Seasoning⁽²⁾:
1-12 payments	$	2,355		8	%	$	2,734		9	%
13-24 payments		2,801		9			3,161		10
25-36 payments		4,043		13			4,259		14
37-48 payments		4,218		14			4,404		14
More than 48 payments		13,873		46			13,450		43
Not yet in repayment		2,894		10			3,053		10

Total	$	30,184		100	%	$	31,061		100	%

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

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

⁽³⁾	Balance represents gross Private Education Loans.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

3.	Allowance for Loan Losses (Continued)

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


	FFELP Loan Delinquencies
	March 31, 2015						December 31, 2014
(Dollars in millions)	Balance			%			Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	10,555					$	10,861
Loans in forbearance⁽²⁾		14,037						14,366
Loans in repayment and percentage of each status:
Loans current		64,522			84.1	%		65,221			83.4	%
Loans delinquent 31-60 days⁽³⁾		3,656			4.8			3,942			5.0
Loans delinquent 61-90 days⁽³⁾		2,087			2.7			2,451			3.1
Loans delinquent greater than 90 days⁽³⁾		6,490			8.4			6,597			8.5

Total FFELP Loans in repayment		76,755			100	%		78,211			100	%

Total FFELP Loans, gross		101,347						103,438
FFELP Loan unamortized premium		1,168						1,176

Total FFELP Loans		102,515						104,614
FFELP Loan allowance for losses		(91	)					(93	)

FFELP Loans, net	$	102,424					$	104,521

Percentage of FFELP Loans in repayment					75.7	%					75.6	%

Delinquencies as a percentage of FFELP Loans in repayment					15.9	%					16.6	%

FFELP Loans in forbearance as a percentage of loans in repayment and forbearance					15.5	%					15.5	%

⁽¹⁾

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

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

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

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

3.	Allowance for Loan Losses (Continued)


	Private Education Traditional Loan Delinquencies
	March 31, 2015						December 31, 2014
(Dollars in millions)	Balance			%			Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	2,630					$	2,777
Loans in forbearance⁽²⁾		909						935
Loans in repayment and percentage of each status:
Loans current		22,706			93.9	%		23,012			92.7	%
Loans delinquent 31-60 days⁽³⁾		444			1.8			624			2.5
Loans delinquent 61-90 days⁽³⁾		286			1.2			363			1.5
Loans delinquent greater than 90 days⁽³⁾		754			3.1			816			3.3

Total traditional loans in repayment		24,190			100	%		24,815			100	%

Total traditional loans, gross		27,729						28,527
Traditional loans unamortized discount		(515	)					(526	)

Total traditional loans		27,214						28,001
Traditional loans receivable for partially charged-off loans		775						775
Traditional loans allowance for losses		(1,470	)					(1,515	)

Traditional loans, net	$	26,519					$	27,261

Percentage of traditional loans in repayment					87.2	%					87.0	%

Delinquencies as a percentage of traditional loans in repayment					6.1	%					7.3	%

Loans in forbearance as a percentage of loans in repayment and forbearance					3.6	%					3.6	%

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

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

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

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

3.	Allowance for Loan Losses (Continued)


	Private Education Non-Traditional Loan Delinquencies
	March 31, 2015						December 31, 2014
(Dollars in millions)	Balance			%			Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	264					$	276
Loans in forbearance⁽²⁾		121						124
Loans in repayment and percentage of each status:
Loans current		1,745			84.3	%		1,749			81.9	%
Loans delinquent 31-60 days⁽³⁾		84			4.0			110			5.2
Loans delinquent 61-90 days⁽³⁾		55			2.7			73			3.4
Loans delinquent greater than 90 days⁽³⁾		186			9.0			202			9.5

Total non-traditional loans in repayment		2,070			100	%		2,134			100	%

Total non-traditional loans, gross		2,455						2,534
Non-traditional loans unamortized discount		(66	)					(68	)

Total non-traditional loans		2,389						2,466
Non-traditional loans receivable for partially charged-off loans		461						470
Non-traditional loans allowance for losses		(379	)					(401	)

Non-traditional loans, net	$	2,471					$	2,535

Percentage of non-traditional loans in repayment					84.3	%					84.2	%

Delinquencies as a percentage of non-traditional loans in repayment					15.7	%					18.1	%

Loans in forbearance as a percentage of loans in repayment and forbearance					5.5	%					5.5	%

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

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

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

Receivable for Partially Charged-Off Private Education Loans

At the end of each month, for loans that are 212 days or more past due, we charge off the estimated loss of a defaulted loan balance. Actual recoveries are applied against the remaining loan balance that was not charged off. We refer to this remaining loan balance as the “receivable for partially charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately charged off through the allowance for Private Education Loan losses with an offsetting reduction in the receivable for partially charged-off Private Education Loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. Private Education Loans which have defaulted since 2007 for which we have previously charged off estimated losses have, to varying degrees, not met our post-default recovery expectations to date and may continue not to do so. According to our policy, we have been charging off these periodic shortfalls in expected recoveries against our allowance for Private Education Loan losses and the related receivable for partially charged-off Private Education Loans and we will continue to do so. There was $380

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

3.	Allowance for Loan Losses (Continued)

million and $334 million in the allowance for Private Education Loan losses at March 31, 2015 and 2014, respectively, providing for possible additional future charge-offs related to the receivable for partially charged-off Private Education Loans.

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


	Three Months Ended March 31,
(Dollars in millions)	2015			2014
Receivable at beginning of period	$	1,245		$	1,313
Expected future recoveries of current period defaults⁽¹⁾		62			71
Recoveries⁽²⁾		(52	)		(61	)
Charge-offs⁽³⁾		(19	)		(26	)

Receivable at end of period		1,236			1,297
Allowance for estimated recovery shortfalls⁽⁴⁾		(380	)		(334	)

Net receivable at end of period	$	856		$	963

⁽¹⁾

Represents the difference between the loan balance and our estimate of the amount to be collected in the future.

⁽²⁾

Current period cash collections.

⁽³⁾

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

⁽⁴⁾

The allowance for estimated recovery shortfalls of the receivable for partially charged-off Private Education Loans is a component of the $1.8 billion and $2.1 billion overall allowance for Private Education Loan losses as of March 31, 2015 and 2014, respectively.

Troubled Debt Restructurings (“TDRs”)

We sometimes modify the terms of loans for certain customers when we believe such modifications may increase the ability and willingness of a customer to make payments and thus increase the ultimate overall amount collected on a loan. These modifications generally take the form of a forbearance, a temporary interest rate reduction or an extended repayment plan. For customers experiencing financial difficulty, certain Private Education Loans for which we have granted either a forbearance of greater than three months, an interest rate reduction or an extended repayment plan are classified as TDRs. Approximately 53 percent and 51 percent of the loans granted forbearance have qualified as a TDR loan at March 31, 2015 and December 31, 2014, respectively. The unpaid principal balance of TDR loans that were in an interest rate reduction plan was $2.2 billion as of March 31, 2015 and December 31, 2014.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

3.	Allowance for Loan Losses (Continued)

At March 31, 2015 and December 31, 2014, all of our TDR loans had a related allowance recorded. The following table provides the recorded investment, unpaid principal balance and related allowance for our TDR loans.


	TDR Loans
(Dollars in millions)	Recorded Investment⁽¹⁾		Unpaid Principal Balance		Related Allowance
March 31, 2015
Private Education Loans — Traditional	$	8,954	$	9,021	$	875
Private Education Loans — Non-Traditional		1,472		1,472		202

Total	$	10,426	$	10,493	$	1,077

December 31, 2014
Private Education Loans — Traditional	$	8,728	$	8,790	$	917
Private Education Loans — Non-Traditional		1,477		1,476		215

Total	$	10,205	$	10,266	$	1,132

⁽¹⁾

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

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


	Three Months Ended March 31,
	2015				2014
(Dollars in millions)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Private Education Loans — Traditional	$	8,856	$	132	$	7,631	$	118
Private Education Loans — Non-Traditional		1,476		29		1,434		29

Total	$	10,332	$	161	$	9,065	$	147

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

3.	Allowance for Loan Losses (Continued)

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


	TDR Loan Delinquencies
	March 31, 2015					December 31, 2014
(Dollars in millions)	Balance		%			Balance		%
Loans in deferment⁽¹⁾	$	846				$	825
Loans in forbearance⁽²⁾		760					745
Loans in repayment and percentage of each status:
Loans current		7,558		85.1	%		7,186		82.7	%
Loans delinquent 31-60 days⁽³⁾		365		4.1			464		5.3
Loans delinquent 61-90 days⁽³⁾		249		2.8			299		3.4
Loans delinquent greater than 90 days⁽³⁾		715		8.0			747		8.6

Total TDR loans in repayment		8,887		100	%		8,696		100	%

Total TDR loans, gross	$	10,493				$	10,266

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

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

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

The following table provides the amount of loans modified in the periods presented that resulted in a TDR. Additionally, the table summarizes charge-offs occurring in the TDR portfolio, as well as TDRs for which a payment default occurred in the current period within 12 months of the loan first being designated as a TDR. We define payment default as 60 days past due for this disclosure. The majority of our loans that are considered TDRs involve a temporary forbearance of payments and do not change the contractual interest rate of the loan.


	Three Months Ended March 31,
	2015						2014
(Dollars in millions)	Modified Loans⁽¹⁾		Charge- Offs⁽²⁾		Payment Default		Modified Loans⁽¹⁾		Charge- Offs⁽²⁾		Payment Default
Private Education Loans — Traditional	$	430	$	91	$	100	$	466	$	100	$	119
Private Education Loans — Non-Traditional		42		28		18		57		34		29

Total	$	472	$	119	$	118	$	523	$	134	$	148

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

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

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

3.	Allowance for Loan Losses (Continued)

Accrued Interest Receivable

The following table provides information regarding accrued interest receivable on our Private Education Loans and our allowance for uncollectible interest.


(Dollars in millions)	Accrued Interest Receivable		Allowance for Uncollectible Interest
March 31, 2015
Private Education Loans — Traditional	$	513	$	24
Private Education Loans — Non-Traditional		65		9

Total	$	578	$	33

December 31, 2014
Private Education Loans — Traditional	$	542	$	29
Private Education Loans — Non-Traditional		70		11

Total	$	612	$	40

4.	Borrowings

The following table summarizes our borrowings.


	March 31, 2015						December 31, 2014
(Dollars in millions)	Short Term		Long Term		Total		Short Term		Long Term		Total
Unsecured borrowings:
Senior unsecured debt	$	2,458	$	14,830	$	17,288	$	1,066	$	16,311	$	17,377

Total unsecured borrowings		2,458		14,830		17,288		1,066		16,311		17,377

Secured borrowings:
FFELP Loan securitizations		—		84,579		84,579		—		86,241		86,241
Private Education Loan securitizations		—		17,992		17,992		—		17,997		17,997
FFELP Loan — other facilities		—		14,841		14,841		—		15,358		15,358
Private Education Loan — other facilities		631		—		631		653		—		653
Other⁽¹⁾		983		—		983		937		—		937

Total secured borrowings		1,614		117,412		119,026		1,590		119,596		121,186

Total before hedge accounting adjustments		4,072		132,242		136,314		2,656		135,907		138,563
Hedge accounting adjustments		18		88		106		7		959		966

Total	$	4,090	$	132,330	$	136,420	$	2,663	$	136,866	$	139,529

⁽¹⁾	“Other” primarily consists of the obligation to return cash collateral held related to derivative exposure.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

4.	Borrowings (Continued)

Variable Interest Entities

We consolidated the following financing VIEs as of March 31, 2015 and December 31, 2014, as we are the primary beneficiary. As a result, these VIEs are accounted for as secured borrowings.


	March 31, 2015
	Debt Outstanding								Carrying Amount of Assets Securing Debt Outstanding
(Dollars in millions)	Short Term		Long Term			Total			Loans		Cash		Other Assets			Total
Secured Borrowings — VIEs:
FFELP Loan securitizations	$	—	$	84,579		$	84,579		$	85,245	$	2,882	$	667		$	88,794
Private Education Loan securitizations		—		17,992			17,992			23,319		472		401			24,192
FFELP Loan — other facilities		—		12,841			12,841			13,124		235		199			13,558
Private Education Loan — other facilities		631		—			631			1,207		18		37			1,262

Total before hedge accounting adjustments		631		115,412			116,043			122,895		3,607		1,304			127,806
Hedge accounting adjustments		—		(903	)		(903	)		—		—		(1,016	)		(1,016	)

Total	$	631	$	114,509		$	115,140		$	122,895	$	3,607	$	288		$	126,790


	December 31, 2014
	Debt Outstanding								Carrying Amount of Assets Securing Debt Outstanding
(Dollars in millions)	Short Term		Long Term			Total			Loans		Cash		Other Assets			Total
Secured Borrowings — VIEs:
FFELP Loan securitizations	$	—	$	86,241		$	86,241		$	86,715	$	3,069	$	722		$	90,506
Private Education Loan securitizations		—		17,997			17,997			23,184		378		389			23,951
FFELP Loan — other facilities		—		13,358			13,358			13,653		269		260			14,182
Private Education Loan — other facilities		653		—			653			1,233		17		36			1,286

Total before hedge accounting adjustments		653		117,596			118,249			124,785		3,733		1,407			129,925
Hedge accounting adjustments		—		82			82			—		—		(177	)		(177	)

Total	$	653	$	117,678		$	118,331		$	124,785	$	3,733	$	1,230		$	129,748

5.	Derivative Financial Instruments

Our risk management strategy and use of and accounting for derivatives have not materially changed from that discussed in our 2014 Form 10-K. Please refer to “Note 7 — Derivative Financial Instruments” in our 2014 Form 10-K for a full discussion.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

5.	Derivative Financial Instruments (Continued)

Summary of Derivative Financial Statement Impact

The following tables summarize the fair values and notional amounts of all derivative instruments at March 31, 2015 and December 31, 2014, and their impact on other comprehensive income and earnings for the three months ended March 31, 2015 and 2014.

Impact of Derivatives on Consolidated Balance Sheet


		Cash Flow						Fair Value						Trading						Total
(Dollars in millions)	Hedged Risk Exposure	Mar. 31, 2015			Dec. 31, 2014			Mar. 31, 2015			Dec. 31, 2014			Mar. 31, 2015			Dec. 31, 2014			Mar. 31, 2015			Dec. 31, 2014
Fair Values⁽¹⁾
Derivative Assets:
Interest rate swaps	Interest rate	$	—		$	6		$	930		$	828		$	32		$	23		$	962		$	857
Cross-currency interest rate swaps	Foreign currency and interest rate		—			—			—			164			—			—			—			164
Other⁽²⁾	Interest rate		—			—			—			—			1			1			1			1

Total derivative assets⁽³⁾			—			6			930			992			33			24			963			1,022
Derivative Liabilities:
Interest rate swaps	Interest rate		(68	)		(3	)		(2	)		(22	)		(112	)		(120	)		(182	)		(145	)
Floor Income Contracts	Interest rate		—			—			—			—			(845	)		(915	)		(845	)		(915	)
Cross-currency interest rate swaps	Foreign currency and interest rate		—			—			(972	)		(293	)		(65	)		(65	)		(1,037	)		(358	)
Other⁽²⁾	Interest rate		—			—			—			—			(14	)		(12	)		(14	)		(12	)

Total derivative liabilities⁽³⁾			(68	)		(3	)		(974	)		(315	)		(1,036	)		(1,112	)		(2,078	)		(1,430	)

Net total derivatives		$	(68	)	$	3		$	(44	)	$	677		$	(1,003	)	$	(1,088	)	$	(1,115	)	$	(408	)

⁽¹⁾

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

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

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


	Other Assets						Other Liabilities
(Dollar in millions)	March 31, 2015			December 31, 2014			March 31, 2015			December 31, 2014
Gross position	$	963		$	1,022		$	(2,078	)	$	(1,430	)
Impact of master netting agreements		(153	)		(241	)		153			241

Derivative values with impact of master netting agreements (as carried on balance sheet)		810			781			(1,925	)		(1,189	)
Cash collateral (held) pledged		(981	)		(935	)		594			624

Net position	$	(171	)	$	(154	)	$	(1,331	)	$	(565	)

The above fair values include adjustments for counterparty credit risk both for when we are exposed to the counterparty, net of collateral postings, and when the counterparty is exposed to us, net of collateral postings. The net adjustments decreased the overall net asset positions at March 31, 2015 and December 31, 2014 by $0 million and $18 million, respectively. In addition, the above fair values reflect adjustments for illiquid

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

5.	Derivative Financial Instruments (Continued)

derivatives as indicated by a wide bid/ask spread in the interest rate indices to which the derivatives are indexed. These adjustments decreased the overall net asset positions at March 31, 2015 and December 31, 2014 by $74 million and $73 million, respectively.


	Cash Flow				Fair Value				Trading				Total
(Dollars in billions)	Mar. 31, 2015		Dec. 31, 2014		Mar. 31, 2015		Dec. 31, 2014		Mar. 31, 2015		Dec. 31, 2014		Mar. 31, 2015		Dec. 31, 2014
Notional Values:
Interest rate swaps	$	6.0	$	6.0	$	14.3	$	14.3	$	27.8	$	28.7	$	48.1	$	49.0
Floor Income Contracts		—		—		—		—		35.1		35.2		35.1		35.2
Cross-currency interest rate swaps		—		—		9.3		9.4		.4		.4		9.7		9.8
Other⁽¹⁾		—		—		—		—		3.5		3.6		3.5		3.6

Total derivatives	$	6.0	$	6.0	$	23.6	$	23.7	$	66.8	$	67.9	$	96.4	$	97.6

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

Impact of Derivatives on Consolidated Statements of Income


	Three Months Ended March 31,
	Unrealized Gain (Loss) on Derivatives⁽¹⁾⁽²⁾						Realized Gain (Loss) on Derivatives⁽³⁾						Unrealized Gain (Loss) on Hedged Item⁽¹⁾						Total Gain (Loss)
(Dollars in millions)	2015			2014			2015			2014			2015			2014			2015			2014
Fair Value Hedges:
Interest rate swaps	$	121		$	53		$	95		$	100		$	(130	)	$	(53	)	$	86		$	100
Cross-currency interest rate swaps		(842	)		(53	)		2			22			988			7			148			(24	)

Total fair value derivatives		(721	)		—			97			122			858			(46	)		234			76
Cash Flow Hedges:
Interest rate swaps		—			—			—			(3	)		—			—			—			(3	)

Total cash flow derivatives		—			—			—			(3	)		—			—			—			(3	)
Trading:
Interest rate swaps		18			19			11			12			—			—			29			31
Floor Income Contracts		72			181			(162	)		(198	)		—			—			(90	)		(17	)
Cross-currency interest rate swaps		(1	)		7			(1	)		(1	)		—			—			(2	)		6
Other		(2	)		19			(1	)		(1	)		—			—			(3	)		18

Total trading derivatives		87			226			(153	)		(188	)		—			—			(66	)		38

Total		(634	)		226			(56	)		(69	)		858			(46	)		168			111
Less: realized gains (losses) recorded in interest expense		—			—			97			119			—			—			97			119

Gains (losses) on derivative and hedging activities, net	$	(634	)	$	226		$	(153	)	$	(188	)	$	858		$	(46	)	$	71		$	(8	)

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

⁽²⁾	Represents ineffectiveness related to cash flow hedges.

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

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

5.	Derivative Financial Instruments (Continued)

Collateral

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


(Dollars in millions)	March 31, 2015		December 31, 2014
Collateral held:
Cash (obligation to return cash collateral is recorded in short-term borrowings)	$	981	$	935
Securities at fair value — on-balance sheet securitization derivatives (not recorded in financial statements)⁽¹⁾		243		344

Total collateral held	$	1,224	$	1,279

Derivative asset at fair value including accrued interest	$	1,042	$	1,091

Collateral pledged to others:
Cash (right to receive return of cash collateral is recorded in investments)	$	594	$	624

Total collateral pledged	$	594	$	624

Derivative liability at fair value including accrued interest and premium receivable	$	1,642	$	926

⁽¹⁾	The trusts do not have the ability to sell or re-pledge securities they hold as collateral.

Our corporate derivatives contain credit contingent features. At our current unsecured credit rating, we have fully collateralized our corporate derivative liability position (including accrued interest and net of premiums receivable) of $639 million with our counterparties. Downgrades in our unsecured credit rating would not result in any additional collateral requirements, except to increase the frequency of collateral calls. Two counterparties have the right to terminate the contracts based on our current unsecured credit rating. We currently have a liability position with these derivative counterparties (including accrued interest and net of premiums receivable) of $65 million and have posted $64 million of collateral to these counterparties. If these two counterparties exercised their right to terminate, we would be required to deliver additional assets of $1 million to settle the contracts. Trust related derivatives do not contain credit contingent features related to our or the trusts’ credit ratings.

6.	Other Assets

The following table provides the detail of our other assets.


	March 31, 2015					December 31, 2014
(Dollars in millions)	Ending Balance		% of Balance			Ending Balance		% of Balance
Accrued interest receivable, net	$	1,672		31	%	$	1,821		32	%
Income tax asset, net current and deferred		1,244		23			1,389		25
Derivatives at fair value		810		15			781		14
Accounts receivable		582		11			558		10
Benefit and insurance-related investments		488		9			485		9
Fixed assets, net		154		3			152		3
Other loans, net		79		1			83		1
Other		427		7			395		6

Total	$	5,456		100	%	$	5,664		100	%

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

7.	Business Combination — Acquisition of Gila LLC

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

On February 20, 2015, Navient acquired a 97.9% controlling interest in Gila LLC. Gila LLC is an asset recovery and business process outsourcing firm serving more than 600 clients in 39 states. The firm provides receivables management services and account processing solutions for state governments, agencies, court systems and municipalities. We have engaged an independent appraiser to assist in the valuation of the assets acquired and liabilities assumed including identifiable intangible assets, primarily customer relationships, the trade name and developed technology. We anticipate the purchase price allocation will be completed by the end of the third quarter 2015. The results of operations of Gila LLC have been included in Navient’s consolidated financial statements since the acquisition date and are reflected in Navient’s Business Services segment results in “Note 12 — Segment Reporting.”

During the first-quarter 2015, there were no other changes or adjustments to goodwill and intangible assets.

8.	Stockholders’ Equity

The following table summarizes common share repurchases and issuances.


	Three Months Ended March 31,
	2015		2014
Common shares repurchased⁽¹⁾		14,653,835		8,368,300
Average purchase price per share	$	20.49	$	23.89
Shares repurchased related to employee stock-based compensation plans⁽²⁾		1,644,764		2,115,470
Average purchase price per share	$	20.86	$	23.56
Common shares issued⁽³⁾		3,585,238		4,238,182

⁽¹⁾

Common shares purchased under our share repurchase programs, including share repurchase programs conducted by SLM Corporation prior to April 30, 2014.

⁽²⁾

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

⁽³⁾

Common shares issued under our various compensation and benefit plans, including shares issued by SLM Corporation prior to April 30, 2014.

The closing price of our common stock on March 31, 2015 was $20.33.

Dividend and Share Repurchase Program

In March 2015, we paid a common stock dividend of $0.16 per share, up from $0.15 per share in the prior quarter.

We repurchased 14.7 million shares of common stock for $300 million in the first quarter of 2015. The shares were repurchased under our January 2015 share repurchase program that authorizes up to $1 billion of share repurchases, of which $700 million remained available at March 31, 2015. In first-quarter 2014, SLM Corporation repurchased 8.4 million shares for $200 million.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

9.	Earnings per Common Share

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


	Three Months Ended March 31,
(In millions, except per share data)	2015		2014
Numerator:
Net income attributable to Navient Corporation	$	292	$	219
Preferred stock dividends		—		5

Net income attributable to Navient Corporation common stock	$	292	$	214

Denominator:
Weighted average shares used to compute basic EPS		398		427
Effect of dilutive securities:
Dilutive effect of stock options, non-vested restricted stock, restricted stock units and Employee Stock Purchase Plans (“ESPPs”)⁽¹⁾		7		8

Dilutive potential common shares⁽²⁾		7		8

Weighted average shares used to compute diluted EPS		405		435

Basic earnings (loss) per common share attributable to Navient Corporation:
Continuing operations	$	.73	$	.50
Discontinued operations		—		—

Total	$	.73	$	.50

Diluted earnings (loss) per common share attributable to Navient Corporation:
Continuing operations	$	.72	$	.49
Discontinued operations		—		—

Total	$	.72	$	.49

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

⁽²⁾	For the three months ended March 31, 2015 and 2014, stock options covering approximately 4 million and 3 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive.

10.

Fair Value Measurements

We use estimates of fair value in applying various accounting standards in our financial statements. We categorize our fair value estimates based on a hierarchical framework associated with three levels of price transparency utilized in measuring financial instruments at fair value. Please refer to “Note 12 — Fair Value Measurements” in our 2014 Form 10-K for a full discussion.

During the three months ended March 31, 2015, there were no significant transfers of financial instruments between levels, or changes in our methodology or assumptions used to value our financial instruments.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

10.

Fair Value Measurements (Continued)

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


	Fair Value Measurements on a Recurring Basis
	March 31, 2015											December 31, 2014
(Dollars in millions)	Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3			Total
Assets
Available-for-sale investments:
Agency residential mortgage-backed securities	$	—	$	1		$	—		$	1		$	—	$	1		$	—		$	1
Other		—		5			—			5			—		5			—			5

Total available-for-sale investments		—		6			—			6			—		6			—			6
Derivative instruments:⁽¹⁾
Interest rate swaps		—		943			19			962			—		841			16			857
Cross-currency interest rate swaps		—		—			—			—			—		—			164			164
Other		—		—			1			1			—		—			1			1

Total derivative assets⁽³⁾		—		943			20			963			—		841			181			1,022

Total	$	—	$	949		$	20		$	969		$	—	$	847		$	181		$	1,028

Liabilities⁽²⁾
Derivative instruments⁽¹⁾
Interest rate swaps	$	—	$	(75	)	$	(107	)	$	(182	)	$	—	$	(41	)	$	(104	)	$	(145	)
Floor Income Contracts		—		(845	)		—			(845	)		—		(915	)		—			(915	)
Cross-currency interest rate swaps		—		(79	)		(958	)		(1,037	)		—		(77	)		(281	)		(358	)
Other		—		—			(14	)		(14	)		—		—			(12	)		(12	)

Total derivative liabilities⁽³⁾		—		(999	)		(1,079	)		(2,078	)		—		(1,033	)		(397	)		(1,430	)

Total	$	—	$	(999	)	$	(1,079	)	$	(2,078	)	$	—	$	(1,033	)	$	(397	)	$	(1,430	)

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

⁽²⁾	Borrowings which are the hedged items in a fair value hedge relationship and which are adjusted for changes in value due to benchmark interest rates only are not carried at full fair value and are not reflected in this table.

⁽³⁾	See “Note 5 — Derivative Financial Instruments” for a reconciliation of gross positions without the impact of master netting agreements to the balance sheet classification.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

10.

Fair Value Measurements (Continued)

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


	Three Months Ended March 31,
	2015												2014
	Derivative instruments												Derivative instruments
(Dollars in millions)	Interest Rate Swaps			Cross Currency Interest Rate Swaps			Other			Total Derivative Instruments			Interest Rate Swaps			Cross Currency Interest Rate Swaps			Other			Total Derivative Instruments
Balance, beginning of period	$	(88	)	$	(117	)	$	(11	)	$	(216	)	$	(87	)	$	1,007		$	(21	)	$	899
Total gains/(losses) (realized and unrealized):
Included in earnings⁽¹⁾		1			(840	)		(3	)		(842	)		—			(10	)		17			7
Included in other comprehensive income		—			—			—			—			—			—			—			—
Settlements		(1	)		(1	)		1			(1	)		—			(17	)		1			(16	)
Transfers in and/or out of level 3		—			—			—			—			—			—			—			—

Balance, end of period	$	(88	)	$	(958	)	$	(13	)	$	(1,059	)	$	(87	)	$	980		$	(3	)	$	890

Change in unrealized gains/(losses) relating to instruments still held at the reporting date⁽²⁾	$	—		$	(838	)	$	(2	)	$	(840	)	$	—		$	(28	)	$	19		$	(9	)

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


	Three Months Ended March 31,
(Dollars in millions)	2015			2014
Gains (losses) on derivative and hedging activities, net	$	(843	)	$	(11	)
Interest expense		1			18

Total	$	(842	)	$	7

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

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

10.

Fair Value Measurements (Continued)

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


(Dollars in millions)	Fair Value at March 31, 2015			Valuation Technique	Input	Range (Weighted Average)
Derivatives
Consumer Price Index/LIBOR basis swaps	$	13		Discounted cash flow	Bid/ask adjustment to discount rate	.02% — .05% (.05%)

Prime/LIBOR basis swaps		(101	)	Discounted cash flow	Constant prepayment rate	4.6%
					Bid/ask adjustment to discount rate	.08% — .08% (.08%)

Cross-currency interest rate swaps		(958	)	Discounted cash flow	Constant prepayment rate	2.7%
Other		(13	)

Total	$	(1,059	)

The significant inputs that are unobservable or from inactive markets related to our level 3 derivatives detailed in the table above would be expected to have the following impacts to the valuations:

•

Consumer Price Index/LIBOR basis swaps — These swaps do not actively trade in the markets as indicated by a wide bid/ask spread. A wider bid/ask spread will result in a decrease in the overall valuation.

•

Prime/LIBOR basis swaps — These swaps do not actively trade in the markets as indicated by a wide bid/ask spread. A wider bid/ask spread will result in a decrease in the overall valuation. In addition, the unobservable inputs include Constant Prepayment Rates of the underlying securitization trust the swap references. A decrease in this input will result in a longer weighted average life of the swap which will increase the value for swaps in a gain position and decrease the value for swaps in a loss position, everything else equal. The opposite is true for an increase in the input.

•

Cross-currency interest rate swaps — The unobservable inputs used in these valuations are Constant Prepayment Rates of the underlying securitization trust the swap references. A decrease in this input will result in a longer weighted average life of the swap. All else equal in a typical currency market, this will result in a decrease to the valuation due to the delay in the cash flows of the currency exchanges as well as diminished liquidity in the forward exchange markets as the term of the swap is increased. The opposite is true for an increase in the input.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

10.

Fair Value Measurements (Continued)

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


	March 31, 2015									December 31, 2014
(Dollars in millions)	Fair Value			Carrying Value			Difference			Fair Value			Carrying Value			Difference
Earning assets
FFELP Loans	$	102,440		$	102,424		$	16		$	104,419		$	104,521		$	(102	)
Private Education Loans		28,661			28,990			(329	)		29,433			29,796			(363	)
Cash and investments⁽¹⁾		6,453			6,453			—			6,002			6,002			—

Total earning assets		137,554			137,867			(313	)		139,854			140,319			(465	)

Interest-bearing liabilities
Short-term borrowings		4,114			4,090			(24	)		2,661			2,663			2
Long-term borrowings		130,015			132,330			2,315			134,201			136,866			2,665

Total interest-bearing liabilities		134,129			136,420			2,291			136,862			139,529			2,667

Derivative financial instruments
Floor Income Contracts		(845	)		(845	)		—			(915	)		(915	)		—
Interest rate swaps		780			780			—			712			712			—
Cross-currency interest rate swaps		(1,037	)		(1,037	)		—			(194	)		(194	)		—
Other		(13	)		(13	)		—			(11	)		(11	)		—

Excess of net asset fair value over carrying value							$	1,978								$	2,202

⁽¹⁾

“Cash and investments” includes available-for-sale investments that consist of investments that are primarily agency securities whose cost basis is $5 million and $5 million at March 31, 2015 and December 31, 2014, respectively, versus a fair value of $6 million and $6 million at March 31, 2015 and December 31, 2014, respectively.

11.

Commitments and Contingencies

Regulatory Matters

On May 2, 2014, Navient Solutions, Inc. (“NSI”), a wholly-owned subsidiary of Navient, and Sallie Mae Bank entered into consent orders with the Federal Deposit Insurance Corporation (the “FDIC”) (respectively, the “NSI Order” and the “Bank Order”; collectively, “the FDIC Orders”) to resolve matters related to certain cited violations of Section 5 of the Federal Trade Commission Act, including the disclosures and assessments of certain late fees, as well as alleged violations under the Servicemembers Civil Relief Act (“SCRA”). The FDIC Orders, which became effective upon the signing of the consent order with the United States Department of Justice (“DOJ”) by NSI and SLM BankCo on May 13, 2014, required NSI to pay $3.3 million in civil monetary penalties. NSI has paid its civil monetary penalties. In addition, the FDIC Orders required the establishment of a restitution reserve account totaling $30 million to provide restitution with respect to loans owned or originated by Sallie Mae Bank, from November 28, 2005 until the effective date of the FDIC Orders. Pursuant to the Separation and Distribution Agreement among SLM Corporation, SLM BankCo and Navient dated as of April 28, 2014 (the “Separation Agreement”), Navient funded the restitution reserve account in May 2014.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

11.

Commitments and Contingencies (Continued)

statements and late fee practices have already been implemented. NSI also decided to voluntarily make restitution of certain late fees to all other customers whose loans were neither owned nor originated by Sallie Mae Bank. They were calculated in the same manner as that which was required under the FDIC Orders and are estimated to be $42 million. The process to refund these fees as well as amounts from the restitution fund is substantially complete.

With respect to alleged civil violations of the SCRA, NSI and Sallie Mae Bank entered into a consent order with the DOJ. The DOJ consent order (“DOJ Order”) covers all loans either owned by Sallie Mae Bank or serviced by NSI from November 28, 2005 until the effective date of the settlement. The DOJ Order required NSI to fund a $60 million settlement fund, which represents the total amount of compensation due to service members under the DOJ agreement, and to pay $55,000 in civil money penalties. The DOJ Order was approved by the United States District Court in Delaware on September 29, 2014. Shortly thereafter, Navient funded the settlement fund and paid the civil money penalties pursuant to the terms of the order. On April 15, 2015, the DOJ approved the distribution plan for the settlement fund and we anticipate disbursements will begin in the second quarter of 2015.

The total reserves established by the Company in 2013 and 2014 to cover these costs were $177 million, and as of March 31, 2015, $73 million of those reserves remained. The final cost of these proceedings will remain uncertain until all of the work under the various consent orders has been completed.

As previously disclosed, the Company and various of its subsidiaries are subject to the following investigations and inquiries:

•

In December 2013, Navient received a Civil Investigative Demand (“CID”) issued by the State of Illinois Office of Attorney General and the State of Washington Office of the Attorney General and multiple other state Attorneys General in connection with these investigations. According to the CIDs, the investigations were initiated to ascertain whether any practices declared to be unlawful under the Consumer Fraud and Deceptive Business Practices Act have occurred or are about to occur.

•

In April 2014, NSI received a CID from the Consumer Financial Protection Bureau (the “CFPB”) as part of the CFPB’s separate investigation regarding allegations relating to Navient’s disclosures and assessment of late fees and other matters. Navient has been in discussions with the CFPB and has received a series of supplemental CIDs on these matters.

•

In November 2014, NSI’s subsidiary, Pioneer Credit Recovery, Inc. (“Pioneer”), received a CID from the CFPB as part of the CFPB’s investigation regarding Pioneer’s activities relating to rehabilitation loans and collection of defaulted student debt. Navient has been in discussions with the CFPB and has received a supplemental CID on these matters.

•

In December 2014, NSI received a subpoena from the New York Department of Financial Services (the “NY DFS”) as part of the NY DFS’s inquiry with regard to whether persons or entities have engaged in fraud or misconduct with respect to a financial product or service under New York Financial Services Law or other laws. Navient has been in discussions with the NY DFS relating to this matter.

In addition, Navient and its subsidiaries are subject to examination by the CFPB, FDIC, ED and various state agencies as part of its ordinary course of business. Items or matters similar to or different from those described above may arise during the course of those examinations.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

11.

Commitments and Contingencies (Continued)

We are cooperating with these investigations, inquiries or examinations and are committed to resolving any potential concerns. 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.

Under the terms of the Separation Agreement, Navient agreed to be responsible for, and to indemnify SLM BankCo for, all claims, actions, damages, losses or expenses that may arise from the conduct of all activities of pre-Spin-Off SLM BankCo occurring prior to the Spin-Off other than those specifically excluded in the Separation and Distribution Agreement. As a result, all liabilities arising out of the regulatory matters mentioned above, other than fines or penalties directly levied against Sallie Mae Bank, are the responsibility of, or assumed by, Navient or one of its subsidiaries, and Navient has agreed to indemnify and hold harmless Sallie Mae and its subsidiaries, including Sallie Mae Bank, therefrom. Navient has no additional reserves related to indemnification matters with SLM BankCo as of March 31, 2015 other than with respect to the FDIC Orders and the DOJ Order.

OIG Audit

The Office of the Inspector General (the “OIG”) of ED commenced an audit regarding Special Allowance Payments (“SAP”) on September 10, 2007. On September 25, 2013, we received the final audit determination of Federal Student Aid (the “Final Audit Determination”) on the final audit report issued by the OIG on August 3, 2009 related to this audit. The Final Audit Determination concurred with the final audit report issued by the OIG and instructed us to make adjustment to our government billing to reflect the policy determination. Navient remains in active discussions with ED on this matter and we also have the right to appeal the Final Audit Determination to the Administrative Actions and Appeals Service Group of ED. The last date to file an appeal in this matter has been extended by ED and is currently May 31, 2015. We continue to believe that our SAP billing practices were proper, considering then-existing ED guidance and lack of applicable regulations. The Company established a reserve for this matter in 2014 as part of the total reserve for pending regulatory matters discussed previously.

Contingencies

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

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

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

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

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

11.

Commitments and Contingencies (Continued)

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

12.

Segment Reporting

FFELP Loans Segment

In the FFELP Loans segment, we acquire and finance FFELP Loans. Even though FFELP Loans are no longer originated due to changes in federal law that took effect in 2010, we continue to pursue acquisitions of FFELP Loan portfolios that leverage our servicing scale and generate incremental earnings and cash flow. In this segment, we primarily earn net interest income on the FFELP Loan portfolio. This segment is expected to generate significant amounts of earnings and cash flow as the portfolio amortizes.


(Dollars in millions)	March 31, 2015		December 31, 2014
FFELP Loans, net	$	102,424	$	104,521
Cash and investments⁽¹⁾		3,851		4,050
Other		2,462		2,566

Total assets	$	108,737	$	111,137

⁽¹⁾

Includes restricted cash and investments.

Private Education Loans Segment

In this segment, we acquire, finance and service Private Education Loans. Even though we no longer originate Private Education Loans, we continue to pursue acquisitions of Private Education Loan portfolios that leverage our servicing scale and generate incremental earnings and cash flow. In this segment, we primarily earn net interest income on the Private Education Loan portfolio (after provision for loan losses). This segment is expected to generate significant amounts of cash as the portfolio amortizes.

The following table includes GAAP-basis asset information for our Private Education Loans segment.


(Dollars in millions)	March 31, 2015		December 31, 2014
Private Education Loans, net	$	28,990	$	29,796
Cash and investments⁽¹⁾		446		402
Other		2,359		2,453

Total assets	$	31,795	$	32,651

⁽¹⁾

Includes restricted cash and investments.

Business Services Segment

Our Business Services segment generates its revenue from servicing our FFELP Loan portfolio as well as providing servicing and asset recovery services for loans on behalf of Guarantors of FFELP Loans and other institutions, including ED, higher education institutions and other federal, state, court and municipal clients.

At March 31, 2015 and December 31, 2014, the Business Services segment had total assets of $643 million and $416 million, respectively, on a GAAP basis.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

12.

Segment Reporting (Continued)

Other Segment

Our Other segment primarily consists of activities of our holding company, including the repurchase of debt, the corporate liquidity portfolio and all unallocated overhead. We also include results from certain smaller wind-down and discontinued operations within this segment. Overhead expenses include costs related to executive management, the board of directors, accounting, finance, legal, human resources, stock-based compensation expense and certain information technology costs related to infrastructure and operations.

At March 31, 2015 and December 31, 2014, the Other segment had total assets of $2.7 billion and $2.1 billion, respectively, on a GAAP basis.

Measure of Profitability

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

“Core Earnings” are not a substitute for reported results under GAAP. We use “Core Earnings” to manage each business segment because “Core Earnings” reflect adjustments to GAAP financial results for three items, discussed below, that are either related to the Spin-Off or 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 three items we remove to result in our “Core Earnings” presentations are:

The financial results attributable to the operations of SLM BankCo prior to the Spin-Off and related restructuring and reorganization expense incurred in connection with the Spin-Off. For GAAP purposes, Navient reflected the deemed distribution of SLM BankCo on April 30, 2014. For “Core Earnings,” we exclude the consumer banking business as if it had never been a part of Navient’s historical results prior to the deemed distribution of SLM BankCo on April 30, 2014;

Unrealized 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

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

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

12.

Segment Reporting (Continued)

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.

Segment Results and Reconciliations to GAAP


	Three Months Ended March 31, 2015
(Dollars in millions)	FFELP Loans		Private Education Loans		Business Services		Other			Eliminations⁽¹⁾			Total “Core Earnings”		Adjustments								Total GAAP
(Dollars in millions)	FFELP Loans		Private Education Loans		Business Services		Other			Eliminations⁽¹⁾			Total “Core Earnings”		Reclassifications			Additions/ (Subtractions)			Total Adjustments⁽²⁾		Total GAAP
Interest income:
Student loans	$	534	$	456	$	—	$	—		$	—		$	990	$	162		$	(59	)	$	103	$	1,093
Other loans		—		—		—		2			—			2		—			—			—		2
Cash and investments		1		—		—		1			—			2		—			—			—		2

Total interest income		535		456		—		3			—			994		162			(59	)		103		1,097
Total interest expense		302		173		—		30			—			505		9			—			9		514

Net interest income (loss)		233		283		—		(27	)		—			489		153			(59	)		94		583
Less: provisions for loan losses		5		120		—		—			—			125		—			—			—		125

Net interest income (loss) after provisions for loan losses		228		163		—		(27	)		—			364		153			(59	)		94		458
Other income (loss):
Gains on sales of loans and investments		5		—		—		—			—			5		—			—			—		5
Servicing revenue		18		7		163		—			(111	)		77		—			—			—		77
Asset recovery revenue		—		—		89		—			—			89		—			—			—		89
Gains on debt repurchases		—		—		—		—			—			—		—			—			—		—
Other income (loss)		—		—		2		4			—			6		(153	)		225			72		78

Total other income (loss)		23		7		254		4			(111	)		177		(153	)		225			72		249
Expenses:
Direct operating expenses		115		46		116		4			(111	)		170		—			—			—		170
Overhead expenses		—		—		—		60			—			60		—			—			—		60

Operating expenses		115		46		116		64			(111	)		230		—			—			—		230
Goodwill and acquired intangible asset impairment and amortization		—		—		—		—			—			—		—			1			1		1
Restructuring and other reorganization expenses		—		—		—		—			—			—		—			3			3		3

Total expenses		115		46		116		64			(111	)		230		—			4			4		234
Income (loss) from continuing operations, before income tax expense (benefit)		136		124		138		(87	)		—			311		—			162			162		473
Income tax expense (benefit)⁽³⁾		51		47		52		(33	)		—			117		—			64			64		181

Net income (loss) from continuing operations	$	85	$	77	$	86	$	(54	)	$	—		$	194	$	—		$	98		$	98	$	292
Income (loss) from discontinued operations, net of tax expense (benefit)		—		—		—		—			—			—		—			—			—		—

Net income (loss)	$	85	$	77	$	86	$	(54	)	$	—		$	194	$	—		$	98		$	98	$	292

⁽¹⁾	The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment.

⁽²⁾	“Core Earnings” adjustments to GAAP:


	Three Months Ended March 31, 2015
(Dollars in millions)	Net Impact from Spin-Off of SLM BankCo			Net Impact of Derivative Accounting		Net Impact of Acquired Intangibles			Total
Net interest income after provisions for loan losses	$	—		$	94	$	—		$	94
Total other income		—			72		—			72
Operating expenses		—			—		—			—
Goodwill and acquired intangible asset impairment and amortization		—			—		1			1
Restructuring and other reorganization expenses		3			—		—			3

Total “Core Earnings” adjustments to GAAP	$	(3	)	$	166	$	(1	)		162

Income tax expense										64

Net income									$	98

⁽³⁾	Income taxes are based on a percentage of net income before tax for the individual reportable segment.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

12.

Segment Reporting (Continued)


	Three Months Ended March 31, 2014
(Dollars in millions)	FFELP Loans		Private Education Loans		Business Services		Other			Eliminations⁽¹⁾			Total “Core Earnings”		Adjustments									Total GAAP
(Dollars in millions)	FFELP Loans		Private Education Loans		Business Services		Other			Eliminations⁽¹⁾			Total “Core Earnings”		Reclassifications			Additions/ (Subtractions)			Total Adjustments⁽²⁾			Total GAAP
Interest income:
Student loans	$	512	$	494	$	—	$	—		$	—		$	1,006	$	198		$	86		$	284		$	1,290
Other loans		—		—		—		3			—			3		—			—			—			3
Cash and investments		1		—		—		1			—			2		—			1			1			3

Total interest income		513		494		—		4			—			1,011		198			87			285			1,296
Total interest expense		287		185		—		24			—			496		10			24			34			530

Net interest income (loss)		226		309		—		(20	)		—			515		188			63			251			766
Less: provisions for loan losses		10		136		—		—			—			146		—			39			39			185

Net interest income (loss) after provisions for loan losses		216		173		—		(20	)		—			369		188			24			212			581
Other income (loss):
Gains on sales of loans and investments		—		—		—		—			—			—		—			—			—			—
Servicing revenue		11		1		167		—			(118	)		61		—			—			—			61
Asset recovery revenue		—		—		111		—			—			111		—			—			—			111
Gains on debt repurchases		—		—		—		—			—			—		—			—			—			—
Other income (loss)		—		—		1		3			—			4		(188	)		182			(6	)		(2	)

Total other income (loss)		11		1		279		3			(118	)		176		(188	)		182			(6	)		170
Expenses:
Direct operating expenses		124		55		95		113			(118	)		269		—			25			25			294
Overhead expenses		—		—		—		49			—			49		—			23			23			72

Operating expenses		124		55		95		162			(118	)		318		—			48			48			366
Goodwill and acquired intangible asset impairment and amortization		—		—		—		—			—			—		—			4			4			4
Restructuring and other reorganization expenses		—		—		—		—			—			—		—			26			26			26

Total expenses		124		55		95		162			(118	)		318		—			78			78			396
Income (loss) from continuing operations, before income tax expense (benefit)		103		119		184		(179	)		—			227		—			128			128			355
Income tax expense (benefit)⁽³⁾		39		45		69		(67	)		—			86		—			50			50			136

Net income (loss) from continuing operations	$	64	$	74	$	115	$	(112	)	$	—		$	141	$	—		$	78		$	78		$	219
Income (loss) from discontinued operations, net of tax expense (benefit)		—		—		1		—			—			1		—			(1	)		(1	)		—

Net income (loss)	$	64	$	74	$	116	$	(112	)	$	—		$	142	$	—		$	77		$	77		$	219

⁽¹⁾	The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment.

⁽²⁾	“Core Earnings” adjustments to GAAP:


	Three Months Ended March 31, 2014
(Dollars in millions)	Net Impact from Spin-Off of SLM BankCo		Net Impact of Derivative Accounting			Net Impact of Acquired Intangibles			Total
Net interest income after provisions for loan losses	$	100	$	112		$	—		$	212
Total other loss		7		(13	)		—			(6	)
Operating expenses		48		—			—			48
Goodwill and acquired intangible asset impairment and amortization		—		—			4			4
Restructuring and other reorganization expenses		26		—			—			26

Total “Core Earnings” adjustments to GAAP	$	33	$	99		$	(4	)		128

Income tax expense										50
Income (loss) from discontinued operations										(1	)

Net income									$	77

⁽³⁾	Income taxes are based on a percentage of net income before tax for the individual reportable segment.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)

12.

Segment Reporting (Continued)

Summary of “Core Earnings” Adjustments to GAAP


	Three Months Ended March 31,
(Dollars in millions)	2015			2014
“Core Earnings” adjustments to GAAP:
Net impact of the removal of SLM BankCo’s operations and restructuring and reorganization expense in connection with the Spin-Off⁽¹⁾	$	(3	)	$	33
Net impact of derivative accounting⁽²⁾		166			99
Net impact of goodwill and acquired intangibles assets⁽³⁾		(1	)		(4	)
Net tax effect⁽⁴⁾		(64	)		(50	)
Net effect from discontinued operations and noncontrolling interest		—			(1	)

Total “Core Earnings” adjustments to GAAP	$	98		$	77

⁽¹⁾

SLM BankCo’s operations and restructuring and reorganization expense in connection with the Spin-Off: For “Core Earnings,” we have assumed the consumer banking business (SLM BankCo) was never a part of Navient’s historical results prior to the deemed distribution of SLM BankCo on April 30, 2014 and we have removed the restructuring and reorganization expense incurred in connection with the Spin-Off. Excluding these items provides management with a useful basis from which to better evaluate results from ongoing operations against results from prior periods. The adjustment relates to the exclusion of the consumer banking business and represents the operations, assets, liabilities and equity of SLM BankCo, which is comprised of Sallie Mae Bank, Upromise Rewards, the Insurance Business, and the Private Education Loan origination functions. Included in these amounts are also certain general corporate overhead expenses related to the consumer banking business. General corporate overhead consists of costs primarily associated with accounting, finance, legal, human resources, certain information technology costs, stock compensation, and executive management and the board of directors. These costs were generally allocated to the consumer banking business based on the proportionate level of effort provided to the consumer banking business relative to SLM Corporation using a relevant allocation driver (e.g., in proportion to the number of employees by function that were being transferred to SLM BankCo as opposed to remaining at Navient). All intercompany transactions between SLM BankCo and Navient have been eliminated. In addition, all preferred stock dividends have been removed as SLM BankCo succeeded SLM Corporation as the issuer of the preferred stock in connection with the Spin-Off.

⁽²⁾

Derivative accounting: “Core Earnings” exclude periodic unrealized 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 unrealized gains and losses that are a result of ineffectiveness recognized related to effective hedges under GAAP. These unrealized gains and losses occur in our FFELP Loans, Private Education Loans and Other business segments. Under GAAP, for our derivatives that are held to maturity, the cumulative net unrealized gain or loss over the life of the contract will equal $0 except for Floor Income Contracts where the cumulative unrealized gain will equal the amount for which we sold the contract. In our “Core Earnings” presentation, we recognize the economic effect of these hedges, which generally results in any net settlement cash paid or received being recognized ratably as an interest expense or revenue over the hedged item’s life.

⁽³⁾

Goodwill and acquired intangible assets: Our “Core Earnings” exclude goodwill and intangible asset impairment and amortization of acquired intangible assets.

⁽⁴⁾

Net tax effect: Such tax effect is based upon our “Core Earnings” effective tax rate for the year.

Item 2.

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 Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2014 (the “2014 Form 10-K”).

This Quarterly Report on Form 10-Q contains “forward-looking” statements and information based on management’s current expectations as of the date of this document. Statements that are not historical facts, including statements about our beliefs, opinions, or expectations and statements that assume or are dependent upon future events, are forward-looking statements. Forward-looking statements are subject to risks, uncertainties, assumptions and other factors that may cause actual results to be materially different from those reflected in such forward-looking statements. These factors include, among others, the risks and uncertainties set forth in Item 1A “Risk Factors” and elsewhere in our 2014 Form 10-K and subsequent filings with the Securities and Exchange Commission (“SEC”); increases in financing costs; limits on liquidity; increases in costs associated with compliance with laws and regulations; changes in accounting standards and the impact of related changes in significant accounting estimates; any adverse outcomes in any significant litigation to which we are a party; credit risk associated with our exposure to third parties, including counterparties to our derivative transactions; risks inherent in the government contracting environment, including the possible loss of government contracts and potential civil and criminal penalties as a result of governmental investigations or audits; and changes in the terms of student loans and the educational credit marketplace (including changes resulting from new laws and the implementation of existing laws). We could also be affected by, among other things: changes in our funding costs and availability; reductions to our credit ratings or the credit ratings of the United States of America; failures of our operating systems or infrastructure, or those of third-party vendors; risks related to cybersecurity including the potential disruption of our systems or potential disclosure of confidential customer information; damage to our reputation; failures to successfully implement cost-cutting initiatives and adverse effects of such initiatives on our business; failures or delays in the planned conversion to our servicing platform of the recently acquired Wells Fargo portfolio of Federal Family Education Loan Program (“FFELP”) loans or any other FFELP or Private Education Loan portfolio acquisitions; risks associated with restructuring initiatives; risks associated with the April 30, 2014 separation of Navient and SLM Corporation into two, distinct publicly traded companies, including failure to achieve the expected benefits of the separation; changes in the demand for educational financing or in financing preferences of lenders, educational institutions, students and their families; changes in law and regulations with respect to the student lending business and financial institutions generally; increased competition from banks and other consumer lenders; the creditworthiness of our customers; changes in the general interest rate environment, including the rate relationships among relevant money-market instruments and those of our earning assets versus our funding arrangements; changes in general economic conditions; our ability to successfully effectuate any acquisitions and other strategic initiatives; and changes in the demand for debt management services. The preparation of our consolidated financial statements also requires management to make certain estimates and assumptions including estimates and assumptions about future events. These estimates or assumptions may prove to be incorrect. All forward-looking statements contained in this report are qualified by these cautionary statements and are made only as of the date of this document. We do not undertake any obligation to update or revise these forward-looking statements to conform the statement to actual results or changes in our expectations.

Definitions for certain capitalized terms used but not otherwise defined in this Quarterly Report on Form 10-Q can be found in our 2014 Form 10-K.

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

Spin-Off of Navient

Due to the relative significance of Navient to SLM Corporation prior to the Spin-Off, for financial reporting purposes, Navient is treated as the “accounting spinnor” and therefore is the “accounting successor” to SLM Corporation as constituted prior to the Spin-Off, notwithstanding the legal form of the Spin-Off. Since Navient is the accounting successor, the historical financial statements of SLM Corporation prior to the distribution on April 30, 2014, are the historical financial statements of Navient. As a result, the GAAP financial results reported in this Quarterly Report on Form 10-Q include the historical financial results of SLM Corporation prior to the Spin-Off on April 30, 2014 (i.e., such consolidated results include our loan management, servicing and asset recovery business and the consumer banking business associated with Sallie Mae Bank (“SLM BankCo”)) and reflect the deemed distribution of SLM BankCo to SLM Corporation’s stockholders on April 30, 2014. See “‘Core Earnings’ — Definitions and Limitations” for a discussion of the exclusion of the pre-Spin-Off financial results of the consumer banking business from our “Core Earnings” results.

Navient’s Business

Navient is the nation’s leading loan management, servicing and asset recovery company, committed to helping customers navigate the path to financial success. Servicing more than $300 billion in student loans, Navient supports the educational and economic achievements of more than 12 million customers. A growing number of government and higher education clients rely on Navient for proven solutions to meet their financial goals. Navient began trading on Nasdaq as an independent company on May 1, 2014. Our website is navient.com. Information contained or referenced on our website is not incorporated by reference into and does not form a part of this Quarterly Report on Form 10-Q.

Navient holds the largest portfolio of education loans insured or guaranteed under the Federal Family Education Loan Program (“FFELP”), as well as the largest portfolio of Private Education Loans. FFELP Loans are insured or guaranteed by state or not-for-profit agencies based on guaranty agreements among the United States Department of Education (“ED”) and these agencies. Private Education Loans are education loans to students or their families that bear the full credit risk of the customer and any cosigner. Private Education Loans are made primarily to bridge the gap between the cost of higher education and the amount funded through financial aid, federal loans or students’ and families’ resources.

Navient services its own portfolio of education loans, as well as those owned by banks, credit unions, non-profit education lenders and ED. Navient is one of four large servicers to ED under its Direct Student Loan Program (“DSLP”). Navient also provides asset recovery services on its own portfolio (consisting of both education loans as well as other asset classes), guaranty agencies, higher education institutions, ED and other federal clients, as well as states, courts, and municipalities.

As of March 31, 2015, Navient’s principal assets consisted of:

•

$102.4 billion in FFELP Loans, with a student loan spread of 0.96 percent for the quarter ended March 31, 2015 on a “Core Earnings” basis and a weighted average life of 7.3 years;

•

$29.0 billion in Private Education Loans, with a student loan spread of 3.87 percent for the quarter ended March 31, 2015 on a “Core Earnings” basis and a weighted average life of 7.0 years;

•

a leading student loan servicing platform that services loans for more than 12 million DSLP Loan, FFELP Loan and Private Education Loan customers (including cosigners), including 6.2 million customer accounts serviced under Navient’s contract with ED; and

•

a leading student loan asset recovery platform with an outstanding inventory of contingent asset recovery receivables of approximately $20.2 billion, of which approximately $11.0 billion was student loans and the remainder was other asset classes.

Navient’s Strengths and Opportunities

Navient possesses a number of competitive advantages that distinguishes it from its competitors, including:

Large, high quality asset base generating significant and predictable cash flows. At March 31, 2015, Navient’s $131.4 billion student loan portfolio is 75 percent funded to term and is expected to produce consistent and predictable cash flows over the remaining life of the portfolio. Navient’s $102.4 billion portfolio of FFELP Loans bears a maximum 3 percent loss exposure due to the federal guarantee. Navient’s $29.0 billion portfolio of Private Education Loans bears the full credit risk of the borrower and cosigner. Navient expects that cash flows from its FFELP Loan and Private Education Loan portfolios will significantly exceed future debt service obligations.

Efficient and large scale servicing platform. Navient is the largest servicer of education loans, servicing over $300 billion in student loans for more than 12 million customers. Navient has demonstrated scalable infrastructure with capacity to add volume at a low cost. Navient’s premier market share and tested servicing and asset recovery infrastructure make it well-positioned to expand its servicing and asset recovery businesses to additional third-party FFELP, federal, private and other loan portfolios.

Superior operating performance. Navient has demonstrated superior default prevention performance and industry leading asset recovery services. The combined portfolio of federal loans serviced by Navient experienced a Cohort Default Rate 40 percent lower than the most recent national rate released by ED in September 2014. We are consistently a top performer in our asset recovery business as well.

Commitment to compliance and customer centricity. Navient fosters a robust compliance culture driven by a “customer first” approach. We invest in rigorous training programs, internal and external auditing, escalated service tracking and analysis, and customer research to enhance our compliance and customer service.

Strong capital return. As a result of its significant cash flow and capital generation, Navient expects to return excess capital to stockholders through dividends and share repurchases. In December 2014, Navient’s board of directors authorized $1 billion to be utilized in a new common share repurchase program effective January 1, 2015. Navient increased its quarterly dividend amount from $0.15 per share to $0.16 per share effective for its first-quarter 2015 dividends. For the quarter ended March 31, 2015, we paid $63 million in dividends on shares of our common stock and repurchased $300 million of our shares of common stock.

Meaningful growth opportunities. Navient will pursue opportunistic acquisitions of FFELP and Private Education Loan portfolios. During the first quarter, Navient acquired $830 million of student loans. Navient will also pursue additional third-party servicing and asset recovery fee income opportunities. In February 2015, Navient completed the acquisition of Gila LLC, an asset recovery and business process outsourcing firm serving more than 600 clients in 39 states. The firm provides receivables management services and account processing solutions for state governments, court systems and municipalities. Navient will leverage its large-scale servicing platform, superior default prevention and asset recovery performance, operating efficiency and regulatory compliance and risk management infrastructure in pursuing other growth opportunities.

Navient’s Approach to Assisting Students and Families in Repaying their Education Loans

Navient services loans for more than 12 million DSLP Loan, FFELP Loan and Private Education Loan customers (including cosigners), including 6.2 million customer accounts serviced under Navient’s contract with ED. In this work, we help our customers experience success through proactive outreach and emphasis on identifying the payment plan that best fits their budget and financial goals.

We understand managing repayment of education loans is critical for students to achieve their educational goals, recognize their full earning potential and develop a strong credit profile.

Customer success means making steady progress toward repayment, instead of falling behind on payments. Our experience has taught us that the transition from school to full repayment requires customer contact and counseling. For many customers, student loans are their first borrowing experience. For new graduates, salaries grow over time, typically making payments easier to handle as their career progresses. It is also not uncommon for some to return to school, experience illness or encounter temporary interruptions in earnings.

To help customers manage these realities, Navient makes customer success and default prevention top priorities. We customize our outreach using data-driven approaches that draw from our more than 40 years of experience in helping customers successfully manage their loans. As a result, our customers experience higher records of repayment success as evidenced by lower delinquencies and defaults.

We have been a partner in ED’s campaign to inform federal student loan customers about income-driven repayment plans, and have played a leadership role in helping customers understand their options and make an informed choice.

We also find that customers who have fallen behind benefit from outreach and assistance. In fact, nine times out of ten when we can reach federal loan customers who have missed payments, we can identify a solution to help them avoid default.

We also offer free resources to help customers and the general public build knowledge on personal finance topics. In October 2014, we launched new online resources to encourage financial literacy and to help customers understand their repayment options and enroll in the plan that is best for them.

Selected Historical Financial Information and Ratios

Although SLM BankCo is the entity that distributed the shares of Navient common stock to SLM BankCo common stockholders, for financial reporting purposes, Navient is treated as the “accounting spinnor” and therefore Navient, and not SLM BankCo, is the “accounting successor” to SLM Corporation. Hence, the following GAAP financial information to the extent related to periods on or prior to April 30, 2014 reflects the historical results of operations and financial condition of SLM Corporation, which is the accounting predecessor of Navient. For a discussion of how “Core Earnings” results are different than GAAP results, see “‘Core Earnings’ — Definition and Limitations” and “Differences between ‘Core Earnings’ and GAAP.”


	Three Months Ended March 31,
(In millions, except per share data)	2015			2014
GAAP Basis
Net income attributable to Navient Corporation	$	292		$	219
Diluted earnings per common share attributable to Navient Corporation	$	.72		$	.49
Weighted average shares used to compute diluted earnings per common share		405			435
Net interest margin, FFELP Loans		1.25	%		1.31	%
Net interest margin, Private Education Loans		3.71	%		4.31	%
Return on assets		.85	%		.59	%
Ending FFELP Loans, net	$	102,424		$	102,635
Ending Private Education Loans, net		28,990			38,157

Ending total student loans, net	$	131,414		$	140,792

Average FFELP Loans	$	103,617		$	103,734
Average Private Education Loans		30,105			38,945

Average total student loans	$	133,722		$	142,679

“Core Earnings” Basis⁽¹⁾
Net income attributable to Navient Corporation	$	194		$	142
Diluted earnings per common share attributable to Navient Corporation	$	.48		$	.33
Weighted average shares used to compute diluted earnings per common share		405			435
Net interest margin, FFELP Loans		.88	%		.86	%
Net interest margin, Private Education Loans		3.74	%		3.91	%
Return on assets		.56	%		.41	%
Ending FFELP Loans, net	$	102,424		$	101,240
Ending Private Education Loans, net		28,990			30,949

Ending total student loans, net	$	131,414		$	132,189

Average FFELP Loans	$	103,617		$	102,329
Average Private Education Loans		30,105			31,525

Average total student loans	$	133,722		$	133,854

⁽¹⁾	“Core Earnings” are non-GAAP financial measures and do not represent a comprehensive basis of accounting. For a greater explanation of “Core Earnings,” see the section titled “‘Core Earnings’ — Definition and Limitations” and subsequent sections.

Overview

The following discussion and analysis presents a review of our business and operations as of and for the three months ended March 31, 2015.

We monitor and assess our ongoing operations and results based on the following four reportable segments: (1) FFELP Loans (2) Private Education Loans, (3) Business Services and (4) Other. Our segment presentation excludes the results of the consumer banking business distributed on April 30, 2014. See “‘Core Earnings’ — Definition and Limitations” for further discussion.

FFELP Loans Segment

Private Education Loans Segment

Business Services Segment

Other

Key Financial Measures

Our operating results are primarily driven by net interest income from our student loan portfolios, provision for loan losses, the revenues and expenses generated by our servicing and asset recovery businesses, and gains and losses on subsidiary sales, loan sales and debt repurchases. We manage and assess the performance of each business segment separately as each is focused on different customers and each derives its revenue from different activities and services. A brief summary of our key financial measures (net interest income; provisions for loan losses; charge-offs and delinquencies; servicing and asset recovery revenues; other income (loss); and operating expenses) can be found in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2014 Form 10-K.

First-Quarter 2015 Summary of Results

We report financial results on a GAAP basis and also present certain “Core Earnings” performance measures. Our management, board of directors, credit rating agencies, lenders and investors use these “Core Earnings” measures to monitor our business performance. See “‘Core Earnings’ — Definition and Limitations” for a further discussion and a complete reconciliation between GAAP net income and “Core Earnings.”

First-quarter 2015 GAAP net income was $292 million ($0.72 diluted earnings per share), versus net income of $219 million ($0.49 diluted earnings per share) in the first-quarter 2014. The changes in GAAP net income are impacted by the same “Core Earnings” items discussed below, as well as changes in net income attributable to (1) the financial results attributable to the operations of the consumer banking business prior to the April 30, 2014 spin-off of Navient from SLM Corporation, and related restructuring and reorganization expense incurred in connection with the Spin-Off, (2) unrealized, mark-to-market gains/losses on derivatives and (3) goodwill and acquired intangible asset amortization and impairment. These items are recognized in GAAP but have not been included in “Core Earnings” results. First-quarter 2015 GAAP results included gains of $166 million from

derivative accounting treatment that are excluded from “Core Earnings” results, compared with gains of $99 million in the year-ago period. See “‘Core Earnings’ — Definition and Limitations — Differences between ‘Core Earnings’ and GAAP” for a complete reconciliation between GAAP net income and “Core Earnings.”

“Core Earnings” for the quarter were $194 million ($0.48 diluted earnings per share), compared with $142 million ($0.33 diluted earnings per share) for the year-ago quarter. Excluding expenses associated with regulatory matters, first-quarter 2015 and 2014 diluted “Core Earnings” per share were $0.48 and $0.49, respectively. This decrease was primarily the result of a $26 million decline in net interest income and a $23 million increase in operating expenses, which was partially offset by a $21 million decrease in provisions for loan losses and less common shares outstanding.

During the first three months of 2015, we:

•

acquired $830 million of student loans;

•

issued $1.0 billion of FFELP asset-backed securities (“ABS”), $689 million of Private Education Loan ABS and $500 million of unsecured debt;

•

repurchased 14.7 million common shares for $300 million on the open market; and

•

paid a common stock dividend of $0.16 per share, up from $0.15 per share in the prior quarter.

Results of Operations

We present the results of operations below first on a consolidated basis in accordance with GAAP. Following our discussion of consolidated earnings results on a GAAP basis, we present our results on a segment basis. We have four business segments: FFELP Loans, Private Education Loans, Business Services and Other. Since these segments operate in distinct business environments and we manage and evaluate the financial performance of these segments using non-GAAP financial measures, these segments are presented on a “Core Earnings” basis (see “‘Core Earnings’ — Definition and Limitations”).

GAAP Statements of Income (Unaudited)


	Three MonthsEndedMarch 31,					Increase (Decrease)
(In millions, except per share data)	2015		2014			$			%
Interest income:
FFELP Loans	$	637	$	646		$	(9	)		(1	)%
Private Education Loans		456		644			(188	)		(29	)
Other loans		2		3			(1	)		(33	)
Cash and investments		2		3			(1	)		(33	)

Total interest income		1,097		1,296			(199	)		(15	)
Total interest expense		514		530			(16	)		(3	)

Net interest income		583		766			(183	)		(24	)
Less: provisions for loan losses		125		185			(60	)		(32	)

Net interest income after provisions for loan losses		458		581			(123	)		(21	)
Other income (loss):
Gains on sales of loans and investments		5		—			5			100
Gains (losses) on derivative and hedging activities, net		71		(8	)		79			988
Servicing revenue		77		61			16			26
Asset recovery revenue		89		111			(22	)		(20	)
Gains on debt repurchases		—		—			—			—
Other income		7		6			1			17

Total other income		249		170			79			46
Expenses:
Operating expenses		230		366			(136	)		(37	)
Goodwill and acquired intangible asset impairment and amortization expense		1		4			(3	)		(75	)
Restructuring and other reorganization expenses		3		26			(23	)		(88	)

Total expenses		234		396			(162	)		(41	)

Income from continuing operations, before income tax expense		473		355			118			33
Income tax expense		181		136			45			33

Net income from continuing operations		292		219			73			33
Income from discontinued operations, net of tax expense		—		—			—			—

Net income		292		219			73			33
Less: net loss attributable to noncontrolling interest		—		—			—			—

Net income attributable to Navient Corporation		292		219			73			33
Preferred stock dividends		—		5			(5	)		(100	)

Net income attributable to Navient Corporation common stock	$	292	$	214		$	78			36	%

Basic earnings per common share attributable to Navient Corporation	$	.73	$	.50		$	.23			46	%

Diluted earnings per common share attributable to Navient Corporation	$	.72	$	.49		$	.23			47	%

Dividends per common share attributable to Navient Corporation	$	.16	$	.15		$	.01			7	%

Consolidated Earnings Summary — GAAP-basis

Three Months Ended March 31, 2015 Compared with Three Months Ended March 31, 2014

For the three months ended March 31, 2015, net income was $292 million, or $0.72 diluted earnings per common share, compared with net income of $219 million, or $0.49 diluted earnings per common share, for the three months ended March 31, 2014. The increase in net income was primarily due to a $136 million decrease in operating expenses, a $23 million decrease in restructuring and other reorganization expenses, a $79 million increase in net gains on derivative and hedging activities and a $60 million decline in the provisions for loan losses. This was partially offset by a $183 million decline in net interest income.

The primary contributors to each of the identified drivers of changes in net income for the current quarter compared with the year-ago quarter are as follows:

•

Net interest income decreased by $183 million, of which $140 million related to the deemed distribution of SLM BankCo on April 30, 2014. Also contributing to the decrease was a reduction in Private Education Loan net interest income due to a decline in the balance and net interest margin.

•

Provisions for loan losses declined $60 million, of which $39 million related to the deemed distribution of SLM BankCo on April 30, 2014. Also contributing to the decrease was the overall improvement in Private Education Loans’ credit quality, delinquency and charge-off trends leading to decreases in expected future charge-offs.

•

Gains (losses) on derivative and hedging activities, net, increased $79 million. The primary factors affecting the change were interest rate and foreign currency fluctuations, which primarily affected the valuations of our Floor Income Contracts, basis swaps and foreign currency hedges during each period. Valuations of derivative instruments vary based upon many factors including changes in interest rates, credit risk, foreign currency fluctuations and other market factors. As a result, net gains and losses on derivative and hedging activities may continue to vary significantly in future periods.

•

Servicing and asset recovery revenue decreased $6 million in total. Asset recovery revenue decreased $22 million primarily as a result of the Bipartisan Budget Act (the “Budget Act”) enacted on December 26, 2013 and effective on July 1, 2014, which reduced the amount paid to Guarantor agencies for defaulted FFELP Loans that are rehabilitated. This legislative reduction in fees represents $40 million of the decrease in asset recovery revenue. This reduction was partially offset by higher asset recovery volume and revenue from the Gila LLC acquisition.

•

In the first quarter of 2014, we recorded $103 million of expenses related to the settlement of regulatory matters. Excluding these expenses, operating expenses decreased $33 million. This decrease was primarily due to $48 million related to the deemed distribution of SLM BankCo on April 30, 2014, partially offset by incremental costs resulting from operating as a new separate company, costs related to the Gila LLC acquisition this quarter, as well as incremental third-party servicing expenses related to an $8.5 billion loan acquisition in fourth-quarter 2014.

•

Restructuring and other reorganization expenses decreased $23 million to $3 million. These expenses were primarily related to costs incurred in connection with the Spin-Off.

We repurchased 14.7 million and 8.4 million shares of our common stock during the three months ended March 31, 2015 and 2014, respectively, as part of our common share repurchase programs. Primarily as a result of ongoing common share repurchases, our average outstanding diluted shares decreased by 30 million common shares from the year-ago quarter.

“Core Earnings” — Definition and Limitations

allocate resources. We also refer to this information in our presentations with credit rating agencies, lenders and investors. Because our “Core Earnings” basis of presentation corresponds to our segment financial presentations, we are required by GAAP to provide “Core Earnings” disclosure in the notes to our consolidated financial statements for our business segments.

The accounting for goodwill and acquired intangible assets.

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


	Three Months Ended March 31, 2015
(Dollars in millions)	FFELP Loans		Private Education Loans		Business Services		Other			Eliminations⁽¹⁾			Total “Core Earnings”		Adjustments								Total GAAP
(Dollars in millions)	FFELP Loans		Private Education Loans		Business Services		Other			Eliminations⁽¹⁾			Total “Core Earnings”		Reclassifications			Additions/ (Subtractions)			Total Adjustments⁽²⁾		Total GAAP
Interest income:
Student loans	$	534	$	456	$	—	$	—		$	—		$	990	$	162		$	(59	)	$	103	$	1,093
Other loans		—		—		—		2			—			2		—			—			—		2
Cash and investments		1		—		—		1			—			2		—			—			—		2

Total interest income		535		456		—		3			—			994		162			(59	)		103		1,097
Total interest expense		302		173		—		30			—			505		9			—			9		514

Net interest income (loss)		233		283		—		(27	)		—			489		153			(59	)		94		583
Less: provisions for loan losses		5		120		—		—			—			125		—			—			—		125

Net interest income (loss) after provisions for loan losses		228		163		—		(27	)		—			364		153			(59	)		94		458
Other income (loss):
Gains on sales of loans and investments		5		—		—		—			—			5		—			—			—		5
Servicing revenue		18		7		163		—			(111	)		77		—			—			—		77
Asset recovery revenue		—		—		89		—			—			89		—			—			—		89
Gains on debt repurchases		—		—		—		—			—			—		—			—			—		—
Other income (loss)		—		—		2		4			—			6		(153	)		225			72		78

Total other income (loss)		23		7		254		4			(111	)		177		(153	)		225			72		249
Expenses:
Direct operating expenses		115		46		116		4			(111	)		170		—			—			—		170
Overhead expenses		—		—		—		60			—			60		—			—			—		60

Operating expenses		115		46		116		64			(111	)		230		—			—			—		230
Goodwill and acquired intangible asset impairment and amortization		—		—		—		—			—			—		—			1			1		1
Restructuring and other reorganization expenses		—		—		—		—			—			—		—			3			3		3

Total expenses		115		46		116		64			(111	)		230		—			4			4		234
Income (loss) from continuing operations, before income tax expense (benefit)		136		124		138		(87	)		—			311		—			162			162		473
Income tax expense (benefit)⁽³⁾		51		47		52		(33	)		—			117		—			64			64		181

Net income (loss) from continuing operations	$	85	$	77	$	86	$	(54	)	$	—		$	194	$	—		$	98		$	98	$	292
Income (loss) from discontinued operations, net of tax expense (benefit)		—		—		—		—			—			—		—			—			—		—

Net income (loss)	$	85	$	77	$	86	$	(54	)	$	—		$	194	$	—		$	98		$	98	$	292

⁽¹⁾	The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment.

⁽²⁾	“Core Earnings” adjustments to GAAP:


	Three Months Ended March 31, 2015
(Dollars in millions)	Net Impact from Spin-Off of SLM BankCo			Net Impact of Derivative Accounting		Net Impact of Acquired Intangibles			Total
Net interest income after provisions for loan losses	$	—		$	94	$	—		$	94
Total other income		—			72		—			72
Operating expenses		—			—		—			—
Goodwill and acquired intangible asset impairment and amortization		—			—		1			1
Restructuring and other reorganization expenses		3			—		—			3

Total “Core Earnings” adjustments to GAAP	$	(3	)	$	166	$	(1	)		162

Income tax expense										64

Net income									$	98

⁽³⁾	Income taxes are based on a percentage of net income before tax for the individual reportable segment.


	Three Months Ended March 31, 2014
(Dollars in millions)	FFELP Loans		Private Education Loans		Business Services		Other			Eliminations⁽¹⁾			Total “Core Earnings”		Adjustments									Total GAAP
(Dollars in millions)	FFELP Loans		Private Education Loans		Business Services		Other			Eliminations⁽¹⁾			Total “Core Earnings”		Reclassifications			Additions/ (Subtractions)			Total Adjustments⁽²⁾			Total GAAP
Interest income:
Student loans	$	512	$	494	$	—	$	—		$	—		$	1,006	$	198		$	86		$	284		$	1,290
Other loans		—		—		—		3			—			3		—			—			—			3
Cash and investments		1		—		—		1			—			2		—			1			1			3

Total interest income		513		494		—		4			—			1,011		198			87			285			1,296
Total interest expense		287		185		—		24			—			496		10			24			34			530

Net interest income (loss)		226		309		—		(20	)		—			515		188			63			251			766
Less: provisions for loan losses		10		136		—		—			—			146		—			39			39			185

Net interest income (loss) after provisions for loan losses		216		173		—		(20	)		—			369		188			24			212			581
Other income (loss):
Gains on sales of loans and investments		—		—		—		—			—			—		—			—			—			—
Servicing revenue		11		1		167		—			(118	)		61		—			—			—			61
Asset recovery revenue		—		—		111		—			—			111		—			—			—			111
Gains on debt repurchases		—		—		—		—			—			—		—			—			—			—
Other income (loss)		—		—		1		3			—			4		(188	)		182			(6	)		(2	)

Total other income (loss)		11		1		279		3			(118	)		176		(188	)		182			(6	)		170
Expenses:
Direct operating expenses		124		55		95		113			(118	)		269		—			25			25			294
Overhead expenses		—		—		—		49			—			49		—			23			23			72

Operating expenses		124		55		95		162			(118	)		318		—			48			48			366
Goodwill and acquired intangible asset impairment and amortization		—		—		—		—			—			—		—			4			4			4
Restructuring and other reorganization expenses		—		—		—		—			—			—		—			26			26			26

Total expenses		124		55		95		162			(118	)		318		—			78			78			396
Income (loss) from continuing operations, before income tax expense (benefit)		103		119		184		(179	)		—			227		—			128			128			355
Income tax expense (benefit)⁽³⁾		39		45		69		(67	)		—			86		—			50			50			136

Net income (loss) from continuing operations	$	64	$	74	$	115	$	(112	)	$	—		$	141	$	—		$	78		$	78		$	219
Income (loss) from discontinued operations, net of tax expense (benefit)		—		—		1		—			—			1		—			(1	)		(1	)		—

Net income (loss)	$	64	$	74	$	116	$	(112	)	$	—		$	142	$	—		$	77		$	77		$	219

⁽¹⁾	The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment.

⁽²⁾	“Core Earnings” adjustments to GAAP:


	Three Months Ended March 31, 2014
(Dollars in millions)	Net Impact from Spin-Off of SLM BankCo		Net Impact of Derivative Accounting			Net Impact of Acquired Intangibles			Total
Net interest income after provisions for loan losses	$	100	$	112		$	—		$	212
Total other income (loss)		7		(13	)		—			(6	)
Operating expenses		48		—			—			48
Goodwill and acquired intangible asset impairment and amortization		—		—			4			4
Restructuring and other reorganization expenses		26		—			—			26

Total “Core Earnings” adjustments to GAAP	$	33	$	99		$	(4	)		128

Income tax expense										50
Loss from discontinued operations										(1	)

Net income									$	77

⁽³⁾	Income taxes are based on a percentage of net income before tax for the individual reportable segment.

Differences between “Core Earnings” and GAAP

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


	Three Months Ended March 31,
(Dollars in millions)	2015			2014
“Core Earnings” net income attributable to Navient Corporation	$	194		$	142
“Core Earnings” adjustments to GAAP:
Net impact of the removal of SLM BankCo’s operations and restructuring and reorganization expense in connection with the Spin-Off		(3	)		33
Net impact of derivative accounting		166			99
Net impact of goodwill and acquired intangible assets		(1	)		(4	)
Net tax effect		(64	)		(50	)
Net impact of discontinued operations and noncontrolling interest		—			(1	)

Total “Core Earnings” adjustments to GAAP		98			77

GAAP net income attributable to Navient Corporation	$	292		$	219

1) SLM BankCo’s operations and restructuring and reorganization expense in connection with the Spin-Off: On April 30, 2014, the Spin-Off of Navient from SLM Corporation was completed and Navient became an independent, publicly-traded company. Due to the relative significance of Navient to SLM Corporation prior to the Spin-Off, among other factors, for financial reporting purposes Navient is treated as the “accounting spinnor” and therefore is the “accounting successor” to SLM Corporation as constituted prior to the Spin-Off, notwithstanding the legal form of the Spin-Off. Since Navient is treated for accounting purposes as the “accounting spinnor,” the GAAP financial statements of Navient reflect the deemed distribution of SLM BankCo to SLM BankCo’s stockholders on April 30, 2014.

For “Core Earnings,” we have assumed SLM BankCo was never a part of Navient’s historical results prior to the deemed distribution of SLM BankCo on April 30, 2014 and we have removed the restructuring and reorganization expense incurred in connection with the Spin-Off. Excluding these items provides management with a useful basis from which to better evaluate results from ongoing operations against results from prior periods. The adjustment relates to the exclusion of the consumer banking business and represents the operations, assets, liabilities and equity of SLM BankCo, which is comprised of Sallie Mae Bank, Upromise Rewards, the Insurance Business, and the Private Education Loan origination functions. Included in these amounts are also certain general corporate overhead expenses related to the consumer banking business. General corporate overhead consists of costs primarily associated with accounting, finance, legal, human resources, certain information technology costs, stock compensation, and executive management and the board of directors. These costs were generally allocated to the consumer banking business based on the proportionate level of effort provided to the consumer banking business relative to SLM Corporation using a relevant allocation driver (e.g., in proportion to the number of employees by function that were being transferred to SLM BankCo as opposed to remaining at Navient). All intercompany transactions between SLM BankCo and Navient have been eliminated. In addition, all prior preferred stock dividends have been removed as SLM BankCo succeeded SLM Corporation as the issuer of the preferred stock in connection with the Spin-Off.


	Three Months Ended March 31,
(Dollars in millions)	2015			2014
SLM BankCo net income, before income tax expense	$	—		$	59
Restructuring and reorganization expense in connection with the Spin-Off		(3	)		(26	)

Total net impact of SLM BankCo, before income tax expense	$	(3	)	$	33

2) Derivative Accounting: “Core Earnings” exclude periodic unrealized 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 unrealized gains and losses that are a result of ineffectiveness recognized related to effective hedges under GAAP. These unrealized gains and losses occur in our FFELP Loans, Private Education Loans and Other business segments. Under GAAP, for our derivatives that are held to maturity, the cumulative net unrealized gain or loss over the life of the contract will equal $0 except for Floor Income Contracts, where the cumulative unrealized gain will equal the amount for which we sold the contract. In our “Core Earnings” presentation, we recognize the economic effect of these hedges, which generally results in any net settlement cash paid or received being recognized ratably as an interest expense or revenue over the hedged item’s life.

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. 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 and certain basis swaps, do not qualify for hedge accounting treatment and the stand-alone derivative must be marked-to-market in the income statement with no consideration for the corresponding change in fair value of the hedged item. These gains and losses recorded in “Gains (losses) on derivative and hedging activities, net” 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.

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 student loans underlying the Floor Income embedded in those student 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 student 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 value of Floor Income Contracts is primarily caused by changing interest rates that cause the amount of Floor Income earned on the underlying student loans and paid to the counterparties to vary. This is economically offset by the change in value of the student loan portfolio earning Floor Income but that offsetting change in 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 unrealized 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 student 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 student loan assets that are primarily indexed to LIBOR or Prime. The accounting for derivatives requires that when using basis swaps, the change in the cash flows of the hedge effectively offset both the change in the cash flows of the asset and the change in the cash flows of the liability. Our basis swaps hedge variable interest rate risk; however, they generally do not meet this effectiveness test because the index of the swap does not exactly match the index of the hedged assets as required for hedge accounting treatment. Additionally, some of our FFELP Loans can earn at either a variable or a fixed interest rate depending on market interest rates and therefore swaps economically hedging these FFELP Loans do not meet the criteria for hedge accounting treatment. As a result, under GAAP, these swaps are recorded at fair value with changes in fair value reflected currently in the income statement.

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


	Three Months Ended March 31,
(Dollars in millions)	2015			2014
“Core Earnings” derivative adjustments:
Gains (losses) on derivative and hedging activities, net, included in other income	$	71		$	(8	)
Plus: Realized losses on derivative and hedging activities, net⁽¹⁾		153			188

Unrealized gains on derivative and hedging activities, net⁽²⁾		224			180
Amortization of net premiums on Floor Income Contracts in net interest income for “Core Earnings”		(59	)		(75	)
Other derivative accounting adjustments⁽³⁾		1			(6	)

Total net impact of derivative accounting⁽⁴⁾	$	166		$	99

⁽¹⁾

See “Reclassification of Realized Gains (Losses) on Derivative and Hedging Activities” below for a detailed breakdown of the components of realized losses on derivative and hedging activities.

⁽²⁾

“Unrealized gains on derivative and hedging activities, net” comprises the following unrealized mark-to-market gains (losses):


	Three Months Ended March 31,
(Dollars in millions)	2015		2014
Floor Income Contracts	$	72	$	181
Basis swaps		—		(1	)
Foreign currency hedges		145		(39	)
Other		7		39

Total unrealized gains on derivative and hedging activities, net	$	224	$	180

⁽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 adjustment 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 amortized into “Core Earnings” over the life of the hedged item.

⁽⁴⁾

Negative amounts are subtracted from “Core Earnings” net income to arrive at GAAP net income and positive amounts are added to “Core Earnings” net income to arrive at GAAP net income.

Reclassification of Realized Gains (Losses) on Derivative and Hedging Activities

Derivative accounting requires net settlement income/expense on derivatives and realized gains/losses related to derivative dispositions (collectively referred to as “realized gains (losses) on derivative and hedging activities”) 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 gains and losses are reclassified to the income statement line item of the economically hedged item. For our “Core Earnings” net interest margin, this would primarily include: (a) reclassifying the net settlement amounts related to our Floor Income Contracts to student loan interest income and (b) reclassifying the net settlement amounts related to certain of our basis swaps to debt interest expense. The table below summarizes the realized losses on derivative and hedging activities and the associated reclassification on a “Core Earnings” basis.


	Three Months Ended March 31,
(Dollars in millions)	2015			2014
Reclassification of realized gains (losses) on derivative and hedging activities:
Net settlement expense on Floor Income Contracts reclassified to net interest income	$	(162	)	$	(198	)
Net settlement income on interest rate swaps reclassified to net interest income		9			10
Net realized gains on terminated derivative contracts reclassified to other income		—			—

Total reclassifications of realized losses on derivative and hedging activities	$	(153	)	$	(188	)

Cumulative Impact of Derivative Accounting under GAAP compared to “Core Earnings”

As of March 31, 2015, derivative accounting has reduced GAAP equity by approximately $505 million as a result of cumulative net unrealized 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 unrealized after tax net losses related to derivative accounting.


	Three Months Ended March 31,
(Dollars in millions)	2015			2014
Beginning impact of derivative accounting on GAAP equity	$	(553	)	$	(926	)
Net impact of net unrealized gains (losses) under derivative accounting⁽¹⁾		48			72

Ending impact of derivative accounting on GAAP equity	$	(505	)	$	(854	)

⁽¹⁾

Net impact of net unrealized gains (losses) under derivative accounting is composed of the following:


	Three Months Ended March 31,
(Dollars in millions)	2015			2014
Total pre-tax net impact of derivative accounting recognized in net income^(a)	$	166		$	99
Tax impact of derivative accounting adjustments recognized in net income		(73	)		(22	)
Change in unrealized gain (losses) on derivatives, net of tax recognized in other comprehensive income		(45	)		(5	)

Net impact of net unrealized gains (losses) under derivative accounting	$	48		$	72

^(a)

See “‘Core Earnings’ derivative adjustments” table above.

Hedging FFELP Loan Embedded Floor Income

Net Floor premiums received on Floor Income Contracts that have not been amortized into “Core Earnings” as of the respective year-ends are presented in the table below. These net premiums will be recognized in “Core Earnings” in future periods. As of March 31, 2015, the remaining amortization term of the net floor premiums was approximately 4.8 years for existing contracts. Historically, we have sold Floor Income Contracts on a periodic basis and depending upon market conditions and pricing, we may enter into additional Floor Income Contracts in the future. The balance of unamortized Floor Income Contracts will increase as we sell new contracts and decline due to the amortization of existing contracts.

In addition to using Floor Income Contracts, we also use pay fixed interest rate swaps to hedge the embedded Floor Income within FFELP Loans. These interest rate swaps qualify as GAAP hedges and are accounted for as cash flow hedges of variable rate debt. For GAAP, gains and losses on the effective portion of these hedges are recorded in accumulated other comprehensive income and gains and losses on the ineffective portion are recorded immediately to earnings. Hedged Floor Income from these cash flow hedges that has not been recognized into “Core Earnings” and GAAP as of the respective period-ends is presented in the table below. This hedged Floor Income will be recognized in “Core Earnings” and GAAP in future periods and is presented net of tax. As of March 31, 2015, the hedged period is from April 2016 through December 2019. Historically, we have used pay fixed interest rate swaps on a periodic basis to hedge embedded Floor Income and depending upon market conditions and pricing, we may enter into swaps in the future. The balance of unrecognized hedged Floor Income will increase as we enter into new swaps and decline as revenue is recognized.


(Dollars in millions)	March 31, 2015			March 31, 2014
Unamortized net Floor premiums (net of tax)	$	(258	)	$	(308	)
Unrecognized hedged Floor Income related to pay fixed interest rate swaps (net of tax)		(320	)		—

Total⁽¹⁾	$	(578	)	$	(308	)

⁽¹⁾

$(916) million and $(492) million on a pre-tax basis as of March 31, 2015 and 2014, respectively.

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


	Three Months Ended March 31,
(Dollars in millions)	2015			2014
“Core Earnings” goodwill and acquired intangible asset adjustments⁽¹⁾	$	(1	)	$	(4	)

⁽¹⁾

Negative amounts are subtracted from “Core Earnings” net income to arrive at GAAP net income.

Business Segment Earnings Summary — “Core Earnings” Basis

FFELP Loans Segment

The following table includes “Core Earnings” results for our FFELP Loans segment.


	Three Months Ended March 31,				% Increase (Decrease)
(Dollars in millions)	2015		2014		2015 vs. 2014
“Core Earnings” interest income:
FFELP Loans	$	534	$	512		4	%
Cash and investments		1		1		—

Total “Core Earnings” interest income		535		513		4
Total “Core Earnings” interest expense		302		287		5

Net “Core Earnings” interest income		233		226		3
Less: provision for loan losses		5		10		(50	)

Net “Core Earnings” interest income after provision for loan losses		228		216		6
Gains on sales of loans and investments		5		—		100
Servicing revenue		18		11		64

Total other income		23		11		109
Direct operating expenses		115		124		(7	)

Income before income tax expense		136		103		32
Income tax expense		51		39		31

“Core Earnings”	$	85	$	64		33	%

“Core Earnings” from the FFELP Loans segment were $85 million in the first quarter of 2015, compared with $64 million in the year-ago quarter. This increase was primarily the result of $7 million more net interest income due to an increase in the balance of, and net interest margin on, the portfolio, a $7 million increase in servicing fees, a $9 million decrease in operating expenses and a $5 million decline in the provision for FFELP Loan losses. “Core Earnings” key performance metrics are as follows:


	Three Months Ended March 31,
(Dollars in millions)	2015			2014
FFELP Loan spread		.96	%		.95	%
Net interest margin		.88	%		.86	%
Provision for loan losses	$	5		$	10
Charge-offs	$	7		$	22
Charge-off rate		.03	%		.12	%
Total delinquency rate		15.9	%		13.8	%
Greater than 90-day delinquency rate		8.4	%		7.3	%
Forbearance rate		15.5	%		17.6	%

FFELP Loan Net Interest Margin

The following table includes the “Core Earnings” basis FFELP Loan net interest margin along with reconciliation to the GAAP-basis FFELP Loan net interest margin.


	Three Months Ended March 31,
	2015			2014
“Core Earnings” basis FFELP Loan yield		2.58	%		2.56	%
Hedged Floor Income		.23			.30
Unhedged Floor Income		.14			.03
Consolidation Loan Rebate Fees		(.64	)		(.65	)
Repayment Borrower Benefits		(.11	)		(.11	)
Premium amortization		(.11	)		(.10	)

“Core Earnings” basis FFELP Loan net yield		2.09			2.03
“Core Earnings” basis FFELP Loan cost of funds		(1.13	)		(1.08	)

“Core Earnings” basis FFELP Loan spread		.96			.95
“Core Earnings” basis other interest-earning asset spread impact		(.08	)		(.09	)

“Core Earnings” basis FFELP Loan net interest margin⁽¹⁾		.88	%		.86	%


“Core Earnings” basis FFELP Loan net interest margin⁽¹⁾		.88	%		.86	%
Adjustment for GAAP accounting treatment⁽²⁾		.37			.45

GAAP-basis FFELP Loan net interest margin⁽¹⁾		1.25	%		1.31	%

⁽¹⁾

The average balances of our FFELP Loan “Core Earnings” basis interest-earning assets for the respective periods are:


	Three Months Ended March 31,
(Dollars in millions)	2015		2014
FFELP Loans	$	103,617	$	102,329
Other interest-earning assets		3,893		3,895

Total FFELP Loan “Core Earnings” basis interest-earning assets	$	107,510	$	106,224

⁽²⁾

Represents the reclassification of periodic interest accruals on derivative contracts from net interest income to other income, the reversal of the amortization of premiums received on Floor Income Contracts, and other derivative accounting adjustments. For further discussion of these adjustments, see section titled “‘Core Earnings’ — Definition and Limitations — Differences between ‘Core Earnings’ and GAAP” above.

As of March 31, 2015, our FFELP Loan portfolio totaled $102.4 billion, composed of $39.9 billion of FFELP Stafford loans and $62.5 billion of FFELP Consolidation Loans. The weighted-average life of these portfolios as of March 31, 2015 was 4.8 years and 8.9 years, respectively, assuming a Constant Prepayment Rate (“CPR”) of 3 percent and 3 percent, 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 March 31, 2015 and 2014, based on interest rates as of those dates.


	March 31, 2015									March 31, 2014
(Dollars in billions)	Fixed Borrower Rate			Variable Borrower Rate			Total			Fixed Borrower Rate			Variable Borrower Rate			Total
Student loans eligible to earn Floor Income	$	88.4		$	12.8		$	101.2		$	87.2		$	12.7		$	99.9
Less: post-March 31, 2006 disbursed loans required to rebate Floor Income		(46.0	)		(.9	)		(46.9	)		(44.1	)		(.9	)		(45.0	)
Less: economically hedged Floor Income Contracts		(27.2	)		—			(27.2	)		(27.2	)		—			(27.2	)

Student loans eligible to earn Floor Income	$	15.2		$	11.9		$	27.1		$	15.9		$	11.8		$	27.7

Student loans earning Floor Income	$	15.1		$	.5		$	15.6		$	15.8		$	1.6		$	17.4

The following table presents a projection of the average balance of FFELP Consolidation Loans for which Fixed Rate Floor Income has been economically hedged with derivatives for the period April 1, 2015 to December 31, 2019.


(Dollars in billions)	April 1, 2015 to December 31, 2015		2016		2017		2018		2019
Average balance of FFELP Consolidation Loans whose Floor Income is economically hedged	$	27.2	$	19.0	$	14.0	$	13.2	$	5.5

Operating Expenses — FFELP Loans

Operating expenses for our FFELP Loans segment primarily include the contractual rates we pay to service loans in term asset-backed securitization trusts or a similar rate if a loan is not in a term financing facility (which is presented as an intercompany charge from the Business Services segment who services the loans), the fees we pay for third-party loan servicing and costs incurred to acquire loans. The intercompany revenue charged by the Business Services segment and included in those amounts was $111 million and $118 million for the quarters ended March 31, 2015 and 2014, respectively. These amounts exceed the actual cost of servicing the loans. Operating expenses were 45 basis points and 49 basis points of average FFELP Loans in the quarters ended March 31, 2015 and 2014, respectively. The decrease in operating expenses from the year-ago quarter was primarily the result of the decrease in the average servicing rate paid.

Private Education Loans Segment

The following table includes “Core Earnings” results for our Private Education Loans segment.


	Three Months Ended March 31,				% Increase (Decrease)
(Dollars in millions)	2015		2014		2015 vs. 2014
“Core Earnings” interest income:
Private Education Loans	$	456	$	494		(8	)%
Cash and investments		—		—		—

Total “Core Earnings” interest income		456		494		(8	)
Total “Core Earnings” interest expense		173		185		(6	)

Net “Core Earnings” interest income		283		309		(8	)
Less: provision for loan losses		120		136		(12	)

Net “Core Earnings” interest income after provision for loan losses		163		173		(6	)
Servicing revenue		7		1		600
Direct operating expenses		46		55		(16	)

Income before income tax expense		124		119		4
Income tax expense		47		45		4

“Core Earnings”	$	77	$	74		4	%

Quarterly “Core Earnings” were $77 million compared with $74 million in the year-ago quarter. This increase is primarily the result of a $16 million decrease in the provision for Private Education Loan losses, a $6 million increase in servicing fees and a $9 million reduction in expenses. This was partially offset by a $26 million decrease in net interest income due to a decline in the net interest margin and balance of the portfolio. “Core Earnings” key performance metrics are as follows:


	Three Months Ended March 31,
(Dollars in millions)	2015			2014
Private Education Loan spread		3.87	%		4.01	%
Net interest margin		3.74	%		3.91	%
Provision for loan losses	$	120		$	136
Charge-offs	$	190		$	218
Charge-off rate		2.9	%		3.3	%
Total delinquency rate		6.9	%		7.8	%
Greater than 90-day delinquency rate		3.6	%		3.9	%
Forbearance rate		3.8	%		4.3	%
Loans in repayment with more than 12 payments made		92.6	%		90.3	%
Cosigner rate		64	%		64	%
Average FICO		719			718

Private Education Loan Net Interest Margin

The following table shows the “Core Earnings” basis Private Education Loan net interest margin along with reconciliation to the GAAP-basis Private Education Loan net interest margin before provision for loan losses.


	Three Months Ended March 31,
	2015			2014
“Core Earnings” basis Private Education Loan yield		6.15	%		6.36	%
“Core Earnings” basis Private Education Loan cost of funds		(2.28	)		(2.35	)

“Core Earnings” basis Private Education Loan spread		3.87			4.01
“Core Earnings” basis other interest-earning asset spread impact		(.13	)		(.10	)

“Core Earnings” basis Private Education Loan net interest margin⁽¹⁾		3.74	%		3.91	%


“Core Earnings” basis Private Education Loan net interest margin⁽¹⁾		3.74	%		3.91	%
Adjustment for GAAP accounting treatment⁽²⁾		(.03	)		.40

GAAP basis Private Education Loan net interest margin⁽¹⁾		3.71	%		4.31	%

⁽¹⁾

The average balances of our Private Education Loan “Core Earnings” basis interest-earning assets for the respective periods are:


	Three Months Ended March 31,
(Dollars in millions)	2015		2014
Private Education Loans	$	30,105	$	31,525
Other interest-earning assets		593		493

Total Private Education Loan “Core Earnings” basis interest-earning assets	$	30,698	$	32,018

⁽²⁾

Represents the reclassification of periodic interest accruals on derivative contracts from net interest income to other income and other derivative accounting adjustments. For further discussion of these adjustments, see section titled “‘Core Earnings’ — Definition and Limitations — Differences between ‘Core Earnings’ and GAAP” above.

Private Education Loan Provision for Loan Losses

In establishing the allowance for Private Education Loan losses as of March 31, 2015, we considered several factors with respect to our Private Education Loan portfolio. In particular, we continue to see improvement in credit quality and continuing positive delinquency and charge-off trends in connection with this portfolio. On a “Core Earnings” basis, total loans delinquent (as a percentage of loans in repayment) have decreased to 6.9 percent from 7.8 percent in the year-ago quarter. Loans greater than 90 days delinquent (as a percentage of loans in repayment) have decreased to 3.6 percent from 3.9 percent in the year-ago quarter. The “Core Earnings” charge-off rate decreased to 2.9 percent from 3.3 percent in the year-ago quarter. Loans in forbearance (as a percentage of loans in repayment and forbearance) decreased to 3.8 percent from 4.3 percent in the year-ago quarter.

The Private Education Loan provision for loan losses on a “Core Earnings” basis was $120 million in the first quarter of 2015, down $16 million from the first quarter of 2014. The decline from the year-ago period was a result of the overall improvement in credit quality and performance trends discussed above, leading to decreases in expected future charge-offs.

Operating Expenses — Private Education Loans Segment

Operating expenses for our Private Education Loans segment include costs incurred to service and collect on our Private Education Loan portfolio. Direct operating expenses as a percentage of revenues (revenues calculated as net interest income after provision plus total other income) were 27 percent and 32 percent in the quarters ended March 31, 2015 and 2014, respectively.

Business Services Segment

The following table includes “Core Earnings” results for our Business Services segment.


	Three Months Ended March 31,				% Increase (Decrease)
(Dollars in millions)	2015		2014		2015 vs. 2014
Net interest income	$	—	$	—		—	%
Servicing revenue:
Intercompany loan servicing		111		118		(6	)
Third-party loan servicing		44		40		10
Guarantor servicing		8		9		(11	)

Total servicing revenue		163		167		(2	)
Asset recovery revenue		89		111		(20	)
Other Business Services revenue		2		1		100

Total other income		254		279		(9	)
Direct operating expenses		116		95		22

Income from continuing operations, before income tax expense		138		184		(25	)
Income tax expense		52		69		(25	)

Net income from continuing operations		86		115		(25	)
Income from discontinued operations, net of tax expense		—		1		(100	)

“Core Earnings”	$	86	$	116		(26	)%

“Core Earnings” were $86 million in the first quarter of 2015, compared with $116 million in the year-ago quarter. The decrease was primarily the result of lower asset recovery revenue, primarily related to a legislative reduction in certain fees earned and a lower balance of intercompany FFELP Loans serviced. Key segment metrics are:


	As of March 31,
(Dollars in billions)	2015		2014
Number of accounts serviced for ED (in millions)		6.2		5.8
Total federal loans serviced	$	297	$	271
Contingent collections receivables inventory:
Student loans	$	11.0	$	13.2
Other		9.2		2.7

Total contingent collections receivables inventory	$	20.2	$	15.9

In February 2015, Navient completed the acquisition of Gila LLC, an asset recovery and business process outsourcing firm serving more than 600 clients in 39 states. The firm provides receivables management services and account processing solutions for state governments, court systems and municipalities.

Revenues related to services performed on FFELP Loans accounted for 74 percent and 78 percent, respectively, of total Business Services segment revenues for the quarters ended March 31, 2015 and 2014.

Servicing Revenue

Our Business Services segment includes intercompany loan servicing fees from servicing the FFELP Loans in our FFELP Loans segment. The average balance of this portfolio was $101 billion and $103 billion for the quarters ended March 31, 2015 and 2014, respectively. The decline in the intercompany loan servicing revenue from the year-ago quarter was primarily due to the decrease in the average servicing rate paid as well as the decline in the average balance of FFELP Loans serviced.

Third-party loan servicing income increased $4 million from the year-ago quarter primarily due to third-party servicing provided to SLM BankCo.

The Company services student loans for more than 12 million DSLP Loan, FFELP Loan and Private Education Loan customers (including cosigners), including 6.2 million customer accounts under the ED Servicing Contract as of March 31, 2015, compared with 5.8 million customer accounts serviced at March 31, 2014. Third-party loan servicing fees in the quarters ended March 31, 2015 and 2014 included $31 million and $31 million, respectively, of servicing revenue related to the ED Servicing Contract. On June 13, 2014, ED extended its servicing contract with us to service Direct Student Loan Program federal loans for five more years.

Asset Recovery Revenue

Our asset recovery revenue consists of fees we receive for asset recovery of delinquent and defaulted debt on behalf of third-party clients performed on a contingent basis. The majority of this fee revenue is generated through collecting or rehabilitating defaulted federal loans. Asset recovery revenue decreased $22 million in the first quarter of 2015 compared with the year-ago quarter primarily as a result of the Bipartisan Budget Act (the “Budget Act”) enacted on December 26, 2013 and effective on July 1, 2014, which reduced the amount paid to Guarantor agencies for defaulted FFELP Loans that are rehabilitated. This legislative reduction in fees represents $40 million of the decrease in asset recovery revenue. This reduction was partially offset by higher asset recovery volume and revenue from the acquisition of Gila LLC.

Since 1997, Navient has provided asset recovery services on defaulted student loans to ED. This contract expired by its terms on February 21, 2015 and our Pioneer Credit Recovery subsidiary received no new account

placements under the contract. We are engaged with ED to learn more about their decision and address any questions or concerns they may have. In addition, on March 9, 2015, Pioneer filed a bid protest with the U.S. Government Accountability Office (“GAO”) which was dismissed on March 13, 2015. This bid protest was dismissed from the GAO based upon overlapping jurisdiction. Following the bid protest dismissal, Pioneer filed its own complaint with the U.S. Court of Federal Claims, which complaint was consolidated with several similar cases filed by other private collection agencies. On April 16, 2015, Pioneer’s complaint, together with the other plaintiffs’ consolidated complaints, was dismissed for lack of jurisdiction. We are currently considering whether to appeal this decision.

Separately, we have submitted a response to ED’s request for proposals (RFP) in relation to a new contract for similar services. There can be no assurances that Pioneer will be awarded an extension of the existing contract, a new contract under the RFP or what volume of accounts might be placed with Pioneer.

Operating Expenses — Business Services Segment

Operating expenses for our Business Services segment primarily include costs incurred to service our FFELP Loan portfolio, third-party servicing and asset recovery costs, and other operating costs. The $21 million increase in operating expenses in the quarter ended March 31, 2015 compared with the year-ago quarter was primarily the result of incremental costs post-Spin-Off resulting from operating as a new separate company, costs related to the Gila LLC acquisition this quarter, as well as incremental third-party servicing expenses related to an $8.5 billion loan acquisition in the fourth-quarter 2014.

Other Segment

The following table includes “Core Earnings” results of our Other segment.


	Three Months Ended March 31,						% Increase (Decrease)
(Dollars in millions)	2015			2014			2015 vs. 2014
Net interest loss after provision for loan losses	$	(27	)	$	(20	)		35	%
Losses on sales of loans and investments		—			—			—
Gains on debt repurchases		—			—			—
Other		4			3			33

Total other income		4			3			33
Direct operating expenses		4			113			(96	)
Overhead expenses:
Corporate overhead		32			26			23
Unallocated information technology costs		28			23			22

Total overhead expenses		60			49			22

Total operating expenses		64			162			(60	)

Loss before income tax benefit		(87	)		(179	)		(51	)
Income tax benefit		(33	)		(67	)		(51	)

“Core Earnings” (loss)	$	(54	)	$	(112	)		(52	)%

Net Interest Loss after Provision for Loan Losses

Net interest loss after provision for loan losses includes net interest loss related to our corporate liquidity portfolio, partially offset by net interest income related to our mortgage and consumer loan portfolios.

Gains on Debt Repurchases

We repurchased $530 million and $0 million face amount of our unsecured debt for the quarters ended March 31, 2015 and 2014, respectively, with no gains recognized. Debt repurchase activity will fluctuate based on market fundamentals and our liability management strategy.

Direct Operating Expenses — Other Segment

In the year-ago quarter, we recognized $111 million of expense related to the settlement of regulatory matters (for additional information, see Part II. “Other Information,” Item 1. “Legal Proceedings — Regulatory Matters”). This regulatory expense in the year-ago quarter was the primary driver of the decrease in operating expenses from first-quarter 2014 to first-quarter 2015.

Overhead — Other Segment

Unallocated corporate overhead is comprised of costs related to executive management, the board of directors, accounting, finance, legal, human resources and stock-based compensation expense. Unallocated information technology costs are related to infrastructure and operations. The increase in overhead expenses in first-quarter 2015 compared with the year-ago quarter is primarily due to incremental costs post-Spin-Off resulting from operating as a new separate company, as well as costs incurred to provide related support to SLM BankCo under various transition services agreements entered into in connection with the Spin-Off.

Financial Condition

This section provides additional information regarding the changes in our loan portfolio assets and related liabilities as well as credit quality and performance indicators related to our loan portfolio.

Average Balance Sheets — GAAP

The following table reflects the rates earned on interest-earning assets and paid on interest-bearing liabilities and reflects our net interest margin on a consolidated basis.


	Three Months Ended March 31,
	2015					2014
(Dollars in millions)	Balance		Rate			Balance		Rate
Average Assets
FFELP Loans	$	103,617		2.49	%	$	103,734		2.53	%
Private Education Loans		30,105		6.15			38,945		6.70
Other loans		81		8.96			98		9.69
Cash and investments		6,307		.11			8,080		.17

Total interest-earning assets		140,110		3.18	%		150,857		3.48	%

Non-interest-earning assets		4,251					4,124

Total assets	$	144,361				$	154,981

Average Liabilities and Equity
Short-term borrowings	$	3,931		2.30	%	$	13,258		.82	%
Long-term borrowings		133,557		1.49			133,116		1.53

Total interest-bearing liabilities		137,488		1.52	%		146,374		1.47	%

Non-interest-bearing liabilities		2,709					2,982
Equity		4,164					5,625

Total liabilities and equity	$	144,361				$	154,981

Net interest margin				1.69	%				2.06	%

Rate/Volume Analysis — GAAP

The following rate/volume analysis shows the relative contribution of changes in interest rates and asset volumes.


	Increase (Decrease)			Change Due To⁽¹⁾
(Dollars in millions)	Increase (Decrease)			Rate			Volume
Three Months Ended March 31, 2015 vs. 2014
Interest income	$	(199	)	$	(110	)	$	(89	)
Interest expense		(16	)		17			(33	)

Net interest income	$	(183	)	$	(131	)	$	(52	)

⁽¹⁾

Changes in income and expense due to both rate and volume have been allocated in proportion to the relationship of the absolute dollar amounts of the change in each. The changes in income and expense are calculated independently for each line in the table. The totals for the rate and volume columns are not the sum of the individual lines.

Summary of our Student Loan Portfolio

Ending Student Loan Balances, net — GAAP Basis


	March 31, 2015
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans			Private Education Loans			Total Portfolio
Total student loan portfolio:
In-school⁽¹⁾	$	448		$	—		$	448		$	383		$	831
Grace, repayment and other⁽²⁾		38,796			62,103			100,899			29,801			130,700

Total, gross		39,244			62,103			101,347			30,184			131,531
Unamortized premium/(discount)		679			489			1,168			(581	)		587
Receivable for partially charged-off loans		—			—			—			1,236			1,236
Allowance for loan losses		(56	)		(35	)		(91	)		(1,849	)		(1,940	)

Total student loan portfolio	$	39,867		$	62,557		$	102,424		$	28,990		$	131,414

% of total FFELP		39	%		61	%		100	%
% of total		30	%		48	%		78	%		22	%		100	%


	December 31, 2014
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans			Private Education Loans			Total Portfolio
Total student loan portfolio:
In-school⁽¹⁾	$	488		$	—		$	488		$	436		$	924
Grace, repayment and other⁽²⁾		39,958			62,992			102,950			30,625			133,575

Total, gross		40,446			62,992			103,438			31,061			134,499
Unamortized premium/(discount)		677			499			1,176			(594	)		582
Receivable for partially charged-off loans		—			—			—			1,245			1,245
Allowance for loan losses		(58	)		(35	)		(93	)		(1,916	)		(2,009	)

Total student loan portfolio	$	41,065		$	63,456		$	104,521		$	29,796		$	134,317

% of total FFELP		39	%		61	%		100	%
% of total		31	%		47	%		78	%		22	%		100	%

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

⁽²⁾	Includes loans in deferment or forbearance.

Ending Student Loan Balances, net — “Core Earnings” Basis


	March 31, 2015
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans			Private Education Loans			Total Portfolio
Total student loan portfolio:
In-school⁽¹⁾	$	448		$	—		$	448		$	383		$	831
Grace, repayment and other⁽²⁾		38,796			62,103			100,899			29,801			130,700

Total, gross		39,244			62,103			101,347			30,184			131,531
Unamortized premium/(discount)		679			489			1,168			(581	)		587
Receivable for partially charged-off loans		—			—			—			1,236			1,236
Allowance for loan losses		(56	)		(35	)		(91	)		(1,849	)		(1,940	)

Total student loan portfolio	$	39,867		$	62,557		$	102,424		$	28,990		$	131,414

% of total FFELP		39	%		61	%		100	%
% of total		30	%		48	%		78	%		22	%		100	%


	December 31, 2014
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans			Private Education Loans			Total Portfolio
Total student loan portfolio:
In-school⁽¹⁾	$	488		$	—		$	488		$	436		$	924
Grace, repayment and other⁽²⁾		39,958			62,992			102,950			30,625			133,575

Total, gross		40,446			62,992			103,438			31,061			134,499
Unamortized premium/(discount)		677			499			1,176			(594	)		582
Receivable for partially charged-off loans		—			—			—			1,245			1,245
Allowance for loan losses		(58	)		(35	)		(93	)		(1,916	)		(2,009	)

Total student loan portfolio	$	41,065		$	63,456		$	104,521		$	29,796		$	134,317

% of total FFELP		39	%		61	%		100	%
% of total		31	%		47	%		78	%		22	%		100	%

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

⁽²⁾	Includes loans in deferment or forbearance.

Average Student Loan Balances (net of unamortized premium/discount) — GAAP Basis


	Three Months Ended March 31, 2015
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans			Private Education Loans			Total Portfolio
Total	$	40,634		$	62,983		$	103,617		$	30,105		$	133,722
% of FFELP		39	%		61	%		100	%
% of total		30	%		47	%		77	%		23	%		100	%


	Three Months Ended March 31, 2014
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans			Private Education Loans			Total Portfolio
Total	$	39,682		$	64,052		$	103,734		$	38,945		$	142,679
% of FFELP		38	%		62	%		100	%
% of total		28	%		45	%		73	%		27	%		100	%

Average Student Loan Balances (net of unamortized premium/discount) — “Core Earnings” Basis


	Three Months Ended March 31, 2015
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans			Private Education Loans			Total Portfolio
Total	$	40,634		$	62,983		$	103,617		$	30,105		$	133,722
% of FFELP		39	%		61	%		100	%
% of total		30	%		47	%		77	%		23	%		100	%


	Three Months Ended March 31, 2014
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans			Private Education Loans			Total Portfolio
Total	$	39,172		$	63,157		$	102,329		$	31,525		$	133,854
% of FFELP		38	%		62	%		100	%
% of total		29	%		47	%		76	%		24	%		100	%

Student Loan Activity — GAAP Basis


	Three Months Ended March 31, 2015
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans			Total Private Education Loans			Total Portfolio
Beginning balance	$	41,065		$	63,456		$	104,521		$	29,796		$	134,317
Acquisitions and originations		406			418			824			6			830
Capitalized interest and premium/discount amortization		308			279			587			136			723
Consolidations to third parties		(657	)		(487	)		(1,144	)		(23	)		(1,167	)
Sales		(151	)		(36	)		(187	)		—			(187	)
Repayments and other		(1,104	)		(1,073	)		(2,177	)		(925	)		(3,102	)

Ending balance	$	39,867		$	62,557		$	102,424		$	28,990		$	131,414


	Three Months Ended March 31, 2014
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans			Total Private Education Loans			Total Portfolio
Beginning balance	$	40,021		$	64,567		$	104,588		$	37,512		$	142,100
Acquisitions and originations		278			175			453			1,522			1,975
Capitalized interest and premium/discount amortization		307			304			611			211			822
Consolidations to third parties		(404	)		(277	)		(681	)		(33	)		(714	)
Sales		—			—			—			—			—
Repayments and other		(1,114	)		(1,222	)		(2,336	)		(1,055	)		(3,391	)

Ending balance	$	39,088		$	63,547		$	102,635		$	38,157		$	140,792

Student Loan Activity — “Core Earnings” Basis


	Three Months Ended March 31, 2015
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans			Total Private Education Loans			Total Portfolio
Beginning balance	$	41,065		$	63,456		$	104,521		$	29,796		$	134,317
Acquisitions and originations		406			418			824			6			830
Capitalized interest and premium/discount amortization		308			279			587			136			723
Consolidations to third parties		(657	)		(487	)		(1,144	)		(23	)		(1,167	)
Sales		(151	)		(36	)		(187	)		—			(187	)
Repayments and other		(1,104	)		(1,073	)		(2,177	)		(925	)		(3,102	)

Ending balance	$	39,867		$	62,557		$	102,424		$	28,990		$	131,414


	Three Months Ended March 31, 2014
(Dollars in millions)	FFELP Stafford and Other			FFELP Consolidation Loans			Total FFELP Loans			Total Private Education Loans			Total Portfolio
Beginning balance	$	39,499		$	63,664		$	103,163		$	31,006		$	134,169
Acquisitions		279			175			454			672			1,126
Capitalized interest and premium/discount amortization		301			295			596			183			779
Consolidations to third parties		(399	)		(274	)		(673	)		(26	)		(699	)
Sales		—			—			—			—			—
Repayments and other		(1,095	)		(1,205	)		(2,300	)		(886	)		(3,186	)

Ending balance	$	38,585		$	62,655		$	101,240		$	30,949		$	132,189

Student Loan Allowance for Loan Losses Activity — GAAP Basis


	Three Months Ended March 31,
	2015									2014
(Dollars in millions)	FFELP Loans			Private Education Loans			Total Portfolio			FFELP Loans			Private Education Loans			Total Portfolio
Beginning balance	$	93		$	1,916		$	2,009		$	119		$	2,097		$	2,216
Less:
Charge-offs⁽¹⁾		(7	)		(190	)		(197	)		(22	)		(218	)		(240	)
Student loan sales		—			—			—			—			—			—
Plus:
Provision for loan losses		5			120			125			10			175			185
Reclassification of interest reserve⁽²⁾		—			3			3			—			5			5

Ending balance	$	91		$	1,849		$	1,940		$	107		$	2,059		$	2,166

Percent of total		5	%		95	%		100	%		5	%		95	%		100	%

Troubled debt restructuring⁽³⁾		—			10,426			10,426			—			9,241			9,241

Student Loan Allowance for Loan Losses Activity — “Core Earnings” Basis


	Three Months Ended March 31,
	2015									2014
(Dollars in millions)	FFELP Loans			Private Education Loans			Total Portfolio			FFELP Loans			Private Education Loans			Total Portfolio
Beginning balance	$	93		$	1,916		$	2,009		$	113		$	2,035		$	2,148
Less:
Charge-offs⁽¹⁾		(7	)		(190	)		(197	)		(22	)		(218	)		(240	)
Student loan sales		—			—			—			—			—			—
Plus:
Provision for loan losses		5			120			125			10			136			146
Reclassification of interest reserve⁽²⁾		—			3			3			—			5			5
Other transactions		—			—			—			—			29			29

Ending balance	$	91		$	1,849		$	1,940		$	101		$	1,987		$	2,088

Percent of total		5	%		95	%		100	%		5	%		95	%		100	%

Troubled debt restructuring⁽³⁾		—			10,426			10,426			—			9,241			9,241

⁽¹⁾

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

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

⁽³⁾	Represents the recorded investment of loans identified as troubled debt restructuring.

FFELP Loan Portfolio Performance

FFELP Loan Delinquencies and Forbearance — GAAP Basis


	FFELP Loan Delinquencies
	March 31,
	2015						2014
(Dollars in millions)	Balance			%			Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	10,555					$	13,016
Loans in forbearance⁽²⁾		14,037						15,650
Loans in repayment and percentage of each status:
Loans current		64,522			84.1	%		62,721			85.9	%
Loans delinquent 31-60 days⁽³⁾		3,656			4.8			3,059			4.2
Loans delinquent 61-90 days⁽³⁾		2,087			2.7			1,784			2.4
Loans delinquent greater than 90 days⁽³⁾		6,490			8.4			5,497			7.5

Total FFELP Loans in repayment		76,755			100	%		73,061			100	%

Total FFELP Loans, gross		101,347						101,727
FFELP Loan unamortized premium		1,168						1,015

Total FFELP Loans		102,515						102,742
FFELP Loan allowance for losses		(91	)					(107	)

FFELP Loans, net	$	102,424					$	102,635

Percentage of FFELP Loans in repayment					75.7	%					71.8	%

Delinquencies as a percentage of FFELP Loans in repayment					15.9	%					14.2	%

FFELP Loans in forbearance as a percentage of loans in repayment and forbearance					15.5	%					17.6	%

⁽¹⁾

Loans for customers who may still be attending school or engaging in other permitted educational activities and are not yet required to make payments on the 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 extension of grace period during employment transition or who have temporarily ceased making payments due to hardship or other factors.

⁽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.

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

FFELP Loan Delinquencies and Forbearance — “Core Earnings” Basis


	FFELP Loan Delinquencies
	March 31,
	2015						2014
(Dollars in millions)	Balance			%			Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	10,555					$	12,872
Loans in forbearance⁽²⁾		14,037						15,395
Loans in repayment and percentage of each status:
Loans current		64,522			84.1	%		62,105			86.2	%
Loans delinquent 31-60 days⁽³⁾		3,656			4.8			2,952			4.1
Loans delinquent 61-90 days⁽³⁾		2,087			2.7			1,719			2.4
Loans delinquent greater than 90 days⁽³⁾		6,490			8.4			5,287			7.3

Total FFELP Loans in repayment		76,755			100	%		72,063			100	%

Total FFELP Loans, gross		101,347						100,330
FFELP Loan unamortized premium		1,168						1,011

Total FFELP Loans		102,515						101,341
FFELP Loan allowance for losses		(91	)					(101	)

FFELP Loans, net	$	102,424					$	101,240

Percentage of FFELP Loans in repayment					75.7	%					71.8	%

Delinquencies as a percentage of FFELP Loans in repayment					15.9	%					13.8	%

FFELP Loans in forbearance as a percentage of loans in repayment and forbearance					15.5	%					17.6	%

⁽¹⁾

⁽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.

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

Allowance for FFELP Loan Losses — GAAP Basis


	Three Months Ended March 31,
(Dollars in millions)	2015			2014
Allowance at beginning of period	$	93		$	119
Provision for FFELP Loan losses		5			10
Charge-offs		(7	)		(22	)
Student loan sales		—			—

Allowance at end of period	$	91		$	107

Charge-offs as a percentage of average loans in repayment (annualized)		.03	%		.12	%
Allowance as a percentage of ending total loans, gross		.09	%		.10	%
Allowance as a percentage of ending loans in repayment		.12	%		.15	%
Allowance coverage of charge-offs (annualized)		3.6			1.2
Ending total loans, gross	$	101,347		$	101,727
Average loans in repayment	$	77,474		$	73,496
Ending loans in repayment	$	76,755		$	73,061

Allowance for FFELP Loan Losses — “Core Earnings” Basis


	Three Months Ended March 31,
(Dollars in millions)	2015			2014
Allowance at beginning of period	$	93		$	113
Provision for FFELP Loan losses		5			10
Charge-offs		(7	)		(22	)
Student loan sales		—			—

Allowance at end of period	$	91		$	101

Charge-offs as a percentage of average loans in repayment (annualized)		.03	%		.12	%
Allowance as a percentage of ending total loans, gross		.09	%		.10	%
Allowance as a percentage of ending loans in repayment		.12	%		.14	%
Allowance coverage of charge-offs (annualized)		3.6			1.1
Ending total loans, gross	$	101,347		$	100,330
Average loans in repayment	$	77,474		$	72,486
Ending loans in repayment	$	76,755		$	72,063

Private Education Loan Portfolio Performance

Private Education Loan Delinquencies and Forbearance — GAAP Basis


	Private Education Loan Delinquencies
	March 31,
	2015						2014
(Dollars in millions)	Balance			%			Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	2,894					$	7,075
Loans in forbearance⁽²⁾		1,030						1,216
Loans in repayment and percentage of each status:
Loans current		24,451			93.1	%		29,156			93.1	%
Loans delinquent 31-60 days⁽³⁾		528			2.0			655			2.1
Loans delinquent 61-90 days⁽³⁾		341			1.3			430			1.4
Loans delinquent greater than 90 days⁽³⁾		940			3.6			1,068			3.4

Total Private Education Loans in repayment		26,260			100	%		31,309			100	%

Total Private Education Loans, gross		30,184						39,600
Private Education Loan unamortized discount		(581	)					(681	)

Total Private Education Loans		29,603						38,919
Private Education Loan receivable for partially charged-off loans		1,236						1,297
Private Education Loan allowance for losses		(1,849	)					(2,059	)

Private Education Loans, net	$	28,990					$	38,157

Percentage of Private Education Loans in repayment					87.0	%					79.1	%

Delinquencies as a percentage of Private Education Loans in repayment					6.9	%					6.9	%

Loans in forbearance as a percentage of loans in repayment and forbearance					3.8	%					3.7	%

Loans in repayment with more than 12 payments made					92.6	%					84.2	%

Percentage of Private Education Loans with a cosigner					64	%					68	%

Average FICO at origination					719						723

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

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

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

Private Education Loan Delinquencies and Forbearance — “Core Earnings” Basis


	Private Education Loan Delinquencies
	March 31,
	2015						2014
(Dollars in millions)	Balance			%			Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	2,894					$	4,090
Loans in forbearance⁽²⁾		1,030						1,205
Loans in repayment and percentage of each status:
Loans current		24,451			93.1	%		24,912			92.2	%
Loans delinquent 31-60 days⁽³⁾		528			2.0			634			2.4
Loans delinquent 61-90 days⁽³⁾		341			1.3			416			1.5
Loans delinquent greater than 90 days⁽³⁾		940			3.6			1,068			3.9

Total Private Education Loans in repayment		26,260			100	%		27,030			100	%

Total Private Education Loans, gross		30,184						32,325
Private Education Loan unamortized discount		(581	)					(686	)

Total Private Education Loans		29,603						31,639
Private Education Loan receivable for partially charged-off loans		1,236						1,297
Private Education Loan allowance for losses		(1,849	)					(1,987	)

Private Education Loans, net	$	28,990					$	30,949

Percentage of Private Education Loans in repayment					87.0	%					83.6	%

Delinquencies as a percentage of Private Education Loans in repayment					6.9	%					7.8	%

Loans in forbearance as a percentage of loans in repayment and forbearance					3.8	%					4.3	%

Loans in repayment with more than 12 payments made					92.6	%					90.3	%

Percentage of Private Education Loans with a cosigner					64	%					64	%

Average FICO at origination					719						718

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

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

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

Allowance for Private Education Loan Losses — GAAP Basis


	Three Months Ended March 31,
(Dollars in millions)	2015			2014
Allowance at beginning of period	$	1,916		$	2,097
Provision for Private Education Loan losses		120			175
Charge-offs⁽¹⁾		(190	)		(218	)
Reclassification of interest reserve⁽²⁾		3			5

Allowance at end of period	$	1,849		$	2,059

Charge-offs as a percentage of average loans in repayment (annualized)		2.9	%		2.8	%
Allowance as a percentage of ending total loans		5.9	%		5.0	%
Allowance as a percentage of ending loans in repayment		7.0	%		6.6	%
Average coverage of charge-offs (annualized)		2.4			2.3
Ending total loans⁽³⁾	$	31,420		$	40,897
Average loans in repayment	$	26,644		$	31,416
Ending loans in repayment	$	26,260		$	31,309

Allowance for Private Education Loan Losses — “Core Earnings” Basis


	Three Months Ended March 31,
(Dollars in millions)	2015			2014
Allowance at beginning of period	$	1,916		$	2,035
Provision for Private Education Loan losses		120			136
Charge-offs⁽¹⁾		(190	)		(218	)
Reclassification of interest reserve^{(2 )}		3			5
Loan sales and other transactions		—			29

Allowance at end of period	$	1,849		$	1,987

Charge-offs as a percentage of average loans in repayment (annualized)		2.9	%		3.3	%
Allowance as a percentage of ending total loans		5.9	%		5.9	%
Allowance as a percentage of ending loans in repayment		7.0	%		7.4	%
Average coverage of charge-offs (annualized)		2.4			2.2
Ending total loans⁽³⁾	$	31,420		$	33,622
Average loans in repayment	$	26,644		$	27,028
Ending loans in repayment	$	26,260		$	27,030

⁽¹⁾

Charge-offs are reported net of expected recoveries. 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. See “Receivable for Partially Charged-Off Private Education Loans” for further discussion.

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

⁽³⁾	Ending total loans represents gross Private Education Loans, plus the receivable for partially charged-off loans.

The following tables provide the detail for our traditional and non-traditional Private Education Loans for the quarters ended.

GAAP Basis:


	March 31, 2015									March 31, 2014
(Dollars in millions)	Traditional			Non- Traditional			Total			Traditional			Non- Traditional			Total
Ending total loans⁽¹⁾	$	28,504		$	2,916		$	31,420		$	37,617		$	3,280		$	40,897
Ending loans in repayment		24,190			2,070			26,260			29,116			2,193			31,309
Private Education Loan allowance for losses		1,470			379			1,849			1,583			476			2,059
Charge-offs as a percentage of average loans in repayment (annualized)		2.4	%		8.1	%		2.9	%		2.3	%		9.5	%		2.8	%
Allowance as a percentage of ending total loan balance		5.2	%		13.0	%		5.9	%		4.2	%		14.5	%		5.0	%
Allowance as a percentage of ending loans in repayment		6.1	%		18.3	%		7.0	%		5.4	%		21.7	%		6.6	%
Average coverage of charge-offs (annualized)		2.5			2.2			2.4			2.3			2.3			2.3
Delinquencies as a percentage of Private Education Loans in repayment		6.1	%		15.7	%		6.9	%		6.0	%		18.3	%		6.9	%
Delinquencies greater than 90 days as a percentage of Private Education Loans in repayment		3.1	%		9.0	%		3.6	%		2.9	%		10.0	%		3.4	%
Loans in forbearance as a percentage of loans in repayment and forbearance		3.6	%		5.5	%		3.8	%		3.5	%		6.3	%		3.7	%
Loans that entered repayment during the period⁽²⁾	$	80		$	5		$	85		$	528		$	11		$	539
Percentage of Private Education Loans with a cosigner		67	%		32	%		64	%		71	%		31	%		68	%
Average FICO at origination		726			626			719			730			625			723

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

⁽²⁾	Includes loans that are required to make a payment for the first time.

“Core Earnings” Basis:


	March 31, 2015									March 31, 2014
(Dollars in millions)	Traditional			Non- Traditional			Total			Traditional			Non- Traditional			Total
Ending total loans⁽¹⁾	$	28,504		$	2,916		$	31,420		$	30,391		$	3,231		$	33,622
Ending loans in repayment		24,190			2,070			26,260			24,865			2,165			27,030
Private Education Loan allowance for losses		1,470			379			1,849			1,517			470			1,987
Charge-offs as a percentage of average loans in repayment (annualized)		2.4	%		8.1	%		2.9	%		2.7	%		9.6	%		3.3	%
Allowance as a percentage of ending total loan balance		5.2	%		13.0	%		5.9	%		5.0	%		14.6	%		5.9	%
Allowance as a percentage of ending loans in repayment		6.1	%		18.3	%		7.0	%		6.1	%		21.7	%		7.4	%
Average coverage of charge-offs (annualized)		2.5			2.2			2.4			2.2			2.2			2.2
Delinquencies as a percentage of Private Education Loans in repayment		6.1	%		15.7	%		6.9	%		6.9	%		18.5	%		7.8	%
Delinquencies greater than 90 days as a percentage of Private Education Loans in repayment		3.1	%		9.0	%		3.6	%		3.4	%		10.1	%		3.9	%
Loans in forbearance as a percentage of loans in repayment and forbearance		3.6	%		5.5	%		3.8	%		4.1	%		6.3	%		4.3	%
Loans that entered repayment during the period⁽²⁾	$	80		$	5		$	85		$	130		$	8		$	138
Percentage of Private Education Loans with a cosigner		67	%		32	%		64	%		66	%		31	%		64	%
Average FICO at origination		726			626			719			726			626			718

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

⁽²⁾	Includes loans that are required to make a payment for the first time.

As part of determining the adequacy of the allowance for loan losses, we review key allowance and loan metrics. The most significant of these metrics considered are the allowance coverage of charge-offs ratio; the allowance as a percentage of total loans and of loans in repayment; and delinquency and forbearance percentages.

Receivable for Partially Charged-Off Private Education Loans

The following table summarizes the activity in the receivable for partially charged-off Private Education Loans (GAAP basis and “Core Earnings” basis are the same).


	Three Months Ended March 31,
(Dollars in millions)	2015			2014
Receivable at beginning of period	$	1,245		$	1,313
Expected future recoveries of current period defaults⁽¹⁾		62			71
Recoveries⁽²⁾		(52	)		(61	)
Charge-offs⁽³⁾		(19	)		(26	)

Receivable at end of period		1,236			1,297
Allowance for estimated recovery shortfalls⁽⁴⁾		(380	)		(334	)

Net receivable at end of period	$	856		$	963

⁽¹⁾

Represents the difference between the loan balance and our estimate of the amount to be collected in the future.

⁽²⁾

Current period cash collections.

⁽³⁾

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

⁽⁴⁾

Use of Forbearance as a Private Education Loan Collection Tool

Forbearance involves granting the customer a temporary cessation of payments (or temporary acceptance of smaller than scheduled payments) for a specified period of time. Using forbearance extends the original term of the loan. Forbearance does not grant any reduction in the total repayment obligation (principal or interest). While in forbearance status, interest continues to accrue and is capitalized to principal when the loan re-enters repayment status. Our forbearance policies include limits on the number of forbearance months granted consecutively and the total number of forbearance months granted over the life of the loan. In some instances, we require good-faith payments before granting forbearance. Exceptions to forbearance policies are permitted when such exceptions are judged to increase the likelihood of recovery of the loan. Forbearance as a recovery tool is used most effectively when applied based on a customer’s unique situation, including historical information and judgments. We leverage updated customer information and other decision support tools to best determine who will be granted forbearance based on our expectations as to a customer’s ability and willingness to repay their obligation. This strategy is aimed at mitigating the overall risk of the portfolio as well as encouraging cash resolution of delinquent loans.

Forbearance may be granted to customers who are exiting their grace period to provide additional time to obtain employment and income to support their obligations, or to current customers who are faced with a hardship and request forbearance time to provide temporary payment relief. In these circumstances, a customer’s loan is placed into a forbearance status in limited monthly increments and is reflected in the forbearance status at month-end during this time. At the end of their granted forbearance period, the customer will enter repayment status as current and is expected to begin making their scheduled monthly payments on a go-forward basis.

Forbearance may also be granted to customers who are delinquent in their payments. In these circumstances, the forbearance cures the delinquency and the customer is returned to a current repayment status. In more limited instances, delinquent customers will also be granted additional forbearance time.

The tables below show the composition and status of the Private Education Loan portfolio aged by the number of months for which a scheduled monthly payment was received. As indicated in the tables, the percentage of loans that are in forbearance status, are delinquent greater than 90 days or that are charged off decreases the longer the loans have been making scheduled monthly payments.

At March 31, 2015, loans in forbearance status as a percentage of loans in repayment and forbearance were 11.2 percent for loans that have made less than 25 monthly payments. The percentage drops to 1.4 percent for loans that have made more than 48 monthly payments. Approximately 56 percent of our Private Education Loans in forbearance status have made less than 25 monthly payments.

At March 31, 2015, loans in repayment that are delinquent greater than 90 days as a percentage of loans in repayment were 9.6 percent for loans that have made less than 25 monthly payments. The percentage drops to 1.5 percent for loans that have made more than 48 monthly payments. Approximately 47 percent of our Private Education Loans in repayment that are delinquent greater than 90 days status have made less than 25 monthly payments.

For the three months ended March 31, 2015, charge-offs as a percentage of loans in repayment were 9.4 percent for loans that have made less than 25 monthly payments. The percentage drops to 0.9 percent for loans that have made more than 48 monthly payments. Approximately 60 percent of our Private Education Loan charge-offs occurring in first-quarter 2015 made less than 25 monthly payments.

GAAP Basis:


(Dollars in millions)	Monthly Scheduled Payments Received															Not Yet in Repayment
March 31, 2015	0 to 12			13 to 24			25 to 36			37 to 48			More than 48			Not Yet in Repayment			Total
Loans in-school/grace/deferment	$	—		$	—		$	—		$	—		$	—		$	2,894		$	2,894
Loans in forbearance		419			157			141			121			192			—			1,030
Loans in repayment — current		1,482			2,315			3,584			3,846			13,224			—			24,451
Loans in repayment — delinquent 31-60 days		111			85			94			79			159			—			528
Loans in repayment — delinquent 61-90 days		86			60			57			47			91			—			341
Loans in repayment — delinquent greater than 90 days		257			184			167			125			207			—			940

Total	$	2,355		$	2,801		$	4,043		$	4,218		$	13,873		$	2,894			30,184

Unamortized discount																				(581	)
Receivable for partially charged-off loans																				1,236
Allowance for loan losses																				(1,849	)

Total Private Education Loans, net																			$	28,990

Loans in forbearance as a percentage of loans in repayment and forbearance		17.8	%		5.6	%		3.5	%		2.9	%		1.4	%		—	%		3.8	%

Loans in repayment — delinquent greater than 90 days as a percentage of loans in repayment		13.3	%		7.0	%		4.3	%		3.1	%		1.5	%		—	%		3.6	%

Charge-offs as a percentage of loans in repayment		15.2	%		5.0	%		2.7	%		1.9	%		.9	%		—	%		2.9	%


(Dollars in millions)	Monthly Scheduled Payments Received															Not Yet in Repayment
March 31, 2014	0 to 12			13 to 24			25 to 36			37 to 48			More than 48			Not Yet in Repayment			Total
Loans in-school/grace/deferment	$	—		$	—		$	—		$	—		$	—		$	7,075		$	7,075
Loans in forbearance		560			208			177			120			151			—			1,216
Loans in repayment — current		4,302			4,581			4,610			4,602			11,061			—			29,156
Loans in repayment — delinquent 31-60 days		169			133			119			90			144			—			655
Loans in repayment — delinquent 61-90 days		121			91			77			56			85			—			430
Loans in repayment — delinquent greater than 90 days		353			230			183			125			177			—			1,068

Total	$	5,505		$	5,243		$	5,166		$	4,993		$	11,618		$	7,075			39,600

Unamortized discount																				(681	)
Receivable for partially charged-off loans																				1,297
Allowance for loan losses																				(2,059	)

Total Private Education Loans, net																			$	38,157

Loans in forbearance as a percentage of loans in repayment and forbearance		10.2	%		4.0	%		3.4	%		2.4	%		1.3	%		—	%		3.7	%

Loans in repayment — delinquent greater than 90 days as a percentage of loans in repayment		7.1	%		4.6	%		3.7	%		2.6	%		1.5	%		—	%		3.4	%

Charge-offs as a percentage of loans in repayment		8.6	%		3.1	%		2.2	%		1.5	%		1.0	%		—	%		2.8	%

“Core Earnings” Basis:


(Dollars in millions)	Monthly Scheduled Payments Received															Not Yet in Repayment
March 31, 2015	0 to 12			13 to 24			25 to 36			37 to 48			More than 48			Not Yet in Repayment			Total
Loans in-school/grace/deferment	$	—		$	—		$	—		$	—		$	—		$	2,894		$	2,894
Loans in forbearance		419			157			141			121			192			—			1,030
Loans in repayment — current		1,482			2,315			3,584			3,846			13,224			—			24,451
Loans in repayment — delinquent 31-60 days		111			85			94			79			159			—			528
Loans in repayment — delinquent 61-90 days		86			60			57			47			91			—			341
Loans in repayment — delinquent greater than 90 days		257			184			167			125			207			—			940

Total	$	2,355		$	2,801		$	4,043		$	4,218		$	13,873		$	2,894			30,184

Unamortized discount																				(581	)
Receivable for partially charged-off loans																				1,236
Allowance for loan losses																				(1,849	)

Total Private Education Loans, net																			$	28,990

Loans in forbearance as a percentage of loans in repayment and forbearance		17.8	%		5.6	%		3.5	%		2.9	%		1.4	%		—	%		3.8	%

Loans in repayment — delinquent greater than 90 days as a percentage of loans in repayment		13.3	%		7.0	%		4.3	%		3.1	%		1.5	%		—	%		3.6	%

Charge-offs as a percentage of loans in repayment		15.2	%		5.0	%		2.7	%		1.9	%		.9	%		—	%		2.9	%


(Dollars in millions)	Monthly Scheduled Payments Received															Not Yet in Repayment
March 31, 2014	0 to 12			13 to 24			25 to 36			37 to 48			More than 48			Not Yet in Repayment			Total
Loans in-school/grace/deferment	$	—		$	—		$	—		$	—		$	—		$	4,090		$	4,090
Loans in forbearance		552			206			176			120			151			—			1,205
Loans in repayment — current		1,985			3,567			4,095			4,240			11,025			—			24,912
Loans in repayment — delinquent 31-60 days		157			129			116			87			145			—			634
Loans in repayment — delinquent 61-90 days		112			89			75			55			85			—			416
Loans in repayment — delinquent greater than 90 days		353			230			182			125			178			—			1,068

Total	$	3,159		$	4,221		$	4,644		$	4,627		$	11,584		$	4,090			32,325

Unamortized discount																				(686	)
Receivable for partially charged-off loans																				1,297
Allowance for loan losses																				(1,987	)

Total Private Education Loans, net																			$	30,949

Loans in forbearance as a percentage of loans in repayment and forbearance		17.5	%		4.9	%		3.8	%		2.6	%		1.3	%		—	%		4.3	%

Loans in repayment — delinquent greater than 90 days as a percentage of loans in repayment		13.5	%		5.7	%		4.1	%		2.8	%		1.6	%		—	%		3.9	%

Charge-offs as a percentage of loans in repayment		15.2	%		4.0	%		2.5	%		1.7	%		1.0	%		—	%		3.3	%

Private Education Loan Repayment Options

Certain loan programs allow customers to select from a variety of repayment options depending on their loan type and their enrollment/loan status, which include the ability to extend their repayment term or change their monthly payment. The chart below provides the optional repayment offerings in addition to the standard level principal and interest payments as of March 31, 2015.


	Loan Program
(Dollars in millions)	Signature and Other	Smart Option	Career Training	Total
$ in repayment	$20,879	$4,459	$922	$	26,260
$ in total	$24,198	$5,028	$958	$	30,184
Payment method by enrollment status:

In-school/grace	Deferred⁽¹⁾	Deferred⁽¹⁾, interest-only or fixed $25/month	Interest-only or fixed $25/month

Repayment	Level principal and interest or graduated	Level principal and interest	Level principal and interest

⁽¹⁾	“Deferred” includes loans for which no payments are required and interest charges are capitalized into the loan balance.

The graduated repayment program that is part of Signature and Other Loans includes an interest-only payment feature that may be selected at the option of the customer. Customers elect to participate in this program at the time they enter repayment following their grace period. This program is available to customers in repayment, after their grace period, who would like a temporary lower payment from the required principal and interest payment amount. Customers participating in this program pay monthly interest with no amortization of their principal balance for up to 48 payments after entering repayment (dependent on the loan product type). The maturity date of the loan is not extended when a customer participates in this program. On a “Core Earnings” basis, as of March 31, 2015 and 2014, customers in repayment owing approximately $2.9 billion (11 percent of loans in repayment) and $4.2 billion (15 percent of loans in repayment), respectively, were enrolled in the interest-only program. Of these amounts, 7 percent and 9 percent were non-traditional loans as of March 31, 2015 and 2014, respectively.

Accrued Interest Receivable

The following tables provide information regarding accrued interest receivable on our Private Education Loans and our allowance for uncollectible interest.

GAAP Basis:


(Dollars in millions)	Accrued Interest Receivable		Allowance for Uncollectible Interest
March 31, 2015	$	578	$	33
December 31, 2014	$	612	$	40
March 31, 2014	$	1,024	$	59

“Core Earnings” Basis:


(Dollars in millions)	Accrued Interest Receivable		Allowance for Uncollectible Interest
March 31, 2015	$	578	$	33
December 31, 2014	$	612	$	40
March 31, 2014	$	652	$	54

Liquidity and Capital Resources

Funding and Liquidity Risk Management

The following “Liquidity and Capital Resources” discussion concentrates on our FFELP Loans and Private Education Loans segments. Our Business Services and Other segments require minimal capital and funding.

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 acquisitions of Private Education Loan and FFELP Loan portfolios, acquisitions of companies, the payment of common stock dividends and the repurchase of common stock under common share repurchase programs. To achieve these objectives, we analyze and monitor our liquidity needs, maintain excess liquidity and access 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 liquidity risk as the potential inability to meet our obligations when they become due without incurring unacceptable losses or invest in future asset growth and business operations at reasonable market rates. Our primary liquidity risk relates to our ability to raise replacement debt at a reasonable cost as our unsecured debt matures. In addition, we must continue to obtain funding at reasonable rates to meet our other business obligations and to continue to grow our business. This ability to access the capital markets may be affected by our credit ratings, as well as the overall availability of funding sources in the marketplace. In addition, credit ratings may be important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions, including over-the-counter derivatives.

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

We have unsecured debt that totaled $17.3 billion at March 31, 2015. Three credit rating agencies currently rate our long-term unsecured debt at below investment grade. These ratings could result in higher cost of funds, and our senior unsecured debt to trade with greater volatility. From May 1, 2014 (Spin-Off) to March 31, 2015, we issued $1.5 billion of unsecured debt at an average all-in cost of one-month LIBOR plus 3.88 percent and an average term to maturity of 7.3 years.

We expect to fund our ongoing liquidity needs, including the repayment of $2.5 billion of senior unsecured notes that mature in the next twelve months, primarily through our current cash and investment portfolio, the predictable operating cash flows provided by operating activities ($499 million in first-quarter 2015), the repayment of principal on unencumbered student loan assets, the distributions from our securitization trusts (including servicing fees which are priority payments within the trusts) and the issuance of additional unsecured debt. We may also draw down on our secured FFELP and Private Education Loan facilities or issue term ABS.

Sources of Liquidity and Available Capacity

Ending Balances


(Dollars in millions)	March 31, 2015		December 31, 2014
Sources of primary liquidity:
Total unrestricted cash and liquid investments	$	2,058	$	1,449
Unencumbered FFELP Loans		1,800		1,909

Total GAAP basis	$	3,858	$	3,358

Average Balances


	Three Months Ended March 31,
(Dollars in millions)	2015		2014
Sources of primary liquidity:
Total unrestricted cash and liquid investments	$	1,817	$	2,180
Unencumbered FFELP Loans		2,032		1,670

Total “Core Earnings” basis		3,849		3,850
SLM BankCo⁽¹⁾		—		2,910

Total GAAP basis	$	3,849	$	6,760

⁽¹⁾

For the three months ended March 31, 2014, includes $1.5 billion of cash and $1.4 billion of FFELP Loans.

Liquidity may also be available under secured credit facilities to the extent we have eligible collateral and capacity available. Maximum borrowing capacity under the FFELP Loan — other 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 FFELP Loans. As of March 31, 2015 and December 31, 2014, the maximum additional capacity under these facilities was $12.5 billion and $13.2 billion, respectively. For the three months ended March 31, 2015 and 2014, the average maximum additional capacity under these facilities was $12.9 billion and $12.3 billion, respectively.

In addition to the FFELP Loan — other facilities, liquidity may also be available from our Private Education Loan ABCP facility. This facility provides liquidity for Private Education Loan acquisitions and for the refinancing of loans presently on our balance sheet. The maximum capacity under this facility is $1 billion and it matures in June 2015. At March 31, 2015, the available capacity under this facility was $653 million.

We also hold a number of other unencumbered assets, consisting primarily of Private Education Loans and other assets. Total unencumbered student loans comprised $6.3 billion of our unencumbered assets of which $4.5 billion and $1.8 billion related to Private Education Loans and FFELP Loans, respectively. At March 31, 2015, we had a total of $11.9 billion of unencumbered assets inclusive of those described above as sources of primary liquidity and exclusive of goodwill and acquired intangible assets.

For further discussion of our various sources of liquidity, our continued access to the ABS market, our asset-backed financing facilities, and our issuance of unsecured debt, see “Note 6 — Borrowings” in our 2014 Form 10-K.

The following table reconciles encumbered and unencumbered assets and their net impact on GAAP total tangible equity.


(Dollars in billions)	March 31, 2015			December 31, 2014
Net assets of consolidated variable interest entities (encumbered assets) — FFELP Loans	$	4.9		$	4.9
Net assets of consolidated variable interest entities (encumbered assets) — Private Education Loans		6.7			6.5
Tangible unencumbered assets⁽¹⁾		11.9			12.4
Senior unsecured debt		(17.3	)		(17.4	)
Mark-to-market on unsecured hedged debt⁽²⁾		(1.0	)		(.9	)
Other liabilities, net		(1.7	)		(1.7	)

Total tangible equity — GAAP Basis	$	3.5		$	3.8

⁽¹⁾

Excludes goodwill and acquired intangible assets.

⁽²⁾

At March 31, 2015 and December 31, 2014, there were $913 million and $794 million, respectively, of net gains on derivatives hedging this debt in unencumbered assets, which partially offset these losses.

First-Quarter 2015 Financing Transactions

The following financing transactions have taken place in the first quarter of 2015:

Unsecured Financings:

•

On March 27, 2015, Navient issued $500 million in senior unsecured bonds.

•

Navient repurchased $530 million of unsecured debt.

FFELP Loan Financings:

•

On February 26, 2015, Navient issued $1.0 billion in FFELP Loan ABS.

Private Education Loan Financings:

•

On January 22, 2015, Navient issued $689 million in Private Education Loan ABS.

Shareholder Distributions

In March 2015, we paid a common stock dividend of $0.16 per share, up from $0.15 in the prior quarter.

Recent Second-Quarter 2015 Transactions

In April 2015, we issued $997 million in FFELP Loan ABS and repurchased $520 million of unsecured debt.

Counterparty Exposure

Counterparty exposure related to financial instruments arises from the risk that a lending, investment or derivative counterparty will not be able to meet its obligations to us. Risks associated with our lending portfolio are discussed in the section titled “Financial Condition — FFELP Loan Portfolio Performance” and “— Private Education Loan Portfolio Performance.”

Our investment portfolio is composed of very short-term securities issued by a diversified group of highly rated issuers, limiting our counterparty exposure. Additionally, our investing activity is governed by board of

director approved limits on the amount that is allowed to be invested with any one issuer based on the credit rating of the issuer, further minimizing our counterparty exposure. Counterparty credit risk is considered when valuing investments and considering impairment.

Related to derivative transactions, protection against counterparty risk is generally provided by International Swaps and Derivatives Association, Inc. (“ISDA”) Credit Support Annexes (“CSAs”). CSAs require a counterparty to post collateral if a potential default would expose the other party to a loss. All corporate derivative contracts entered into by Navient are covered under such agreements and require collateral to be exchanged based on the net fair value of derivatives with each counterparty. Our securitization trusts require collateral in all cases if the counterparty’s credit rating is withdrawn or downgraded below a certain level. Additionally, securitizations involving foreign currency notes issued after November 2005 also require the counterparty to post collateral to the trust based on the fair value of the derivative, regardless of credit rating. The trusts are not required to post collateral to the counterparties. In all cases, our exposure is limited to the value of the derivative contracts in a gain position net of any collateral we are holding. We consider counterparties’ credit risk when determining the fair value of derivative positions on our exposure net of collateral.

We have liquidity exposure related to collateral movements between us and our derivative counterparties. Movements in the value of the derivatives, which are primarily affected by changes in interest rate and foreign exchange rates, may require us to return cash collateral held or may require us to access primary liquidity to post collateral to counterparties. See “Note 7 — Derivative Financial Instruments” in our 2014 Form 10-K for more information on the amount of cash that has been received and delivered to derivative counterparties.

The table below highlights exposure related to our derivative counterparties at March 31, 2015.


(Dollars in millions)	Corporate Contracts			Securitization Trust Contracts
Exposure, net of collateral	$	95		$	2
Percent of exposure to counterparties with credit ratings below S&P AA- or Moody’s Aa3		60	%		0	%
Percent of exposure to counterparties with credit ratings below S&P A- or Moody’s A3		33	%		0	%

“Core Earnings” Basis Borrowings

The following tables present the ending balances of our “Core Earnings” basis borrowings at March 31, 2015 and December 31, 2014, and average balances and average interest rates of our “Core Earnings” basis borrowings for the three months ended March 31, 2015 and 2014. The average interest rates include derivatives that are economically hedging the underlying debt but do not qualify for hedge accounting treatment. (See “‘Core Earnings’ — Definition and Limitations — Differences between ‘Core Earnings’ and GAAP — Reclassification of Realized Gains (Losses) on Derivative and Hedging Activities” of this Item 2.)

Ending Balances


	March 31, 2015						December 31, 2014
(Dollars in millions)	Short Term		Long Term		Total		Short Term		Long Term		Total
Unsecured borrowings:
Senior unsecured debt	$	2,458	$	14,830	$	17,288	$	1,066	$	16,311	$	17,377

Total unsecured borrowings		2,458		14,830		17,288		1,066		16,311		17,377

Secured borrowings:
FFELP Loan securitizations		—		84,579		84,579		—		86,241		86,241
Private Education Loan securitizations		—		17,992		17,992		—		17,997		17,997
FFELP Loan — other facilities		—		14,841		14,841		—		15,358		15,358
Private Education Loan — other facilities		631		—		631		653		—		653
Other⁽¹⁾		983		—		983		937		—		937

Total secured borrowings		1,614		117,412		119,026		1,590		119,596		121,186

Total “Core Earnings” basis		4,072		132,242		136,314		2,656		135,907		138,563
Adjustment for GAAP accounting treatment		18		88		106		7		959		966

GAAP balances	$	4,090	$	132,330	$	136,420	$	2,663	$	136,866	$	139,529

⁽¹⁾	“Other” primarily consists of the obligation to return cash collateral held related to derivative exposure.

Secured borrowings comprised 87 percent of our “Core Earnings” basis debt outstanding at both March 31, 2015 and December 31, 2014.

Average Balances


	Three Months Ended March 31,
	2015					2014
(Dollars in millions)	Average Balance		Average Rate			Average Balance		Average Rate
Unsecured borrowings:
Senior unsecured debt	$	17,177		3.87	%	$	17,637		3.63	%

Total unsecured borrowings		17,177		3.87			17,637		3.63

Secured borrowings:
FFELP Loan securitizations		85,225		.99			90,391		.99
Private Education Loan securitizations		18,164		2.12			18,664		2.02
FFELP Loan — other facilities		15,269		.88			9,264		.94
Private Education Loan — other facilities		645		1.96			768		1.30
Other⁽¹⁾		1,008		.60			723		.11

Total secured borrowings		120,311		1.15			119,810		1.14

Total	$	137,488		1.49	%	$	137,447		1.46	%


“Core Earnings” average balance and rate	$	137,488		1.49	%	$	137,447		1.46	%
Adjustment for GAAP accounting treatment		—		.03			8,927		1.53

GAAP-basis average balance and rate	$	137,488		1.52	%	$	146,374		1.47	%

⁽¹⁾	“Other” primarily consists of the obligation to return cash collateral held related to derivative exposure.

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 GAAP. A discussion of our critical accounting policies, which include allowance for loan losses, premium and discount amortization related to our loan portfolio, fair value measurement, transfers of financial assets and the VIE consolidation model and derivative accounting can be found in our 2014 Form 10-K. There were no significant changes to these critical accounting policies during the first three months of 2015.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Sensitivity Analysis

Our interest rate risk management seeks to limit the impact of short-term movements in interest rates on our results of operations and financial position. The following tables summarize the potential effect on earnings over the next 12 months and the potential effect on fair values of balance sheet assets and liabilities at March 31, 2015 and December 31, 2014, based upon a sensitivity analysis performed by management assuming a hypothetical increase in market interest rates of 100 basis points and 300 basis points while funding spreads remain constant. Additionally, as it relates to the effect on earnings, a sensitivity analysis was performed assuming the funding index increases 25 basis points while holding the asset index constant, if the funding index and repricing frequency are different than the asset index. The earnings sensitivity is applied only to financial assets and liabilities, including hedging instruments that existed at the balance sheet date and does not take into account new assets, liabilities or hedging instruments that may arise over the next 12 months.


	As of March 31, 2015 Impact on Annual Earnings If:									As of March 31, 2014 Impact on Annual Earnings If:
	Interest Rates						Funding Indices			Interest Rates					Funding Indices
(Dollars in millions, except per share amounts)	Increase 100 Basis Points			Increase 300 Basis Points			Increase 25 Basis Points⁽¹⁾			Increase 100 Basis Points			Increase 300 Basis Points		Increase 25 Basis Points⁽¹⁾
Effect on Earnings:
Change in pre-tax net income before unrealized gains (losses) on derivative and hedging activities	$	(29	)	$	(41	)	$	(318	)	$	(11	)	$	37	$	(315	)
Unrealized gains (losses) on derivative and hedging activities		129			120			3			214			331		1

Increase in net income before taxes	$	100		$	79		$	(315	)	$	203		$	368	$	(314	)

Increase in diluted earnings per common share⁽²⁾	$	.25		$	.19		$	(.78	)	$	.47		$	.85	$	(.72	)

⁽¹⁾	If an asset is not funded with the same index/frequency reset of the asset then it is assumed the funding index increases 25 basis points while holding the asset index constant.

⁽²⁾	Calculated based on “increase in net income before taxes.”


	At March 31, 2015
	Fair Value		Interest Rates:
			Change from Increase of 100 Basis Points						Change from Increase of 300 Basis Points
(Dollars in millions)			$			%			$			%
Effect on Fair Values:
Assets
FFELP Loans	$	102,440	$	(505	)		—	%	$	(1,014	)		(1	)%
Private Education Loans		28,661		—			—			—			—
Other earning assets		6,453		—			—			—			—
Other assets		6,005		(377	)		(6	)		(475	)		(8	)%

Total assets gain/(loss)	$	143,559	$	(882	)		(1	)%	$	(1,489	)		(1	)%

Liabilities
Interest-bearing liabilities	$	134,129	$	(778	)		(1	)%	$	(2,156	)		(2	)%
Other liabilities		3,361		(49	)		(1	)		625			19

Total liabilities (gain)/loss	$	137,490	$	(827	)		(1	)%	$	(1,531	)		(1	)%


	At December 31, 2014
	Fair Value		Interest Rates:
			Change from Increase of 100 Basis Points						Change from Increase of 300 Basis Points
(Dollars in millions)			$			%			$			%
Effect on Fair Values:
Assets
FFELP Loans	$	104,419	$	(486	)		—	%	$	(977	)		(1	)%
Private Education Loans		29,433		—			—			—			—
Other earning assets		6,002		—			—			—			—
Other assets		6,033		(236	)		(4	)		(317	)		(5	)%

Total assets gain/(loss)	$	145,887	$	(722	)		—	%	$	(1,294	)		(1	)%

Liabilities
Interest-bearing liabilities	$	136,862	$	(781	)		(1	)%	$	(2,164	)		(2	)%
Other liabilities		2,625		85			3			822			31

Total liabilities (gain)/loss	$	139,487	$	(696	)		—	%	$	(1,342	)		(1	)%

A primary objective in our funding is to minimize our sensitivity to changing interest rates by generally funding our floating rate student loan portfolio with floating rate debt. However, due to the ability of some FFELP loans to earn Floor Income, we can have a fixed versus floating mismatch in funding if the student loan earns at the fixed borrower rate and the funding remains floating. In addition, we can have a mismatch in the index (including the frequency of reset) of floating rate debt versus floating rate assets.

During the three months ended March 31, 2015 and 2014, certain FFELP Loans were earning Floor Income and we locked in a portion of that Floor Income through the use of Floor Income Contracts. The result of these hedging transactions was to convert a portion of the fixed rate nature of student loans to variable rate, and to fix the relative spread between the student loan asset rate and the variable rate liability.

In the preceding tables, under the scenario in which interest rates increase 100 and 300 basis points, the change in pre-tax net income before the unrealized gains (losses) on derivative and hedging activities is primarily due to the impact of (i) our unhedged loans being in a fixed-rate mode due to Floor Income, while being funded

with variable debt in low interest rate environments; and (ii) a portion of our variable assets being funded with fixed rate liabilities and equity. Item (i) will generally cause income to decrease when interest rates increase from a low interest rate environment, whereas item (ii) will generally offset this decrease.

Under the scenario in the tables above labeled “Impact on Annual Earnings If: Funding Indices Increase 25 Basis Points,” the main driver of the decrease in pre-tax income before unrealized gains (losses) on derivative and hedging activities in both the March 31, 2015 and 2014 analyses is primarily the result of one-month LIBOR-indexed FFELP Loans being funded with three-month LIBOR and other non-discrete indexed liabilities. See “Asset and Liability Funding Gap” of this Item 3. for a further discussion. Increasing the spread between indices will also impact the unrealized gains (losses) on derivative and hedging activities as it relates to basis swaps that hedge the mismatch between the asset and funding indices.

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

Asset and Liability Funding Gap

The tables below present our assets and liabilities (funding) arranged by underlying indices as of March 31, 2015. In the following GAAP presentation, the funding gap only includes derivatives that qualify as effective hedges (those derivatives which are reflected in net interest margin, as opposed to those reflected in the “gains (losses) on derivatives and hedging activities, net” line on the consolidated statements of income). The difference between the asset and the funding is the funding gap for the specified index. This represents our exposure to interest rate risk in the form of basis risk and repricing risk, which is the risk that the different indices may reset at different frequencies or may not move in the same direction or at the same magnitude.

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

GAAP Basis:


Index (Dollars in billions)	Frequency of Variable Resets	Assets⁽¹⁾		Funding⁽²⁾		Funding Gap
3-month Treasury bill	weekly	$	5.0	$	—	$	5.0
Prime	annual		.5		—		.5
Prime	quarterly		3.2		—		3.2
Prime	monthly		15.5		—		15.5
Prime	daily		—		.1		(.1	)
PLUS Index	annual		.3		—		.3
3-month LIBOR	daily		—		—		—
3-month LIBOR	quarterly		—		72.9		(72.9	)
1-month LIBOR	monthly		8.4		38.5		(30.1	)
1-month LIBOR daily	daily		96.3		—		96.3
CMT/CPI Index	monthly/quarterly		—		.6		(.6	)
Non-Discrete reset⁽³⁾	monthly		—		17.7		(17.7	)
Non-Discrete reset⁽⁴⁾	daily/weekly		6.4		1.0		5.4
Fixed Rate⁽⁵⁾			8.3		13.1		(4.8	)

Total		$	143.9	$	143.9	$	—

⁽¹⁾

FFELP Loans of $42.8 billion ($39.8 billion LIBOR index and $3.0 billion Treasury bill index) are currently earning a fixed rate of interest as a result of the low interest rate environment.

⁽²⁾

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

⁽³⁾

Funding consists of auction rate ABS and FFELP and Private Education Loan — other facilities.

⁽⁴⁾

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

⁽⁵⁾

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

The “Funding Gaps” in the above table are primarily interest rate mismatches in short-term indices between our assets and liabilities. We address this issue typically through the use of basis swaps that typically convert quarterly reset three-month LIBOR to other indices that are more correlated to our asset indices. These basis swaps do not qualify as effective hedges and, as a result, the effect on the funding index is not included in our interest margin and is therefore excluded from the GAAP presentation.

“Core Earnings” Basis:


Index (Dollars in billions)	Frequency of Variable Resets	Assets⁽¹⁾		Funding⁽²⁾		Funding Gap
3-month Treasury bill	weekly	$	5.0	$	—	$	5.0
Prime	annual		.5		—		.5
Prime	quarterly		3.2		—		3.2
Prime	monthly		15.5		—		15.5
Prime	daily		—		.1		(.1	)
PLUS Index	annual		.3		—		.3
3-month LIBOR	daily		—		—		—
3-month LIBOR	quarterly		—		73.5		(73.5	)
1-month LIBOR	monthly		8.4		40.6		(32.2	)
1-month LIBOR	daily		96.3		—		96.3
Non-Discrete reset⁽³⁾	monthly		—		17.7		(17.7	)
Non-Discrete reset⁽⁴⁾	daily/weekly		6.4		1.0		5.4
Fixed Rate⁽⁵⁾			7.1		9.8		(2.7	)

Total		$	142.7	$	142.7	$	—

⁽¹⁾

FFELP Loans of $15.6 billion ($14.9 billion LIBOR index and $0.7 billion Treasury bill index) are currently earning a fixed rate of interest as a result of the low interest rate environment.

⁽²⁾

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

⁽³⁾

Funding consists of auction rate ABS and FFELP and Private Education Loan — other facilities.

⁽⁴⁾

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

⁽⁵⁾

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

We use interest rate swaps and other derivatives to achieve our risk management objectives. Our asset liability management strategy is to match assets with debt (in combination with derivatives) that have the same underlying index and reset frequency or, when economical, have interest rate characteristics that we believe are highly correlated. The use of funding with index types and reset frequencies that are different from our assets exposes us to interest rate risk in the form of basis and repricing risk. This could result in our cost of funds not moving in the same direction or with the same magnitude as the yield on our assets. While we believe this risk is low, as all of these indices are short-term with rate movements that are highly correlated over a long period of time, market disruptions (which have occurred in recent years) can lead to a temporary divergence between indices resulting in a negative impact to our earnings.

Weighted Average Life

The following table reflects the weighted average life of our GAAP and “Core Earning” assets and liabilities at March 31, 2015.


(Averages in Years)	Weighted Average Life
Earning assets
Student loans		7.2
Other loans		7.8
Cash and investments		.1

Total earning assets		6.9

Borrowings
Short-term borrowings		.4
Long-term borrowings		6.3

Total borrowings		6.1

Item 4.

Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our principal executive and principal financial officers, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of March 31, 2015. Based on this evaluation, our chief principal executive and principal financial officers concluded that, as of March 31, 2015, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) accumulated and communicated to our management, including our chief principal executive and principal financial officers as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

On March 18, 2011, a student loan borrower filed a putative class action complaint against Old SLM in the U.S. District Court for the Northern District of California. The complaint was captioned Tina M. Ubaldi v. SLM Corporation et. al., Case No. C-11-01320EDL. The plaintiff brought the complaint on behalf of a class consisting of other similarly situated California borrowers. The complaint alleged, among other things, that Old SLM’s practice of charging late fees proportional to the amount of missed payments constituted liquidated damages in violation of California law; and Old SLM engaged in unfair business practices by charging daily interest on private educational loans. Following motion practice and additional amendments to the complaint, which added usury claims under California state law and two additional defendants (Sallie Mae, Inc., now known as Navient Solutions, Inc. (“NSI”), and SLM PC Student Loan Trust 2004-A), a Modified Third Amended Complaint was filed on December 2, 2013. Plaintiffs sought restitution of late charges and interest paid by members of the class, injunctive relief, cancellation of all future interest payments, treble damages as permitted by law, as well as costs and attorneys’ fees, among other relief. Prior to the formation of Sallie Mae Bank in 2005, Old SLM followed prevalent capital market practices of acquiring and securitizing private education loans purchased in secondary transactions from banks who originated these loans. Plaintiffs alleged that the services provided by Old SLM and Sallie Mae, Inc. to the originating banks resulted in Old SLM and Sallie Mae, Inc. constituting lenders on these loans. Since 2006, Sallie Mae Bank originated the vast majority of all private education loans acquired by Old SLM. The claims at issue in this case expressly exclude loans originated by Sallie Mae Bank since its inception. Named defendants are subsidiaries of Navient and as such the Ubaldi litigation will remain the sole responsibility of Navient Corporation. Plaintiffs filed their Motion for Class Certification on October 22, 2013. On March 24, 2014, the Court denied plaintiffs’ Motion for Class Certification without prejudice, but granted plaintiffs leave to file an amended Motion for Class Certification. On June 20, 2014, a Complaint in Intervention was filed on behalf of two additional customers representing a proposed usury sub-class. On June 23, 2014, Plaintiffs filed a Renewed Motion for Class Certification. On December 19, 2014, the court granted plaintiffs’ Renewed Motion for Class Certification regarding the claims concerning late fees, but denied the motion as to the usury claims. On January 30, 2015, Plaintiffs filed a motion seeking leave to file another amended complaint. On March 24, 2015, the Court denied Plaintiffs’ motion, denying their request to amend the complaint again. It is not possible at this time to estimate a range of potential exposure, if any, for amounts that may be payable in connection therewith.

On November 26, 2014, Marlene Blyden filed a putative class action suit in the U.S. District Court for the Central District of California against Navient Corporation, Navient, LLC, Navient Solutions, Inc., Navient Credit Finance Corporation, Navient Investment Corporation, SLM Corporation, Bank of New York, and the Bank of New York Mellon Trust Company, N.A. The complaint was captioned Marlene Blyden v. Navient Corporation et. al., Case No. 5:14-CV-2456. On December 2, 2014, plaintiff filed a First Amended Complaint. The plaintiff purports to bring the First Amended Complaint on behalf of a class consisting of other similarly situated California borrowers. The First Amended Complaint alleged that plaintiff and members of the asserted class were charged and/or paid interest at a rate above that permitted under California law. On February 4, 2015, Plaintiff filed her Second Amended Complaint, which drops SLM Corporation as a defendant, adds various securitization trusts as defendants, and adds claims for conversion and for money had and received. Defendants filed Motions to Dismiss the Second Amended Complaint on March 6, 2015. The plaintiff filed her Opposition on April 16, 2015, and Defendants filed Replies on April 20, 2015. A hearing on the motions is set for June 15, 2015. It is not possible at this time to estimate a range of potential exposure, if any, for amounts that may be payable in connection therewith.

We and our subsidiaries and affiliates are subject to various claims, lawsuits and other actions that arise in the normal course of business. We believe that these claims, lawsuits and other actions will not, individually or in the aggregate, have a material adverse effect on our business, financial condition or results of operations. Most of

these matters are claims against our servicing and collection subsidiaries by borrowers and debtors alleging the violation of state or federal laws in connection with servicing or collection activities on their student loans and other debts. In addition, our collection subsidiaries are routinely named in individual plaintiff or class action lawsuits in which the plaintiffs allege that those subsidiaries have violated a federal or state law in the process of collecting their accounts.

For a description of these items and other litigation to which we are a party, please see our 2014 Form 10-K.

Regulatory Matters

The NSI Order also required NSI to ensure proper servicing for service members and proper application of SCRA benefits under a revised and broader definition of eligibility than previously required by the statute and regulatory guidance and to make changes to billing statements and late fee practices. These changes to billing statements and late fee practices have already been implemented. NSI also decided to voluntarily make restitution of certain late fees to all other customers whose loans were neither owned nor originated by Sallie Mae Bank. They were calculated in the same manner as that which was required under the FDIC Orders and are estimated to be $42 million. The process to refund these fees as well as amounts from the restitution fund is substantially complete.

As previously disclosed, the Company and various of its subsidiaries are subject to the following investigations and inquiries:

•

Under the terms of the Separation Agreement, Navient has agreed to be responsible and indemnify SLM BankCo for all claims, actions, damages, losses or expenses that may arise from the conduct of all activities of pre-Spin-Off SLM BankCo occurring prior to the Spin-Off other than those specifically excluded in the Separation and Distribution Agreement. As a result, all liabilities arising out of the regulatory matters mentioned above, other than fines or penalties directly levied against Sallie Mae Bank, are the responsibility of, or assumed by, Navient or one of its subsidiaries, and Navient has agreed to indemnify and hold harmless Sallie Mae and its subsidiaries, including Sallie Mae Bank, therefrom. Navient has no additional reserves related to indemnification matters with SLM BankCo as of March 31, 2015 other than with respect to the FDIC Orders and the DOJ Order.

OIG Audit

Item 1A.

Risk Factors

There have been no material changes from the risk factors previously disclosed in our 2014 Form 10-K.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Share Repurchases

The following table provides information relating to our purchase of shares of our common stock in the three months ended March 31, 2015.


(In millions, except per share data)	Total Number of Shares Purchased⁽¹⁾		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾		Approximate Dollar Value of Shares That May Yet Be Purchased Under Publicly Announced Plans or Programs⁽²⁾
Period:
January 1 — January 31, 2015		1.3	$	19.68		1.3	$	976
February 1 — February 28, 2015		6.1		21.48		5.0	$	867
March 1 — March 31, 2015		8.9		20.00		8.4	$	700

Total first-quarter 2015		16.3	$	20.52		14.7

⁽¹⁾

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

⁽²⁾	In December 2014, our board of directors authorized us to purchase up to $1.0 billion of shares of our common stock, effective January 1, 2015.

The closing price of our common stock on the NASDAQ Global Select Market on March 31, 2015 was $20.33.

Item 3.

Defaults upon Senior Securities

Nothing to report.

Item 4.

Mine Safety Disclosures

Nothing to report.

Item 5.

Other Information

Nothing to report.

Item 6.

Exhibits

The following exhibits are furnished or filed, as applicable:


10.1†*		Navient Corporation 2014 Omnibus Incentive Plan, One-Year Bonus Restricted Stock Unit Agreement.

10.2†*		Navient Corporation 2014 Omnibus Incentive Plan, Three-Year Bonus Restricted Stock Unit Agreement.

10.3†*		Navient Corporation 2014 Omnibus Incentive Plan, Independent Director Restricted Stock Agreement.

10.4†*		Navient Corporation 2014 Omnibus Incentive Plan, Performance Stock Unit Agreement.

10.5†*		Navient Corporation 2014 Omnibus Incentive Plan, Restricted Stock Unit Agreement.

10.6†*		Navient Corporation 2014 Omnibus Incentive Plan, Stock Option Agreement.

12.1*		Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.

31.1*		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*		XBRL Instance Document.

101.SCH*		XBRL Taxonomy Extension Schema Document.

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.

^†	Management Contract or Compensatory Plan or Arrangement

^*	Filed herewith

SIGNATURES

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


NAVIENT CORPORATION (Registrant)

By:		/S/ SOMSAK CHIVAVIBUL
		Somsak Chivavibul Chief Financial Officer (Principal Financial and Accounting Officer)

Date: April 30, 2015

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