Equibles

10-Q

NAVIENT CORP (NAVI)

10-Q 2022-04-27 For: 2022-03-31
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Added on April 11, 2026

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, 2022

or

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

For the transition period from                  to

Commission File Number: 001-36228

Navient Corporation

(Exact name of registrant as specified in its charter)

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

(302) 283-8000

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☑        No  ☐

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

Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐

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

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

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

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

As of March 31, 2022, there were 148,744,651 shares of common stock outstanding.

TABLE OF CONTENTS

Organization of Our Form 10-Q

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

Page<br><br><br>Number
Forward-Looking and Cautionary Statements 1
Use of Non-GAAP Financial Measures 2
Business 3
Overview and Fundamentals of Our Business 3
How We Organize Our Business 6
Management’s Discussion and Analysis of Financial Condition and Results of Operations 7
Selected Historical Financial Information and Ratios 7
The Quarter in Review 8
Navient’s Response to COVID-19 9
Results of Operations 9
Segment Results 11
Financial Condition 18
Liquidity and Capital Resources 23
Critical Accounting Policies and Estimates 26
Non-GAAP Financial Measures 26
Legal Proceedings 34
Risk Factors 34
Quantitative and Qualitative Disclosures about Market Risk 35
Unregistered Sales of Equity Securities and Use of Proceeds 40
Controls and Procedures 40
Exhibits 41
Financial Statements 42
Signatures 77
Appendix A – Form 10-Q Cross-Reference Index 78

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

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

• the continuing impacts of the COVID-19 pandemic and related risks;
• the economic conditions and the creditworthiness of third parties;
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• increased defaults on education loans held by us;
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• the cost and availability of funding in the capital markets;
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• the transition away from the LIBOR reference rate to an alternative reference rate;
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• higher or lower than expected prepayments of loans could change the expected net interest income we receive or cause the bonds issued by a securitization trust to be paid at a different speed than anticipated;
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• our unhedged Floor Income is dependent on the future interest rate environment and therefore is variable;
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• a reduction in our credit ratings;
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• adverse market conditions or an inability to effectively manage our liquidity risk could negatively impact us;
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• the interest rate characteristics of our assets do not always match those of our funding arrangements;
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• our use of derivatives exposes us to credit and market risk;
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• our ability to continually and effectively align our cost structure with our business operations;
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• a failure of our operating systems, infrastructure or information technology systems;
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• failure by any third party providing us material services or products or a breach or violation of law by one of these third parties;
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• changes to applicable laws, rules, regulations and government policies and expanded regulatory and governmental oversight;
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• our work with government clients exposes us to additional risks inherent in the government contracting environment;
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• shareholder activism;
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• shareholders’ percentage ownership in Navient may be diluted in the future;
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• reputational risk and social factors;
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• obligations owed to parties under various transaction agreements that were executed as part of the spin-off of Navient from SLM Corporation (the Spin-Off); and
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• acquisitions or strategic investments that we pursue.
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Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business.

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

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

USE OF NON-GAAP FINANCIAL MEASURES

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

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

Overview and Fundamentals of Our Business

Navient (Nasdaq: NAVI) provides technology-enabled education finance and business processing solutions that simplify complex programs and help millions of people achieve success. Our customer-focused, data-driven services deliver exceptional results for clients in education, health care and government. Learn more at navient.com.

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

• Federal Education Loans

We own a portfolio of $51.0 billion of federally guaranteed Federal Family Education Loan Program (FFELP) Loans. We service and provide asset recovery services on this portfolio and for third parties, deploying data-driven approaches to support the success of our customers. Our flexible and scalable infrastructure manages large volumes of complex transactions, simplifying the customer experience and continually improving efficiency.

• Consumer Lending

We own, service and originate Private Education Loans that enable people to pursue higher education and improve their economic opportunities. Our $20.1 billion private loan portfolio demonstrates high customer success rates. We help people simplify their finances through student loan refinancing, and we help families finance their higher education through transparent, affordable Private Education Loans. In the first quarter of 2022, we originated $966 million in Private Education Loans.

• Business Processing

We provide business processing solutions for more than 600 public sector and healthcare organizations, and their tens of millions of clients, patients, and constituents. Our suite of solutions and customer experience expertise enable our clients to focus on their missions, optimize their cash flow and deliver essential services, while helping those they serve successfully navigate complex programs, transactions and decisions. For each client, we customize a blend of technologies to deliver personalized, omnichannel communication experiences; machine learning automation; root-cause business analytics; secure cloud computing; and intelligent customer relationship platforms.

Superior Operational Performance with a Strong Customer Service and Compliance Commitment

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

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

We leverage our omnichannel communication platform, predictive analytics, and decades of insight to stay in touch with people and address challenges that may arise.

Using technology-enabled solutions, we have rapidly staffed, trained, and activated several call centers with thousands of remote staff for clients needing urgent support, such as during the COVID-19 pandemic.

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

• Simplify complex processes. On our clients’ behalf, we help individuals successfully navigate a broad spectrum of complex transactions. Our people and platforms simplify complex programs – including healthcare, tax, and transportation programs – to help constituents understand and meet their obligations.
• Improve customer experience and success. We continually make enhancements to improve the customer experience, drawing from a variety of inputs including customer surveys, research panels, analysis of customer inquiries, transactions and activities, and complaint data, and regulator commentary. Across our businesses, our customer-facing representatives are trained and measured to provide empathetic, accurate support.
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o Repayment plan education and outreach: We help student loan borrowers understand their repayment options so they can make informed choices that align with their financial circumstances and goals.
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o Office of the Customer Advocate: Our Office of the Customer Advocate, established in 1997, offers escalated assistance to customers. We are committed to working with customers and appreciate customer comments, which, combined with our own customer communication channels, help us improve the ways we assist our customers.
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o Private loan modification program: In 2009, we pioneered the creation of a loan modification program to help Private Education Loan borrowers needing additional assistance. As of March 31, 2022, approximately $838 million of our Private Education Loans were enrolled in this interest rate reduction program, helping customers through more affordable monthly payments while making progress in repaying their principal loan balance.
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o Serving military customers: Navient was the first student loan servicer to launch a dedicated military benefits customer service team, website (Navient.com/military) and toll-free number. Navient’s military benefits team supports service members and their families to access the benefits designed for them, including interest rate benefits, deferment and other options.
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o Financial literacy: We offer free resources, including videos, articles and online tools, to help customers and the general public build knowledge on personal finance topics. Our Going Merry platform enables students to match to and apply for scholarships, institutional aid and government grants.
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• Commitment to compliance. Our rigorous compliance posture ensures adherence with laws and regulations and helps protect our clients, customers, employees and shareholders. We use a “Three Lines of Defense” compliance framework, considered best practice by the U.S. Federal Financial Institutions Examination Council (FFIEC). This framework and other compliance protocols ensure we adhere to key industry laws and regulations including: Fair and Accurate Credit Transactions Act (FACTA); Fair Credit Reporting Act (FCRA); Fair Debt Collection Practices Act (FDCPA); Electronic Funds Transfer Act (EFTA); Equal Credit Opportunity Act (ECOA); Federal Information Security Management Act (FISMA); Gramm-Leach-Bliley Act (GLBA); Health Insurance Portability and Accountability Act (HIPAA); IRS Publication 1075; Servicemembers Civil Relief Act (SCRA); Military Lending Act (MLA); Telephone Consumer Protection Act (TCPA); Truth in Lending Act (TILA); Unfair, Deceptive, or Abusive Acts and Practices (UDAAP); state laws; and state and city licensing.
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• Deliver superior performance. Whether supporting student loan borrowers in successfully managing their loans, designing and implementing new constituent-facing services for public sector agencies, generating additional revenue for hospitals and medical systems, or helping a state manage communication backlogs or recover revenue that funds essential services, Navient delivers value for our clients and customers.
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We leverage leading-edge technology, data-driven insights, scale, and exemplary customer service to maximize our value for our clients and outperform the competition

• Corporate Social Responsibility. We are committed to contributing to the social and economic wellbeing of our local communities; fostering the success of our customers; supporting a culture of integrity, inclusion and equality in our workforce; and embracing sustainable business practices. Navient has earned recognition from premier organizations for our continued commitment to fostering diversity. Our employees are active in our communities, through local and national organizations, including a significant national partnership with Boys & Girls Clubs of America (BGCA).

Navient is committed to a sustainable future. Our work is largely services based; as a result, our day-to-day operations require relatively small amounts of natural resource and energy inputs. We focus on reducing the total amount of CO2 and CO2 equivalents through various initiatives, including technology that minimizes energy usage in our office buildings and the widespread adoption of “paperless” digital customer communications. Navient prioritizes adding or updating insulation and other power-saving features to our buildings to further reduce our carbon emissions. We consider our energy efficiency in our growth and real estate decisions.

Strong Financial Performance Resulting in a Strong Capital Return

Our first-quarter 2022 results continue to build upon our previous year’s results demonstrating the strength of our business model and our ability to deliver predictable and meaningful cash flow and earnings in all types of economic environments.

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

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

In December 2021, our Board approved a share repurchase program authorizing the purchase of up to $1 billion of the Company’s outstanding common stock. At March 31, 2022, $885 million remained in share repurchase authorization.

To inform our capital allocation decisions, we use the Adjusted Tangible Equity Ratio^(1)^ in addition to other metrics. Our Adjusted Tangible Equity Ratio^(1)^ was 7.0% as of March 31, 2022.

(Dollars and shares in millions) Q1-22 Q1-21
Shares repurchased 6.2 8.2
Reduction in shares outstanding 3 % 4 %
Total repurchases in dollars $ 115 $ 100
Dividends paid $ 24 $ 29
Total Capital Returned^(^^2)^ $ 139 $ 129
Adjusted Tangible Equity Ratio^(^^1)^ 7.0 % 6.2 %
^(1)^ Item is a non-GAAP financial measure. For a description and reconciliation, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures.”
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^(2)^ Capital Returned is defined as share repurchases and dividends paid.
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How We Organize Our Business

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

Federal Education Loans Segment

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

Consumer Lending Segment

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

Business Processing Segment

In this segment, Navient performs business processing services for over 600 government and healthcare clients.

• Government services: We provide state governments, agencies, court systems, municipalities, and parking and tolling authorities with leveraging our scale, integrated technology solutions, decades of differentiated customer experience expertise and evidence-based approach. Our support enables our clients to better serve their constituents, meet rapidly changing needs, improve technology, reduce operating expenses, manage risk and optimize revenue opportunities.
• Healthcare services: We perform revenue cycle outsourcing, accounts receivable management, extended business office support, consulting engagements and public health programs. We offer customizable solutions for our clients that include hospitals, hospital systems, medical centers, large physician groups, other healthcare providers and public health departments.
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Other Segment

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

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

Selected Historical Financial Information and Ratios

Three Months Ended March 31,
(In millions, except per share data) 2022 2021
GAAP Basis
Net income $ 255 $ 370
Diluted earnings per common share $ 1.67 $ 2.00
Weighted average shares used to compute diluted earnings per share $ 153 185
Return on assets 1.34 % 1.78 %
Core Earnings Basis^(^^1)^
Net income^(1)^ $ 135 $ 305
Diluted earnings per common share^(1)^ $ .88 $ 1.65
Adjusted diluted earnings per common share^(1)^ $ .90 $ 1.71
Weighted average shares used to compute diluted earnings per share 153 185
Net interest margin, Federal Education Loans segment 1.04 % .97 %
Net interest margin, Consumer Lending segment 2.80 % 2.99 %
Return on assets .71 % 1.46 %
Education Loan Portfolios
Ending FFELP Loans, net $ 51,013 $ 56,873
Ending Private Education Loans, net 20,088 19,742
Ending total education loans, net $ 71,101 $ 76,615
Average FFELP Loans $ 52,258 $ 58,078
Average Private Education Loans 21,157 22,143
Average total education loans $ 73,415 $ 80,221

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

The Quarter in Review

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

First-quarter 2022 GAAP net income was $255 million ($1.67 diluted earnings per share), compared with $370 million ($2.00 diluted Core Earnings per share) for the year-ago quarter. See “Results of Operations – Comparison of First-Quarter 2022 Results with First-Quarter 2021” for a discussion of the primary contributors to the change in GAAP earnings between periods.

First-quarter 2022 Core Earnings net income was $135 million ($0.88 diluted Core Earnings per share), compared with $305 million ($1.65 diluted Core Earnings per share) for the year-ago quarter. First-quarter 2022 and 2021 adjusted diluted Core Earnings^(1)^ per share were $0.90 and $1.71, respectively. See “Segment Results” for a discussion of the primary contributors to the change in Core Earnings between periods.

Financial highlights of first-quarter 2022 include:

Federal Education Loans segment:

• Net income of $107 million.
• FFELP Loan delinquency rate of 13.5%.
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Consumer Lending segment:

• Net income of $79 million.
• Originated $966 million of Private Education Loans.
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• Private Education Loan delinquency rate of 4.0% remains below pre-pandemic levels.
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Business Processing segment:

• EBITDA^(^^1^^)^of $19 million.
• Revenue of $94 million.
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Capital, funding and liquidity:

• Adjusted tangible equity ratio^(^^1^^)^ of 7.0%.
• Repurchased $115 million of common shares; $885 million common share repurchase authority remains outstanding.
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• Paid $24 million in common stock dividends.
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• Issued $952 million in term ABS.
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Expenses:

• Adjusted Core Earnings expenses^(1)^ of $204 million.
^(1)^ Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”
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Navient’s Response to COVID-19

Since its emergence in early 2020, the COVID-19 pandemic has been dynamic and unpredictable. Variants continue to emerge while efforts to mitigate and contain the impact of the pandemic continue to evolve. In response to the COVID-19 pandemic, we have prioritized the safety of our employees and business partners, while continually striving to support the needs of our customers and communities during this unprecedented period. During 2021 and the first quarter of 2022, the COVID-19 pandemic has continued to affect our business operations. The future direct and indirect impact of the pandemic on our businesses, results of operations and financial condition remains uncertain. Should current economic conditions deteriorate or if the pandemic worsens due to various factors, including through the spread of more easily communicable variants of COVID-19, such conditions could have an adverse effect on our businesses and results of operations and could adversely affect our financial condition. For more information on the pandemic, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Navient’s Response to COVID-19” in our 2021 Form 10-K.

Results of Operations

GAAP Income Statements (Unaudited)

Three Months Ended March 31, Increase<br>(Decrease)
(In millions, except per share data) 2022 2021 %
Interest income
FFELP Loans $ 349 $ 373 ) (6 )%
Private Education Loans 276 319 ) (13 )
Cash and investments 1 — 100
Total interest income 626 692 ) (10 )
Total interest expense 289 329 ) (12 )
Net interest income 337 363 ) (7 )
Less: provisions for loan losses 16 (87 ) (118 )
Net interest income after provisions for loan losses 321 450 ) (29 )
Other income (loss):
Servicing revenue 18 53 ) (66 )
Asset recovery and business processing revenue 97 139 ) (30 )
Other income 10 — 100
Gains on sales of loans — 76 ) (100 )
Gains (losses) on derivative and hedging activities, net 98 36 172
Total other income 223 304 ) (27 )
Expenses:
Operating expenses 205 259 ) (21 )
Goodwill and acquired intangible assets<br><br><br>impairment and amortization expense 4 5 ) (20 )
Restructuring/other reorganization expenses 3 6 ) (50 )
Total expenses 212 270 ) (21 )
Income before income tax expense 332 484 ) (31 )
Income tax expense 77 114 ) (32 )
Net income $ 255 $ 370 ) (31 )%
Basic earnings per common share $ 1.69 $ 2.02 ) (16 %)
Diluted earnings per common share $ 1.67 $ 2.00 ) (17 %)
Dividends per common share $ .16 $ .16 — %

All values are in US Dollars.

GAAP Comparison of First-Quarter 2022 Results with First-Quarter 2021

For the three months ended March 31, 2022, net income was $255 million, or $1.67 diluted earnings per common share, compared with net income of $370 million, or $2.00 diluted earnings per common share, for the year-ago period.

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

• Net interest income decreased by $26 million, primarily as a result of the continued natural paydown of the FFELP and non-refinance Private Education Loan portfolios, as well as the $1.6 billion of Private Education Loans sales in first-quarter 2021. Partially offsetting this decrease was the growth in the Private Education Refinance Loan portfolio.
• Provisions for loan losses increased $103 million from $(87) million to $16 million:
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○ The provision for FFELP loan losses remained unchanged at $0.
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○ The provision for Private Education Loan losses increased $103 million from $(87) million to $16 million.
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The provision for loan losses in the current period primarily related to loan originations. There has been an improvement in the current and forecasted economic conditions since the prior period, but such improvement has not mitigated the uncertainty related to the potential negative impact on the portfolio from the end of various payment relief and stimulus benefits recently and in the future. The negative provision of $(87) million in the year-ago quarter was primarily related to the reversal of $102 million of allowance for loan losses in connection with the sale of approximately $1.6 billion of Private Education Loans discussed below, partially offset by $15 million of provision primarily related to loan originations.

• Servicing revenue decreased $35 million primarily related to the transfer of the servicing contract for 5.6 million ED owned student loan accounts from Navient to a third party on October 6, 2021. As a result, Navient no longer is a party to the ED servicing contract. To aid in the transition, Navient will provide certain services in 2022 to the third party through a transition services agreement (see discussion below related to “Other income”).
• Asset recovery and business processing revenue decreased $42 million primarily as a result of a $31 million decrease in revenue earned in our Business Processing segment, primarily due to the expected winddown of the pandemic related contracts providing unemployment benefits, contact tracing and vaccine administration services, which was partially offset by revenue from services we perform for our traditional government and healthcare services clients.
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• Other income increased $10 million primarily related to the transition services being performed in connection with the transfer of the ED servicing contract to a third party, as discussed above.
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• Gains on sales of loans decreased $76 million in connection with the sale of approximately $1.6 billion of Private Education Loans in first-quarter 2021. There was a $13 million gain related to derivatives that were used to hedge this transaction that did not qualify for hedge accounting. As a result, this gain related to the derivatives was included as a part of “gains (losses) on derivative and hedging activities, net” on the income statement. There were no such sales in the current quarter.
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• Net gains on derivative and hedging activities increased $62 million. The primary factors affecting the change were interest rate and foreign currency fluctuations, which impact the valuations of derivative instruments including Floor Income Contracts, basis swaps and foreign currency hedges during each period. Valuations of derivative instruments fluctuate based upon many factors including changes in interest rates, credit risk, foreign currency fluctuations and other market factors. As a result, net gains and losses on derivative and hedging activities may vary significantly in future periods.
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• Excluding net regulatory-related expenses of $1 million and $8 million in the first quarters of 2022 and 2021, respectively, operating expenses were $204 million and $251 million in the first quarters of 2022 and 2021, respectively. This $47 million decrease was primarily related to no longer being a party to the ED servicing contract as well as the decline in Business Processing segment revenue.
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• During the three months ended March 31, 2022 and 2021, respectively, the Company incurred $3 million and $6 million, respectively, of restructuring/other reorganization expenses in connection with an effort to reduce costs and improve operating efficiency.
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We repurchased 6.2 million and 8.2 million shares of our common stock during the first quarters of 2022 and 2021, respectively. As a result of repurchases, our average outstanding diluted shares decreased by 32 million common shares (or 17%) from the year-ago period.

Segment Results

Federal Education Loans Segment

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

Three Months Ended March 31, % Increase<br><br><br>(Decrease)
(Dollars in millions) 2022 2021 2022 vs. 2021
Interest income:
FFELP Loans $ 334 $ 359 (7 )%
Cash and investments — — —
Total interest income 334 359 (7 )
Total interest expense 195 215 (9 )
Net interest income 139 144 (3 )
Less: provision for loan losses — — —
Net interest income after provision for loan losses 139 144 (3 )
Other income (loss):
Servicing revenue 15 52 (71 )
Asset recovery and business processing revenue 3 14 (79 )
Other income 11 — 100
Total other income 29 66 (56 )
Direct operating expenses 28 63 (56 )
Income before income tax expense 140 147 (5 )
Income tax expense 33 35 (6 )
Net income $ 107 $ 112 (4 )%

Comparison of First-Quarter 2022 Results with First-Quarter 2021

• Net income was $107 million compared to $112 million.
• Net interest income decreased $5 million, primarily due the natural paydown of the portfolio.
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• Provision for loan losses was unchanged at $0.
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^○^ Charge-offs were $7 million compared with $6 million.
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^○^ Delinquencies greater than 30 days were $5.8 billion compared $3.8 billion.
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^○^ Forbearances were $6.3 billion compared to $8.5 billion.
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• Other revenue decreased $37 million which was primarily a result of the transfer of the ED servicing contract to a third party in October 2021.
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• Expenses were $35 million lower primarily as a result of the decrease in other revenue discussed above.
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Key performance metrics are as follows:

Three Months Ended March 31,
(Dollars in millions) 2022 2021
Segment net interest margin 1.04 % .97 %
FFELP Loans:
FFELP Loan spread 1.11 % 1.03 %
Provision for loan losses $ — $ —
Charge-offs $ 7 $ 6
Charge-off rate .07 % .06 %
Greater than 30-days delinquency rate 13.5 % 8.3 %
Greater than 90-days delinquency rate 6.4 % 3.5 %
Forbearance rate 12.9 % 15.5 %
Average FFELP Loans $ 52,258 $ 58,078
Ending FFELP Loans, net $ 51,013 $ 56,873
(Dollars in billions)
Number of accounts serviced for ED (in millions)^(^^1)^ — 5.6
Total federal loans serviced^(^^1)^ $ 59 $ 285
^(1)^ Closed on the novation and transfer of our ED servicing contract to a third party in October 2021. As of March 31, 2022, we serviced $59 billion in FFELP (federally guaranteed) loans.
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Net Interest Margin

The following table details the net interest margin.

Three Months Ended March 31,
2022 2021
FFELP Loan yield 2.10 % 1.92 %
Hedged Floor Income .35 .40
Unhedged Floor Income .14 .18
FFELP Loan net yield 2.59 2.50
FFELP Loan cost of funds (1.48 ) (1.47 )
FFELP Loan spread 1.11 1.03
Other interest-earning asset spread impact (.07 ) (.06 )
Net interest margin^(^^1)^ 1.04 % .97 %
^(1)^ The average balances of the interest-earning assets for the respective periods are:
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Three Months Ended March 31,
--- --- --- --- ---
(Dollars in millions) 2022 2021
FFELP Loans $ 52,258 $ 58,078
Other interest-earning assets 1,930 1,794
Total FFELP Loan interest-earning assets $ 54,188 $ 59,872

As of March 31, 2022, our FFELP Loan portfolio totaled $51.0 billion, comprised of $17.8 billion of FFELP Stafford Loans and $33.2 billion of FFELP Consolidation Loans. The weighted-average life of these portfolios as of March 31, 2022 was 6 years and 7 years, respectively, assuming a Constant Prepayment Rate (CPR) of 9% and 5%, respectively.

Floor Income

The following table analyzes on a Core Earnings basis the ability of the FFELP Loans in our portfolio to earn Floor Income after March 31, 2022 and 2021, based on interest rates as of those dates.

(Dollars in billions) March 31, 2022 March 31, 2021
Education loans eligible to earn Floor Income $ 50.7 $ 56.4
Less: post-March 31, 2006 disbursed loans required<br><br><br>to rebate Floor Income (23.6 ) (25.9 )
Less: economically hedged Floor Income (13.0 ) (13.5 )
Education loans eligible to earn Floor Income after<br><br><br>rebates and economically hedged $ 14.1 $ 17.0
Education loans earning Floor Income $ 5.6 $ 12.0

The following table presents a projection of the average balance of FFELP Consolidation Loans for which Fixed Rate Floor Income has been economically hedged with derivatives for the period April 1, 2022 to December 31, 2026.

(Dollars in billions) April 1, 2022<br><br><br>to<br><br><br>December 31,<br><br><br>2022 2023 2024 2025 2026
Average balance of FFELP Consolidation Loans<br><br><br>whose Floor Income is economically hedged $ 12.6 $ 7.8 $ 2.0 $ 1.0 $ 1.0

Servicing Revenue

Servicing revenue decreased $37 million primarily related to the transfer of the servicing contract for 5.6 million ED owned student loan accounts from Navient to a third party on October 6, 2021. As a result, Navient no longer is a party to the ED servicing contract. To aid in the transition, Navient will provide certain services into 2022 to the third party through a transition services agreement (see discussion below related to “Other income”). As part of the transaction, approximately 700 Navient employees were transferred to the third party. This transaction provided a seamless transition for millions of borrowers ensuring the ongoing servicing capacity for the Department of ED through the knowledge transfer and ongoing employment of 700 employees. Additional benefits to Navient of this transaction are the simplification of our business, reducing our overall risk profile and avoiding significant severance expense.

Third-party loan servicing fees in the three months ended March 31, 2022 and 2021 included $0 and $34 million, respectively, of servicing revenue related to the ED servicing contract.

Asset Recovery and Business Processing Revenue

Asset recovery and business processing revenue decreased $11 million primarily as a result of the impact of COVID-19 on certain collection and processing activities (temporary stoppage or other restrictions on certain activities).

Other Income

Other income increased $11 million primarily related to the transition services being performed in connection with the transfer of the ED Servicing contract to a third party as discussed above.

Operating Expenses

Operating expenses for the Federal Education Loans segment primarily include costs incurred to perform servicing and asset recovery activities on our FFELP Loan portfolio and federal education loans held by other institutions. Expenses were $35 million lower primarily as a result of the decrease in servicing and asset recovery revenue discussed above.

Consumer Lending Segment

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

Three Months Ended March 31, % Increase<br><br><br>(Decrease)
(Dollars in millions) 2022 2021 2022 vs. 2021
Interest income:
Private Education Loans $ 276 $ 319 (13 )%
Cash and investments 1 — 100
Interest income 277 319 (13 )
Interest expense 125 150 (17 )
Net interest income 152 169 (10 )
Less: provision for loan losses 16 (87 ) 118
Net interest income after provision for<br><br><br>loan losses 136 256 (47 )
Other income (loss):
Servicing revenue 3 1 200
Gains on sales of loans — 89 (100 )
Total other income 3 90 (97 )
Direct operating expenses 35 41 (15 )
Income before income tax expense 104 305 (66 )
Income tax expense 25 71 (65 )
Net income $ 79 $ 234 (66 )%

Comparison of First-Quarter 2022 Results with First-Quarter 2021

• Originated $966 million of Private Education Loans compared to $1.7 billion.
• Net income was $79 million compared to $234 million, a $155 million decrease. Excluding the $1.6 billion of loan sales in first-quarter 2021, net income decreased $9 million from the prior period. The $1.6 billion loan sales resulted in gains on sales of $89 million and the reversal of $102 million of allowance for loan losses through provision.
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• Net interest income decreased $17 million primarily due to the natural paydown of the non-refinance loan portfolio, as well as the $1.6 billion of loan sales in first-quarter 2021. Partially offsetting this decrease was the growth of the Private Education Refinance Loan portfolio.
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• Provision for loan losses increased $103 million. The $16 million of provision for loan losses in the current period primarily related to loan originations. There has been an improvement in the current and forecasted economic conditions since the prior period, but such improvement has not mitigated the uncertainty related to the potential negative impact on the portfolio from the end of various payment relief and stimulus benefits recently and in the future. The negative provision of $(87) million in the year-ago quarter was primarily related to the reversal of $102 million of allowance for loan losses in connection with the sale of approximately $1.6 billion of Private Education Loans, partially offset by $15 million of provision primarily related to loan originations. The increase in charge-offs and delinquencies detailed below was expected as loans return to repayment after pandemic relief.
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^○^ Charge-offs were $69 million compared with $35 million.
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^○^ Private Education Loan delinquencies greater than 90 days: $314 million, up $133 million from $181 million.
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^○^ Private Education Loan delinquencies greater than 30 days: $810 million, up $350 million from $460 million.
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^○^ Private Education Loan forbearances: $418 million, down $379 million from $797 million.
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• Other revenue decreased $87 million primarily due to $89 million of gains on sales of education loans in connection with the sale of $1.6 billion of Private Education Loans in first-quarter 2021. There were no such sales in the current quarter.
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• Expenses decreased $6 million.
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Key performance metrics are as follows:

Three Months Ended March 31,
(Dollars in millions) 2022 2021
Segment net interest margin 2.80 % 2.99 %
Private Education Loans (including Refinance Loans):
Private Education Loan spread 2.97 % 3.21 %
Provision for loan losses $ 16 $ (87 )
Charge-offs $ 69 $ 35
Charge-off rate 1.38 % .68 %
Greater than 30-days delinquency rate 4.0 % 2.3 %
Greater than 90-days delinquency rate 1.6 % .9 %
Forbearance rate 2.0 % 3.9 %
Average Private Education Loans $ 21,157 $ 22,143
Ending Private Education Loans, net $ 20,088 $ 19,742
Private Education Refinance Loans:
Charge-offs $ 6 $ 3
Greater than 90-day delinquency rate .1 % .1 %
Average balance of Private Education Refinance Loans $ 10,084 $ 8,604
Ending balance of Private Education Refinance Loans $ 9,995 $ 7,882
Private Education Refinance Loan originations $ 941 $ 1,671

Net Interest Margin

The following table details the net interest margin.

Three Months Ended March 31,
2022 2021
Private Education Loan yield 5.28 % 5.84 %
Private Education Loan cost of funds (2.31 ) (2.63 )
Private Education Loan spread 2.97 3.21
Other interest-earning asset spread impact (.17 ) (.22 )
Net interest margin^(^^1)^ 2.80 % 2.99 %
^(1)^ The average balances of the interest-earning assets for the respective periods are:
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Three Months Ended March 31,
--- --- --- --- ---
(Dollars in millions) 2022 2021
Private Education Loans $ 21,157 $ 22,143
Other interest-earning assets 732 822
Total Private Education Loan interest-earning assets $ 21,889 $ 22,965

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

As of March 31, 2022, our Private Education Loan portfolio totaled $20.1 billion, comprised of $10.0 billion of refinance loans and $10.1 billion of non-refinance loans. The weighted-average life of these portfolios as of March 31, 2022 was 3 years and 5 years, respectively, assuming a Constant Prepayment Rate (CPR) of 20% and 9%, respectively.

Provision for Loan Losses

The provision for Private Education Loan losses increased $103 million. The provision for loan losses in the current period primarily related to loan originations. There has been an improvement in the current and forecasted economic conditions since the prior period, but such improvement has not mitigated the uncertainty related to the potential negative impact on the portfolio from the end of various payment relief and stimulus benefits recently and in the future. The negative provision of $(87) million in the first quarter of 2021 was primarily related to the reversal of $102 million of allowance for loan losses in connection with the sale of $1.6 billion of Private Education Loans, partially offset by $15 million of provision primarily related to loan originations.

Gains on Sales of Loans

Gains on sales of loans decreased $89 million in connection with the sale of $1.6 billion of Private Education Loans in first-quarter 2021. There were no such sales in the current period.

Operating Expenses

Operating expenses for our consumer lending segment include costs to originate, acquire, service and collect on our consumer loan portfolio. Operating expenses decreased $6 million primarily related to lower originations.

Business Processing Segment

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

Three Months Ended March 31, % Increase<br><br><br>(Decrease)
(Dollars in millions) 2022 2021 2022 vs. 2021
Business processing revenue $ 94 $ 125 (25 )%
Direct operating expenses 76 91 (16 )
Income before income tax expense 18 34 (47 )
Income tax expense 4 8 (50 )
Net income $ 14 $ 26 (46 )%

Comparison of First-Quarter 2022 Results with First-Quarter 2021

• Net income was $14 million compared to $26 million.
• Revenue decreased $31 million, or 25%, primarily due to the expected winddown of the pandemic related contracts, which was partially offset by revenue from services we perform for our traditional government and healthcare services clients.
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• EBITDA was $19 million, down $17 million, or 47%. The decrease in EBITDA is primarily the result of the revenue decrease discussed above.
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Key performance metrics are as follows:

Three Months Ended March 31,
(Dollars in millions) 2022 2021
Revenue from government services $ 49 $ 63
Revenue from healthcare services 45 62
Total fee revenue $ 94 $ 125
EBITDA^(^^1)^ $ 19 $ 36
EBITDA margin^(^^1)^ 20 % 29 %

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

Other Segment

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

Three Months Ended March 31, % Increase<br><br><br>(Decrease)
(Dollars in millions) 2022 2021 2022 vs. 2021
Net interest loss after provision for loan losses $ (15 ) $ (18 ) (17 )%
Other income (1 ) — (100 )
Expenses:
Unallocated shared services expenses:
Unallocated information technology costs 21 21 —
Unallocated corporate costs 45 43 5
Total unallocated shared services expenses 66 64 3
Restructuring/other reorganization expenses 3 6 (50 )
Total expenses 69 70 (1 )
Loss before income tax benefit (85 ) (88 ) (3 )
Income tax benefit (20 ) (21 ) (5 )
Net income (loss) $ (65 ) $ (67 ) (3 )%

Net Interest Loss after Provision for Loan Losses

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

Unallocated Shared Services Expenses

Unallocated shared services expenses are comprised of costs primarily related to information technology costs related to infrastructure and operations, stock-based compensation expense, accounting, finance, legal, compliance and risk management, regulatory-related expenses, human resources, certain executive management and the board of directors. Regulatory-related expenses include actual settlement amounts as well as third-party professional fees we incur in connection with such regulatory matters and are presented net of any insurance reimbursements for covered costs related to such matters. On an adjusted basis, expenses increased $9 million from the year-ago quarter, primarily related to the year-ago period having a $10 million insurance reimbursement related to litigation matters. Adjusted expenses exclude $1 million and $8 million, respectively, of regulatory-related expenses in the first quarters of 2022 and 2021.

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

Restructuring/Other Reorganization Expenses

During the first quarters of 2022 and 2021, the Company incurred $3 million and $6 million, respectively, of restructuring/other reorganization expenses in connection with an effort to reduce costs and improve operating efficiency. These charges were primarily due to facility lease terminations and severance-related costs.

Financial Condition

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

Summary of Our Education Loan Portfolio

Ending Education Loan Balances, net

March 31, 2022
(Dollars in millions) FFELP<br><br><br>Stafford and<br><br><br>Other FFELP<br><br><br>Consolidation<br><br><br>Loans Total<br><br><br>FFELP<br><br><br>Loans Private<br><br><br>Education<br><br><br>Loans Total<br><br><br>Portfolio
Total education loan portfolio:
In-school^(^^1)^ $ 21 $ — $ 21 $ 40 $ 61
Grace, repayment and other^(^^2)^ 17,983 33,264 51,247 21,012 72,259
Total 18,004 33,264 51,268 21,052 72,320
Allowance for loan losses (176 ) (79 ) (255 ) (964 ) (1,219 )
Total education loan portfolio $ 17,828 $ 33,185 $ 51,013 $ 20,088 $ 71,101
% of total FFELP 35 % 65 % 100 %
% of total 25 % 47 % 72 % 28 % 100 %
December 31, 2021
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
(Dollars in millions) FFELP<br><br><br>Stafford and<br><br><br>Other FFELP<br><br><br>Consolidation<br><br><br>Loans Total<br><br><br>FFELP<br><br><br>Loans Private<br><br><br>Education<br><br><br>Loans Total<br><br><br>Portfolio
Total education loan portfolio:
In-school^(^^1)^ $ 20 $ — $ 20 $ 19 $ 39
Grace, repayment and other^(^^2)^ 18,379 34,504 52,883 21,161 74,044
Total 18,399 34,504 52,903 21,180 74,083
Allowance for loan losses (180 ) (82 ) (262 ) (1,009 ) (1,271 )
Total education loan portfolio $ 18,219 $ 34,422 $ 52,641 $ 20,171 $ 72,812
% of total FFELP 35 % 65 % 100 %
% of total 25 % 47 % 72 % 28 % 100 %
March 31, 2021
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
(Dollars in millions) FFELP<br><br><br>Stafford and<br><br><br>Other FFELP<br><br><br>Consolidation<br><br><br>Loans Total<br><br><br>FFELP<br><br><br>Loans Private<br><br><br>Education<br><br><br>Loans Total<br><br><br>Portfolio
Total education loan portfolio:
In-school^(^^1)^ $ 28 $ — $ 28 $ 21 $ 49
Grace, repayment and other^(^^2)^ 19,381 37,746 57,127 20,713 77,840
Total 19,409 37,746 57,155 20,734 77,889
Allowance for loan losses (191 ) (91 ) (282 ) (992 ) (1,274 )
Total education loan portfolio $ 19,218 $ 37,655 $ 56,873 $ 19,742 $ 76,615
% of total FFELP 34 % 66 % 100 %
% of total 25 % 49 % 74 % 26 % 100 %
^(1)^ Loans for customers still attending school and are not yet required to make payments on the loan.
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^(2)^ Includes loans in deferment or forbearance.
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Education Loan Activity

Three Months Ended March 31, 2022
(Dollars in millions) FFELP<br><br><br>Stafford and<br><br><br>Other FFELP<br><br><br>Consolidation<br><br><br>Loans Total<br><br><br>FFELP<br><br><br>Loans Total Private<br><br><br>Education<br><br><br>Loans Total<br><br><br>Portfolio
Beginning balance $ 18,219 $ 34,422 $ 52,641 $ 20,171 $ 72,812
Acquisitions (originations and purchases)^(^^1)^ — 1 1 1,090 1,091
Capitalized interest and premium/discount<br><br><br>amortization 170 183 353 53 406
Refinancings and consolidations to third<br><br><br>parties (245 ) (686 ) (931 ) (222 ) (1,153 )
Repayments and other (316 ) (735 ) (1,051 ) (1,004 ) (2,055 )
Ending balance $ 17,828 $ 33,185 $ 51,013 $ 20,088 $ 71,101
Three Months Ended March 31, 2021
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
(Dollars in millions) FFELP<br><br><br>Stafford and<br><br><br>Other FFELP<br><br><br>Consolidation<br><br><br>Loans Total<br><br><br>FFELP<br><br><br>Loans Total Private<br><br><br>Education<br><br><br>Loans Total<br><br><br>Portfolio
Beginning balance $ 19,607 $ 38,677 $ 58,284 $ 21,079 $ 79,363
Acquisitions (originations and purchases)^(^^1)^ 2 2 4 1,730 1,734
Capitalized interest and premium/discount<br><br><br>amortization 191 210 401 45 446
Refinancings and consolidations to third<br><br><br>parties (248 ) (432 ) (680 ) (139 ) (819 )
Loan sales — — — (1,465 ) (1,465 )
Repayments and other (334 ) (802 ) (1,136 ) (1,508 ) (2,644 )
Ending balance $ 19,218 $ 37,655 $ 56,873 $ 19,742 $ 76,615
^(1)^ Includes the origination of $218 million and $593 million of Private Education Refinance Loans in the first quarters of 2022 and 2021, respectively, that refinanced FFELP and Private Education Loans that were on our balance sheet.
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FFELP Loan Portfolio Performance

March 31, 2022 December 31, 2021 March 31, 2021
(Dollars in millions) Balance % Balance % Balance %
Loans in-school/grace/deferment^(^^1)^ $ 2,232 $ 2,220 $ 2,781
Loans in forbearance^(^^2)^ 6,312 6,292 8,452
Loans in repayment and percentage of each status:
Loans current 36,948 86.5 % 39,679 89.4 % 42,127 91.7 %
Loans delinquent 31-60 days^(^^3)^ 1,888 4.4 1,696 3.8 1,377 3.0
Loans delinquent 61-90 days^(^^3)^ 1,148 2.7 904 2.0 813 1.8
Loans delinquent greater than 90 days^(^^3)^ 2,740 6.4 2,112 4.8 1,605 3.5
Total FFELP Loans in repayment 42,724 100 % 44,391 100 % 45,922 100 %
Total FFELP Loans 51,268 52,903 57,155
FFELP Loan allowance for losses (255 ) (262 ) (282 )
FFELP Loans, net $ 51,013 $ 52,641 $ 56,873
Percentage of FFELP Loans in repayment 83.3 % 83.9 % 80.3 %
Delinquencies as a percentage of FFELP Loans in<br><br><br>repayment 13.5 % 10.6 % 8.3 %
FFELP Loans in forbearance as a percentage of<br><br><br>loans in repayment and forbearance 12.9 % 12.4 % 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.
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^(2)^ Loans for customers who have used their allowable deferment time or do not qualify for deferment, that need additional time to obtain employment or who have temporarily ceased making payments due to hardship or other factors such as disaster relief, including COVID-19 relief programs.
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^(3)^ The period of delinquency is based on the number of days scheduled payments are contractually past due.
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Private Education Loan Portfolio Performance

March 31, 2022 December 31, 2021 March 31, 2021
(Dollars in millions) Balance % Balance % Balance %
Loans in-school/grace/deferment^(^^1)^ $ 377 $ 361 $ 457
Loans in forbearance^(^^2)^ 418 535 797
Loans in repayment and percentage of each status:
Loans current 19,447 96.0 % 19,634 96.8 % 19,020 97.7 %
Loans delinquent 31-60 days^(^^3)^ 290 1.4 222 1.1 179 .9
Loans delinquent 61-90 days^(^^3)^ 206 1.0 131 .6 100 .5
Loans delinquent greater than 90 days^(^^3)^ 314 1.6 297 1.5 181 .9
Total Private Education Loans in repayment 20,257 100 % 20,284 100 % 19,480 100 %
Total Private Education Loans 21,052 21,180 20,734
Private Education Loan allowance for losses (964 ) (1,009 ) (992 )
Private Education Loans, net $ 20,088 $ 20,171 $ 19,742
Percentage of Private Education Loans in<br><br><br>repayment 96.2 % 95.8 % 94.0 %
Delinquencies as a percentage of Private Education<br><br><br>Loans in repayment 4.0 % 3.2 % 2.3 %
Loans in forbearance as a percentage of loans in<br><br><br>repayment and forbearance 2.0 % 2.6 % 3.9 %
Percentage of Private Education Loans with a<br><br><br>cosigner^(^^4)^ 34 % 35 % 40 %
^(1)^ Loans for customers who are attending school or are in other permitted educational activities and are not yet required to make payments on their loans, e.g., internship periods, as well as loans for customers who have requested and qualify for other permitted program deferments such as various military eligible deferments.
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^(2)^ Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors such as disaster relief, including COVID-19 relief programs, consistent with established loan program servicing policies and procedures.
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^(3)^ The period of delinquency is based on the number of days scheduled payments are contractually past due.
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^(^^4^^)^ Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 65% for all periods presented.
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Allowance for Loan Losses

Three Months Ended March 31,
2022 2021
(Dollars in millions) FFELP Loans Private Education Loans Total FFELP Loans Private Education Loans Total
Allowance at beginning of period $ 262 $ 1,009 $ 1,271 $ 288 $ 1,089 $ 1,377
Provision:
Reversal of allowance related to loan sales^(^^1)^ — — — — (102 ) (102 )
Remaining provision — 16 16 — 15 15
Total provision — 16 16 — (87 ) (87 )
Charge-offs^(^^2)^ (7 ) (69 ) (76 ) (6 ) (35 ) (41 )
Decrease in expected future recoveries on charged-<br><br><br>off loans^(^^3)^ — 8 8 — 25 25
Allowance at end of period 255 964 1,219 282 992 1,274
Plus: expected future recoveries on charged-off<br><br><br>loans^(^^3)^ — 321 321 — 454 454
Allowance at end of period excluding expected future<br><br><br>recoveries on charged-off loans^(^^4)^ $ 255 $ 1,285 $ 1,540 $ 282 $ 1,446 $ 1,728
Charge-offs as a percentage of average loans in<br><br><br>repayment (annualized) .07 % 1.38 % .06 % .68 %
Allowance coverage of charge-offs (annualized)^(^^4)^ 8.8 4.6 10.7 10.2
Allowance as a percentage of the ending total loan<br><br><br>balance^(^^4)^ .5 % 6.1 % .5 % 7.0 %
Allowance as a percentage of ending loans in<br><br><br>repayment^(^^4)^ .6 % 6.3 % .6 % 7.4 %
Ending total loans $ 51,268 $ 21,052 $ 57,155 $ 20,734
Average loans in repayment $ 43,125 $ 20,387 $ 47,044 $ 20,883
Ending loans in repayment $ 42,724 $ 20,257 $ 45,922 $ 19,480
^(1)^ In connection with the sale of approximately $1.6 billion of Private Education Loans in the first quarter of 2021.
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^(2)^ Charge-offs are reported net of expected recoveries. For Private Education Loans, at the time of charge-off the expected recovery amount is transferred from the education loan balance to the allowance for loan loss and is referred to as the “expected future recoveries on charged-off loans.” For FFELP Loans, the recovery is received at the time of charge-off
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^(3)^ At the end of each month, for Private Education Loans that are 212 or more days past due, we charge off the estimated loss of a defaulted loan balance. Actual recoveries are applied against the remaining loan balance that was not charged off. We refer to this as the “expected future recoveries on charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately charged off through the allowance for Private Education Loan losses with an offsetting reduction in the expected future recoveries for charged-off loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. The following table summarizes the activity in the expected future recoveries on charged-off loans:
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Three Months Ended March 31,
--- --- --- --- --- --- ---
(Dollars in millions) 2022 2021
Beginning of period expected recoveries $ 329 $ 479
Expected future recoveries of current period defaults 12 5
Recoveries (15 ) (25 )
Charge-offs (5 ) (5 )
End of period expected recoveries $ 321 $ 454
Change in balance during period $ (8 ) $ (25 )
^(^^4^^)^ The allowance used for these metrics excludes the expected future recoveries on charged-off loans to better reflect the current expected credit losses remaining in the portfolio.
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Liquidity and Capital Resources

Funding and Liquidity Risk Management

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

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

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

Credit ratings and outlooks are opinions subject to ongoing review by the rating agencies and may change, from time to time, based on our financial performance, industry and market dynamics and other factors. Other factors that influence our credit ratings include the rating agencies’ assessment of the general operating environment, our relative positions in the markets in which we compete, reputation, liquidity position, the level and volatility of earnings, corporate governance and risk management policies, capital position and capital management practices. A negative change in our credit rating could have a negative effect on our liquidity because it might raise the cost and availability of funding and potentially require additional cash collateral or restrict cash currently held as collateral on existing borrowings or derivative collateral arrangements. It is our objective to improve our credit ratings so that we can continue to efficiently access the capital markets even in difficult economic and market conditions. We have unsecured debt totaling $7.1 billion at March 31, 2022. Three credit rating agencies currently rate our long-term unsecured debt at below investment grade.

We expect to fund our ongoing liquidity needs, including the repayment of $1.0 billion of senior unsecured notes that mature in the short term (i.e., over the next 12 months) and the remaining $6.1 billion of senior unsecured notes that mature in the long term (from 2023 to 2043 with 81% maturing by 2029), through a number of sources. These sources primarily are our cash on hand, unencumbered FFELP Loan and Private Education Refinance Loan portfolios (see “Sources of Primary Liquidity” below), the predictable operating cash flows provided by operating activities, the repayment of principal on unencumbered education loan assets, and the distribution of overcollateralization from our securitization trusts. We may also, depending on market conditions and availability, draw down on our secured FFELP Loan and Private Education Loan facilities, issue term ABS, enter into additional Private Education Loan ABS repurchase facilities, or issue additional unsecured debt.

We originate Private Education Loans (a portion of which are done through a forward purchase agreement). We also have purchased and may purchase, in future periods, Private Education Loan and FFELP Loan portfolios from third parties. Those originations and purchases are part of our ongoing liquidity needs. We purchased 6.2 million shares of common stock for $115 million in the first quarter of 2022 and have $885 million of unused share repurchase authority as of March 31, 2022.

Sources of Primary Liquidity

(Dollars in millions) March 31, 2022 December 31, 2021 March 31, 2021
Ending Balances:
Total unrestricted cash and liquid investments $ 708 $ 905 $ 1,497
Unencumbered FFELP Loans 222 124 259
Unencumbered Private Education Refinance<br><br><br>Loans 232 383 936
Total $ 1,162 $ 1,412 $ 2,692
Three Months Ended
--- --- --- --- --- --- ---
(Dollars in millions) March 31, 2022 December 31, 2021 March 31, 2021
Average Balances:
Total unrestricted cash and liquid investments $ 874 $ 1,339 $ 1,198
Unencumbered FFELP Loans 177 119 276
Unencumbered Private Education Refinance<br><br><br>Loans 343 565 752
Total $ 1,394 $ 2,023 $ 2,226

Sources of Additional Liquidity

Liquidity may also be available under our secured credit facilities. Maximum borrowing capacity under the FFELP Loan and Private Education Loan asset-backed commercial paper (ABCP) facilities will vary and be subject to each agreement’s borrowing conditions, including, among others, facility size, current usage and availability of qualifying collateral from unencumbered loans. The following tables detail the additional borrowing capacity of these facilities with maturity dates ranging from June 2022 to April 2024.

(Dollars in millions) March 31, 2022 December 31, 2021 March 31, 2021
Ending Balances
FFELP Loan ABCP facilities $ 352 $ 546 $ 826
Private Education Loan ABCP facilities 2,137 2,235 2,844
Total $ 2,489 $ 2,781 $ 3,670
Three Months Ended
--- --- --- --- --- --- ---
(Dollars in millions) March 31, 2022 December 31, 2021 March 31, 2021
Average Balances
FFELP Loan ABCP facilities $ 382 $ 441 $ 656
Private Education Loan ABCP facilities 2,239 2,419 2,420
Total $ 2,621 $ 2,860 $ 3,076

At March 31, 2022, we had a total of $4.0 billion of unencumbered tangible assets inclusive of those listed in the table above as sources of primary liquidity. Total unencumbered education loans comprised $2.1 billion principal of our unencumbered tangible assets of which $1.9 billion and $222 million related to Private Education Loans and FFELP Loans, respectively. In addition, as of March 31, 2022, we had $5.7 billion of encumbered net assets (i.e., overcollateralization) in our various financing facilities (consolidated variable interest entities). Our secured financing facilities include Private Education Loan ABS Repurchase Facilities, which had $0.5 billion outstanding as of March 31, 2022. These repurchase facilities are collateralized by the net assets in previously issued Private Education Loan ABS trusts and have had a cost of funds lower than that of a new unsecured debt issuance.

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

(Dollars in billions) March 31, 2022 December 31, 2021
Net assets of consolidated variable interest entities<br><br><br>(encumbered assets) — FFELP Loans $ 3.8 3.8
Net assets of consolidated variable interest entities<br><br><br>(encumbered assets) — Private Education Loans 1.9 1.7
Tangible unencumbered assets^(^^1)^ 4.0 4.5
Senior unsecured debt (7.0 ) (7.0 )
Mark-to-market on unsecured hedged debt^(^^2)^ (.1 ) (.3 )
Other liabilities, net (.5 ) (.8 )
Total Tangible Equity ^(1)^ $ 2.1 $ 1.9
^(1)^ Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”
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^(2)^ At March 31, 2022 and December 31, 2021, there were $35 million and $324 million, respectively, of net gains (losses) on derivatives hedging this debt in unencumbered assets, which partially offset these gains (losses).
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Borrowings

Ending Balances

March 31, 2022 December 31, 2021
(Dollars in millions) Short<br><br><br>Term Long<br><br><br>Term Total Short<br><br><br>Term Long<br><br><br>Term Total
Unsecured borrowings:
Senior unsecured debt $ 999 $ 6,018 $ 7,017 $ — $ 7,014 $ 7,014
Total unsecured borrowings 999 6,018 7,017 — 7,014 7,014
Secured borrowings:
FFELP Loan securitizations — 49,622 49,622 — 51,841 51,841
Private Education Loan securitizations 515 14,038 14,553 543 14,074 14,617
FFELP Loan ABCP facilities 619 145 764 282 150 432
Private Education Loan ABCP facilities 1,462 1,114 2,576 1,363 1,152 2,515
Other 204 — 204 302 — 302
Total secured borrowings 2,800 64,919 67,719 2,490 67,217 69,707
Core Earnings basis borrowings^(^^1)^ 3,799 70,937 74,736 2,490 74,231 76,721
Adjustment for GAAP accounting treatment 3 (112 ) (109 ) — 257 257
GAAP basis borrowings $ 3,802 $ 70,825 $ 74,627 $ 2,490 $ 74,488 $ 76,978

Average Balances

Three Months Ended March 31,
2022 2021
(Dollars in millions) Average<br><br><br>Balance Average<br><br><br>Rate Average<br><br><br>Balance Average<br><br><br>Rate
Unsecured borrowings:
Senior unsecured debt $ 7,015 4.30 % $ 8,675 4.60 %
Total unsecured borrowings 7,015 4.30 8,675 4.60
Secured borrowings:
FFELP Loan securitizations 50,553 1.31 54,533 1.28
Private Education Loan securitizations 14,653 2.29 14,644 2.55
FFELP Loan ABCP facilities 692 1.57 2,043 1.49
Private Education Loan ABCP facilities 2,496 1.90 2,355 2.08
Other 251 .67 283 .32
Total secured borrowings 68,645 1.54 73,858 1.56
Core Earnings basis borrowings^(^^1)^ 75,660 1.79 82,533 1.88
Adjustment for GAAP accounting treatment — (.24 ) — (.27 )
GAAP basis borrowings $ 75,660 1.55 % $ 82,533 1.61 %
^(1)^ Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.” The differences in derivative accounting give rise to the difference above.
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Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). A discussion of our critical accounting policies, which includes the allowance for loan losses, goodwill impairment assessment, and premium and discount amortization, can be found in our 2021 Form 10-K. In the first quarter of 2022, we considered the potential negative impact associated with the uncertainty in connection with both historically high inflation and the war in Ukraine and the potential impact on these critical accounting policies. We concluded there was not a material impact at this time. This will continue to be monitored and assessed during 2022.

Non-GAAP Financial Measures

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

1.   Core Earnings

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

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

(1) Mark-to-market gains/losses resulting from our use of derivative instruments to hedge our economic risks that do not qualify for hedge accounting treatment or do qualify for hedge accounting treatment but result in ineffectiveness; and
(2) The accounting for goodwill and acquired intangible assets.
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While GAAP provides a uniform, comprehensive basis of accounting, for the reasons described above, our Core Earnings basis of presentation does not. Core Earnings are subject to certain general and specific limitations that investors should carefully consider. For example, there is no comprehensive, authoritative guidance for management reporting. Our Core Earnings are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. Accordingly, our Core Earnings presentation does not represent a comprehensive basis of accounting. Investors, therefore, may not be able to compare our performance with that of other financial services companies based upon Core Earnings. Core Earnings results are only meant to supplement GAAP results by providing additional information regarding the operational and performance indicators that are most closely used by management, our board of directors, credit rating agencies, lenders and investors to assess performance.

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

Three Months Ended March 31, 2022
Adjustments
(Dollars in millions) Federal Education Loans Consumer Lending Business Processing Other Total<br><br><br>Core<br><br><br>Earnings Reclassi-<br><br><br>fications Additions/<br><br><br>(Subtractions) Total<br><br><br>Adjustments^(^^1)^ Total<br><br><br>GAAP
Interest income:
Education loans $ 334 $ 276 $ — $ — $ 610 $ 19 $ (4 ) $ 15 $ 625
Cash and investments — 1 — — 1 — — — 1
Total interest income 334 277 — — 611 19 (4 ) 15 626
Total interest expense 195 125 — 15 335 — (46 ) (46 ) 289
Net interest income (loss) 139 152 — (15 ) 276 19 42 61 337
Less: provisions for loan losses — 16 — — 16 — — — 16
Net interest income (loss) after<br><br><br>provisions for loan losses 139 136 — (15 ) 260 19 42 61 321
Other income (loss):
Servicing revenue 15 3 — — 18 — — — 18
Asset recovery and business<br><br><br>processing revenue 3 — 94 — 97 — — — 97
Other income (loss) 11 — — (1 ) 10 (19 ) 117 98 108
Total other income (loss) 29 3 94 (1 ) 125 (19 ) 117 98 223
Expenses:
Direct operating expenses 28 35 76 — 139 — — — 139
Unallocated shared services<br><br><br>expenses — — — 66 66 — — — 66
Operating expenses 28 35 76 66 205 — — — 205
Goodwill and acquired intangible<br><br><br>asset impairment and<br><br><br>amortization — — — — — — 4 4 4
Restructuring/other reorganization<br><br><br>expenses — — — 3 3 — — — 3
Total expenses 28 35 76 69 208 — 4 4 212
Income (loss) before income tax<br><br><br>expense (benefit) 140 104 18 (85 ) 177 — 155 155 332
Income tax expense (benefit)^(^^2)^ 33 25 4 (20 ) 42 — 35 35 77
Net income (loss) $ 107 $ 79 $ 14 $ (65 ) $ 135 $ — $ 120 $ 120 $ 255
^(1)^ Core Earnings adjustments to GAAP:
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Three Months Ended March 31, 2022
--- --- --- --- --- --- --- ---
(Dollars in millions) Net Impact of<br><br><br>Derivative<br><br><br>Accounting Net Impact of<br><br><br>Goodwill and<br><br><br>Acquired<br><br><br>Intangibles Total
Net interest income (loss) after provisions for loan losses $ 61 $ — $ 61
Total other income (loss) 98 — 98
Goodwill and acquired intangible asset impairment and amortization — 4 4
Total Core Earnings adjustments to GAAP $ 159 $ (4 ) 155
Income tax expense (benefit) 35
Net income (loss) $ 120
^(2)^ Income taxes are based on a percentage of net income before tax for the individual reportable segment.
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Three Months Ended March 31, 2021
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Adjustments
(Dollars in millions) Federal Education Loans Consumer Lending Business Processing Other Total<br><br><br>Core<br><br><br>Earnings Reclassi-<br><br><br>fications Additions/<br><br><br>(Subtractions) Total<br><br><br>Adjustments^(^^1)^ Total<br><br><br>GAAP
Interest income:
Education loans $ 359 $ 319 $ — $ — $ 678 $ 23 $ (9 ) $ 14 $ 692
Cash and investments — — — — — — — — —
Total interest income 359 319 — — 678 23 (9 ) 14 692
Total interest expense 215 150 — 18 383 (1 ) (53 ) (54 ) 329
Net interest income (loss) 144 169 — (18 ) 295 24 44 68 363
Less: provisions for loan losses — (87 ) — — (87 ) — — — (87 )
Net interest income (loss) after<br><br><br>provisions for loan losses 144 256 — (18 ) 382 24 44 68 450
Other income (loss):
Servicing revenue 52 1 — — 53 — — — 53
Asset recovery and business<br><br><br>processing revenue 14 — 125 — 139 — — — 139
Other income (loss) — — — — — (11 ) 47 36 36
Gains on sales of loans — 89 — — 89 (13 ) — (13 ) 76
Total other income (loss) 66 90 125 — 281 (24 ) 47 23 304
Expenses:
Direct operating expenses 63 41 91 — 195 — — — 195
Unallocated shared services<br><br><br>expenses — — — 64 64 — — — 64
Operating expenses 63 41 91 64 259 — — — 259
Goodwill and acquired intangible<br><br><br>asset impairment and amortization — — — — — — 5 5 5
Restructuring/other reorganization<br><br><br>expenses — — — 6 6 — — — 6
Total expenses 63 41 91 70 265 — 5 5 270
Income (loss) before income tax<br><br><br>expense (benefit) 147 305 34 (88 ) 398 — 86 86 484
Income tax expense (benefit)^(^^2)^ 35 71 8 (21 ) 93 — 21 21 114
Net income (loss) $ 112 $ 234 $ 26 $ (67 ) $ 305 $ — $ 65 $ 65 $ 370
^(1)^ Core Earnings adjustments to GAAP:
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Three Months Ended March 31, 2021
--- --- --- --- --- --- --- ---
(Dollars in millions) Net Impact of<br><br><br>Derivative<br><br><br>Accounting Net Impact of<br><br><br>Goodwill and<br><br><br>Acquired<br><br><br>Intangibles Total
Net interest income (loss) after provisions for loan losses $ 68 $ — $ 68
Total other income (loss) 23 — 23
Goodwill and acquired intangible asset impairment and amortization — 5 5
Total Core Earnings adjustments to GAAP $ 91 $ (5 ) 86
Income tax expense (benefit) 21
Net income (loss) $ 65
^(2)^ Income taxes are based on a percentage of net income before tax for the individual reportable segment.
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The following discussion summarizes the differences between Core Earnings and GAAP net income and details each specific adjustment required to reconcile our Core Earnings segment presentation to our GAAP earnings.

Three Months Ended March 31,
(Dollars in millions) 2022 2021
Core Earnings net income $ 135 $ 305
Core Earnings adjustments to GAAP:
Net impact of derivative accounting 159 91
Net impact of goodwill and acquired intangible assets (4 ) (5 )
Net income tax effect (35 ) (21 )
Total Core Earnings adjustments to GAAP 120 65
GAAP net income $ 255 $ 370

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

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

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

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

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

Three Months Ended March 31,
(Dollars in millions) 2022 2021
Core Earnings derivative adjustments:
Gains (losses) on derivative and hedging activities,<br><br><br>net, included in other income $ 98 $ 36
Plus: Gains (losses) on fair value hedging<br><br><br>activity included in interest expense 41 45
Total gains (losses) in GAAP net income 139 81
Plus: Reclassification of settlement expense (income) on<br><br><br>derivative and hedging activities, net^(^^1)^ 19 11
Mark-to-market gains (losses) on derivative and<br><br><br>hedging activities, net^(^^2)^ 158 92
Amortization of net premiums on Floor Income<br><br><br>Contracts in net interest income for Core Earnings (4 ) (9 )
Other derivative accounting adjustments^(^^3)^ 5 8
Total net impact of derivative accounting $ 159 $ 91
^(1)^ Derivative accounting requires net settlement income/expense on derivatives that do not qualify as hedges to be recorded in a separate income statement line item below net interest income. Under our Core Earnings presentation, these settlements are reclassified to the income statement line item of the economically hedged item. For our Core Earnings net interest income, this would primarily include (a) reclassifying the net settlement amounts related to our Floor Income Contracts to education loan interest income and (b) reclassifying the net settlement amounts related to certain of our interest rate swaps to debt interest expense. The table below summarizes these net settlements on derivative and hedging activities and the associated reclassification on a Core Earnings basis.
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Three Months Ended March 31,
--- --- --- --- --- --- ---
(Dollars in millions) 2022 2021
Reclassification of settlements on derivative and<br><br><br>hedging activities:
Net settlement expense on Floor Income Contracts<br><br><br>reclassified to net interest income $ (19 ) $ (23 )
Net settlement income (expense) on interest rate<br><br><br>swaps reclassified to net interest income — (1 )
Net realized gains (losses) on terminated derivative<br><br><br>contracts reclassified to other income — 13
Total reclassifications of settlements on derivative<br><br><br>and hedging activities $ (19 ) $ (11 )
^(2)^ “Mark-to-market gains (losses) on derivative and hedging activities, net” is comprised of the following:
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Three Months Ended March 31,
--- --- --- --- ---
(Dollars in millions) 2022 2021
Floor Income Contracts $ 55 $ 37
Basis swaps 2 4
Foreign currency hedges 16 30
Other 85 21
Total mark-to-market gains (losses) on derivative<br><br><br>and hedging activities, net $ 158 $ 92
^(3)^ Other derivative accounting adjustments consist of adjustments related to: (1) foreign currency denominated debt that is adjusted to spot foreign exchange rates for GAAP where such adjustments are reversed for Core Earnings and (2) certain terminated derivatives that did not receive hedge accounting treatment under GAAP but were economic hedges under Core Earnings and, as a result, such gains or losses are amortized into Core Earnings over the life of the hedged item.
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Cumulative Impact of Derivative Accounting under GAAP compared to Core Earnings

As of March 31, 2022, derivative accounting has decreased GAAP equity by approximately $63 million as a result of cumulative net mark-to-market losses (after tax) recognized under GAAP, but not in Core Earnings. The following table rolls forward the cumulative impact to GAAP equity due to these after-tax mark-to-market net gains and losses related to derivative accounting.

Three Months Ended March 31,
(Dollars in millions) 2022 2021
Beginning impact of derivative accounting on GAAP<br><br><br>equity $ (299 ) $ (616 )
Net impact of net mark-to-market gains (losses) under<br><br><br>derivative accounting^(^^1)^ 236 117
Ending impact of derivative accounting on GAAP<br><br><br>equity $ (63 ) $ (499 )
^(1)^ Net impact of net mark-to-market gains (losses) under derivative accounting is composed of the following:
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Three Months Ended March 31,
--- --- --- --- --- --- ---
(Dollars in millions) 2022 2021
Total pre-tax net impact of derivative accounting<br><br><br>recognized in net income^(^^2)^ $ 159 $ 91
Tax and other impacts of derivative accounting<br><br><br>adjustments (37 ) (22 )
Change in mark-to-market gains (losses) on<br><br><br>derivatives, net of tax recognized in other<br><br><br>comprehensive income 114 48
Net impact of net mark-to-market gains (losses) under<br><br><br>derivative accounting $ 236 $ 117
^(2)^ See “Core Earnings derivative adjustments” table above.
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Hedging Embedded Floor Income

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

(Dollars in millions) March 31, 2022 March 31, 2021
Total hedged Floor Income, net of tax^(^^1)(2)^ $ 289 $ 364
^(1)^ $377 million and $476 million on a pre-tax basis as of March 31, 2022 and March 31, 2021, respectively.
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^(2)^ Of the $289 million as of March 31, 2022, approximately $94 million, $98 million, $39 million and $21 million will be recognized as part of Core Earnings net income in the remainder of 2022, 2023, 2024 and 2025, respectively.
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(2) Goodwill and Acquired Intangible Assets: Our Core Earnings exclude goodwill and intangible asset impairment and the amortization of acquired intangible assets. The following table summarizes the goodwill and acquired intangible asset adjustments.

Three Months Ended March 31,
(Dollars in millions) 2022 2021
Core Earnings goodwill and acquired intangible<br><br><br>asset adjustments $ (4 ) $ (5 )

Adjusted Core Earnings

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

The following table summarizes these expenses which are excluded:

Three Months Ended March 31,
(Dollars in millions) 2022 2021
Restructuring/other reorganization expenses $ 3 $ 6
Regulatory-related expenses 1 8
Total $ 4 $ 14

2.   Adjusted Tangible Equity Ratio

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

(Dollars in millions) March 31, 2022 March 31, 2021
Navient Corporation's stockholders' equity $ 2,824 $ 2,723
Less: Goodwill and acquired intangible assets 722 731
Tangible Equity 2,102 1,992
Less: Equity held for FFELP Loans 255 284
Adjusted Tangible Equity $ 1,847 $ 1,708
Divided by:
Total assets $ 78,158 $ 84,957
Less:
Goodwill and acquired intangible assets 722 731
FFELP Loans 51,013 56,873
Adjusted tangible assets $ 26,423 $ 27,353
Adjusted Tangible Equity Ratio^(^^1)^ 7.0 % 6.2 %
^(1)^ The following provides the Adjusted Tangible Equity Ratio on a pro forma basis assuming the cumulative net mark-to-market losses related to derivative accounting under GAAP were excluded. These cumulative losses reverse to $0 upon the maturity of the individual derivative instruments. As these losses are temporary, we believe this pro forma presentation is a useful basis for management and investors to further analyze the Adjusted Tangible Equity Ratio.
--- ---
(Dollars in millions) March 31, 2022 March 31, 2021
--- --- --- --- --- --- ---
Adjusted Tangible Equity (from above table) $ 1,847 $ 1,708
Plus: ending impact of derivative accounting on GAAP equity 63 499
Pro forma Adjusted Tangible Equity $ 1,910 $ 2,207
Divided by: adjusted tangible assets (from above table) $ 26,423 $ 27,353
Pro forma Adjusted Tangible Equity Ratio 7.2 % 8.1 %

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

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

Three Months Ended March 31,
(Dollars in millions) 2022 2021
Pre-tax income $ 18 $ 34
Plus:
Depreciation and amortization expense^(^^1)^ 1 2
EBITDA $ 19 $ 36
Divided by:
Total revenue $ 94 $ 125
EBITDA margin 20 % 29 %
^(1)^ There is no interest expense in this segment.
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Legal Proceedings

For a discussion of legal matters as of March 31, 2022, please refer to “Note 9 – Commitments and Contingencies” to our consolidated financial statements included in this report, which is incorporated into this item by reference.

Risk Factors

The risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 should be considered together with information included in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2022. For a discussion of our risk factors, please see “Risk Factors” in our 2021 Annual Report on Form 10-K. These are not the only risks to which we are exposed.

Quantitative and Qualitative Disclosures about Market Risk

LIBOR Transition

We continue to work internally as well as with external parties to ensure an orderly transition from one-month and three-month LIBOR to an alternative benchmark rate by the June 30, 2023 transition date. We have established an internal LIBOR transition team whose purpose is to assess impacts, recommend plans and coordinate transition efforts among different business areas. Executive management and the LIBOR transition team provide quarterly reports to our Board of Directors. We have also established internal LIBOR working groups comprised of members from different business areas who meet regularly to assess specific business-level impacts and to implement operational changes necessary to effectuate a successful transition from LIBOR. In addition to our enterprise-wide efforts, we engage with market participants, industry groups and regulators, including the Alternative Reference Rates Committee (the ARRC), to develop plans and documentation to facilitate the transition to an alternative benchmark rate.

We support the ARRC’s recommendation to replace LIBOR with the Secured Overnight Financing Rate (SOFR) and continue to comply with the ARRC’s recommended best practices for completing the transition from LIBOR. All our new variable rate Private Education Loans issued since December 2021 are indexed to SOFR. Also, as of December 31, 2021, we have ceased entering into any other new contracts that are indexed to LIBOR and, where practicable, have engaged with counterparties to modify certain existing contracts to transition the existing reference rate from LIBOR to SOFR. With respect to our legacy variable rate Private Education Loans and other financial contracts that reference USD LIBOR and contain fallbacks provisions that clearly specify a method for the transition from LIBOR, we plan to transition such loans using such existing fallbacks. We have engaged with our IT vendors and impacted internal work groups to prepare and update our systems, procedures and processes to transition LIBOR-indexed contracts to SOFR. With respect to our financial instruments that do not include fallback provisions that clearly specify a method for the transition from LIBOR to an alternative benchmark rate, where practicable and commercially reasonable, we have made efforts to engage with customers, counterparties and investors to modify such instruments. Due to stringent noteholder consent requirements, it may be impracticable or impossible to modify certain financial instruments like certain of our ABS. Further, the SAP formula for our FFELP Loans, which is indexed to one-month LIBOR, cannot be modified without legislative action. Thus, in such instances, we may need to rely on the New York state LIBOR legislation or the proposed federal legislation to transition to SOFR.

On March 15, 2022, the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) was signed into law. The LIBOR Act provides that for contracts that contain no fallback provision or contain fallback provisions that do not identify a specific USD LIBOR benchmark replacement (including the SAP formula for FFELP Loans), a benchmark replacement recommended by the Federal Reserve Bank of New York will automatically replace the USD LIBOR benchmark in the contract after June 30, 2023. The recommended benchmark replacement will be based on the SOFR published by the Federal Reserve Bank of New York, including any recommended spread adjustment and benchmark replacement conforming changes. Following the enactment of the LIBOR Act, all of our financial instruments which are currently indexed to USD LIBOR will transition to SOFR by no later than June 30, 2023.

For a discussion of the risks related to the LIBOR transition, see “Risk Factors – Market, Funding & Liquidity Risk – The transition away from the LIBOR reference rate to an alternative reference rate may create uncertainty in the capital markets and may negatively impact the value of existing LIBOR based financial instruments. Post transition alternative reference rates may perform significantly different than LIBOR” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

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, 2022 and 2021, based upon a sensitivity analysis performed by management assuming a hypothetical increase and decrease in market interest rates of 100 basis points. The earnings sensitivities assume an immediate increase and decrease in market interest rates of 100 basis points and are applied only to financial assets and liabilities, including hedging instruments, that existed at the balance sheet date and do not take into account any new assets, liabilities or hedging instruments that may arise over the next 12 months.

As of March 31, 2022 As of March 31, 2021
Impact on Annual Earnings If: Impact on Annual Earnings If:
Interest Rates Interest Rates
(Dollars in millions, except per share amounts) Increase<br><br><br>100 Basis<br><br><br>Points Decrease<br><br><br>100 Basis<br><br><br>Points Increase<br><br><br>100 Basis<br><br><br>Points Decrease<br><br><br>100 Basis<br><br><br>Points
Effect on Earnings:
Change in pre-tax net income before mark-to<br><br><br>-market gains (losses) on derivative and<br><br><br>hedging activities^(1)^ $ 25 $ 4 $ (34 ) $ 13
Mark-to-market gains (losses) on derivative and<br><br><br>hedging activities 43 (63 ) 115 (153 )
Increase (decrease) in income before taxes $ 68 $ (59 ) $ 81 $ (140 )
Increase (decrease) in net income after taxes $ 52 $ (45 ) $ 62 $ (108 )
Increase (decrease) in diluted earnings per<br><br><br>common share $ .35 $ (.30 ) $ .35 $ (.60 )
^(1)^ If decreasing interest rates by 100 basis points results in a negative interest rate, we assume the interest rate is 0% for this disclosure (as opposed to being a negative interest rate).
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At March 31, 2022
--- --- --- --- --- --- --- --- --- --- --- --- ---
Interest Rates:
Change from<br>Increase of<br>100 Basis<br>Points Change from<br>Decrease of<br>100 Basis<br>Points
(Dollars in millions) Fair Value % %
Effect on Fair Values:
Assets
Education Loans $ 70,588 ) — —
Other earning assets 3,424 — —
Other assets 3,633 — 2
Total assets gain/(loss) $ 77,645 ) — % — %
Liabilities
Interest-bearing liabilities $ 73,328 ) — % — %
Other liabilities 701 17 ) (1 )
Total liabilities (gain)/loss $ 74,029 ) — % — %

All values are in US Dollars.

At December 31, 2021
Interest Rates:
Change from<br>Increase of<br>100 Basis<br>Points Change from<br>Decrease of<br>100 Basis<br>Points
(Dollars in millions) Fair Value % %
Effect on Fair Values:
Assets
Education Loans $ 74,772 ) — 1 %
Other earning assets 3,845 — —
Other assets 3,948 ) (3 ) 7
Total assets gain/(loss) $ 82,565 ) — % 1 %
Liabilities
Interest-bearing liabilities $ 77,040 ) — % 1 %
Other liabilities 1,019 ) (4 ) 19
Total liabilities (gain)/loss $ 78,059 ) (1 )% 1 %

All values are in US Dollars.

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

In the preceding tables, under the scenario where interest rates increase or decrease by 100 basis points, the change in pre-tax net income before the mark-to-market gains (losses) on derivative and hedging activities is primarily due to the impact of (i) our unhedged FFELP Loans being in a fixed-rate mode due to Floor Income, while being funded with variable rate debt in low interest rate environments; and (ii) a portion of our variable rate assets being funded with fixed rate liabilities. Item (i) will generally cause income to decrease when interest rates increase and income to increase when interest rates decrease. Item (ii) has the opposite effect. The changes due to the interest rate scenarios in the current period, in relation to each other and in relation to the prior period, are primarily a result of the 1-year LIBOR forward curve increasing significantly from the prior period which results in less loss of Floor Income when interest rates are increased and a greater increase to Floor Income when rates are decreased.

In the preceding tables, under the scenario where interest rates increase or decrease by 100 basis points, the change in mark-to-market gains (losses) on derivative and hedging activities in both periods is primarily due to (i) the notional amount and remaining term of our derivative portfolio and related hedged debt and (ii) the interest rate environment. In both periods, the mark-to-market gains (losses) are primarily related to derivatives that don’t qualify for hedge accounting that are used to economically hedge Floor Income as well as the origination of fixed rate Private Education Refinance loans. As a result of not qualifying for hedge accounting, there is not an offsetting mark- to-market of the hedged item in this analysis. The mark-to-market gains (losses) where interest rates increase and decrease 100 basis points are lower in 2022 than 2021 primarily as a result of an increased interest rate environment

in 2022 and a decline in the notional amount of derivatives outstanding in connection with the decrease in the education loan portfolio over that time period.

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

Asset and Liability Funding Gap

The tables below present our assets and liabilities (funding) arranged by underlying indices as of March 31, 2022. 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<br><br><br>(Dollars in billions) Frequency of<br><br><br>Variable<br><br><br>Resets Assets Funding^(1)^ Funding<br><br><br>Gap
3-month Treasury bill weekly $ 2.6 $ — $ 2.6
3-month Treasury bill annual .2 — .2
Prime annual .2 — .2
Prime quarterly 1.4 — 1.4
Prime monthly 5.1 — 5.1
3-month LIBOR quarterly .3 22.2 (21.9 )
3-month LIBOR^(2)^ monthly — .5 (.5 )
3-month LIBOR^(2)^ daily — .1 (.1 )
1-month LIBOR monthly 3.4 29.8 (26.4 )
1-month LIBOR daily 48.2 — 48.2
SOFR^(3)^ various — .1 (.1 )
Non-Discrete reset^(2)(4)^ monthly — 3.7 (3.7 )
Non-Discrete reset^(5)^ daily/weekly 3.4 .2 3.2
Fixed Rate^(6)^ 13.4 21.6 (8.2 )
Total $ 78.2 $ 78.2 $ —
^(1)^ Funding (by index) includes all derivatives that qualify as hedges.
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^(2)^ Funding includes loan repurchase facilities.
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^(3)^ Assets include $37M of student loans indexed to 30-day average SOFR. Funding includes $50M indexed to 30-day average SOFR or 90-day average SOFR.
--- ---
^(4)^ Funding consists of auction rate ABS and ABCP facilities.
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^(5)^ 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.
--- ---
^(6)^ Assets include receivables and other assets (including goodwill and acquired intangibles). Funding includes other liabilities and stockholders’ equity.
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Core Earnings Basis:

Index<br><br><br>(Dollars in billions) Frequency of<br><br><br>Variable<br><br><br>Resets Assets Funding^(1)^ Funding<br><br><br>Gap
3-month Treasury bill weekly $ 2.6 $ — $ 2.6
3-month Treasury bill annual .2 — .2
Prime annual .2 — .2
Prime quarterly 1.4 — 1.4
Prime monthly 5.1 — 5.1
3-month LIBOR quarterly .3 4.2 (3.9 )
3-month LIBOR^(2)^ monthly — .5 (.5 )
3-month LIBOR^(2)^ daily — .1 (.1 )
1-month LIBOR monthly 3.4 46.4 (43.0 )
1-month LIBOR daily 48.2 — 48.2
SOFR^(3)^ various — .1 (.1 )
Non-Discrete reset^(2)(4)^ monthly — 3.7 (3.7 )
Non-Discrete reset^(5)^ daily/weekly 3.4 .2 3.2
Fixed Rate^(6)^ 13.3 22.9 (9.6 )
Total $ 78.1 $ 78.1 $ —
^(1)^ Funding (by index) includes all derivatives that management considers economic hedges of interest rate risk and reflects how we internally manage our interest rate exposure.
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^(2)^ Funding includes loan repurchase facilities.
--- ---
^(3)^ Assets include $37M of student loans indexed to 30-day average SOFR. Funding includes $50M indexed to 30-day average SOFR or 90-day average SOFR.
--- ---
^(4)^ Funding consists of auction rate ABS and ABCP facilities.
--- ---
^(5)^ 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.
--- ---
^(6)^ Assets include receivables and other assets (including goodwill and acquired intangibles). Funding includes other liabilities and stockholders’ equity.
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We use interest rate swaps and other derivatives to achieve our risk management objectives. Our asset liability management strategy is to match assets with debt (in combination with derivatives) that have the same underlying index and reset frequency or, when economical, have interest rate characteristics that we believe are highly correlated. Interest earned on our FFELP Loans is primarily indexed to daily one-month LIBOR and our cost of funds is primarily indexed to rates other than daily one-month LIBOR. A source of variability in FFELP net interest income could also be Floor Income we earn on certain FFELP Loans. Pursuant to the terms of the FFELP, certain FFELP Loans can earn interest at the stated fixed rate of interest as underlying debt interest rate expense remains variable. We refer to this additional spread income as “Floor Income.” Floor Income can be volatile since it is dependent on interest rate levels. We frequently hedge this volatility with derivatives which lock in the value of the Floor Income over the term of the contract. Interest earned on our Private Education Refinance Loans is generally fixed rate with the related cost of funds generally fixed rate as well. Interest earned on the remaining Private Education Loans is generally indexed to either one-month Prime or LIBOR rates and our cost of funds is primarily indexed to one-month or three-month LIBOR. The use of funding with index types and reset frequencies that are different from our assets exposes us to interest rate risk in the form of basis and repricing risk. This could result in our cost of funds not moving in the same direction or with the same magnitude as the yield on our assets. While we believe this risk is low, as all of these indices are short-term with rate movements that are highly correlated over a long period of time, market disruptions (which have occurred in prior years) can lead to a temporary divergence between indices resulting in a negative impact to our earnings.

Unregistered Sales of Equity Securities and Use of Proceeds

Share Repurchases

The following table provides information relating to our purchases of shares of our common stock in the three months ended March 31, 2022.

(In millions, except per share data) Total Number<br><br><br>of Shares<br><br><br>Purchased^(1)^ Average Price<br><br><br>Paid per<br><br><br>Share Total Number of<br><br><br>Shares Purchased<br><br><br>as Part of Publicly<br><br><br>Announced Plans<br><br><br>or Programs^(2)^ Approximate Dollar<br><br><br>Value of Shares<br><br><br>That May Yet Be<br><br><br>Purchased Under<br><br><br>Publicly Announced<br><br><br>Plans or<br><br><br>Programs^(2)^
Period:
January 1 — January 31, 2022 2.0 $ 20.03 1.9 $ 963
February 1 — February 28, 2022 3.5 18.12 2.7 $ 913
March 1 — March 31, 2022 1.9 17.00 1.6 $ 885
Total first-quarter 2022 7.4 $ 18.33 6.2

^^

^(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 2021, our board of directors approved a $1 billion multi-year share repurchase program.
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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, 2022. Based on this evaluation, our Principal Executive and Principal Financial Officers concluded that, as of March 31, 2022, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) accumulated and communicated to our management, including our Principal Executive and Principal Financial Officers as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Exhibits

10.1^†^* Form of Navient Corporation 2014 Omnibus Incentive Plan Performance Stock Unit Agreement.
31.1* Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1** Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2** Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS* Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH* Inline XBRL Taxonomy Extension Schema Document.
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
^†^ Management Contract or Compensatory Plan or Arrangement
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* Filed herewith
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** Furnished herewith
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Financial Statements

NAVIENT CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except per share amounts)

(Unaudited)

December 31, 2021
Assets
FFELP Loans (net of allowance for losses of 255 and 262, respectively) 51,013 $ 52,641
Private Education Loans (net of allowance for losses of 964 and 1,009,<br>   respectively) 20,088 20,171
Investments
Held-to-maturity 69 74
Other 141 193
Total investments 210 267
Cash and cash equivalents 708 905
Restricted cash and cash equivalents 2,506 2,673
Goodwill and acquired intangible assets, net 722 725
Other assets 2,911 3,223
Total assets 78,158 $ 80,605
Liabilities
Short-term borrowings 3,802 $ 2,490
Long-term borrowings 70,825 74,488
Other liabilities 701 1,019
Total liabilities 75,328 77,997
Commitments and contingencies
Equity
Series A Junior Participating Preferred Stock, par value 0.20 per share;<br>   2 million shares authorized at December 31, 2021; no shares issued<br>   or outstanding — —
Common stock, par value 0.01 per share, 1.125 billion shares authorized:<br>   461 million and 459 million shares issued, respectively 4 4
Additional paid-in capital 3,302 3,282
Accumulated other comprehensive loss (net of tax benefit of 7 and 45,<br>   respectively) (19 ) (133 )
Retained earnings 4,167 3,939
Total Navient Corporation stockholders’ equity before treasury stock 7,454 7,092
Less: Common stock held in treasury at cost: 312 million and 305 million<br>   shares, respectively (4,630 ) (4,495 )
Total Navient Corporation stockholders’ equity 2,824 2,597
Noncontrolling interest 6 11
Total equity 2,830 2,608
Total liabilities and equity 78,158 $ 80,605

All values are in US Dollars.

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

March 31, 2022 December 31, 2021
FFELP Loans $ 50,779 $ 52,502
Private Education Loans 18,224 18,147
Restricted cash 2,471 2,649
Other assets, net 1,500 1,522
Short-term borrowings 2,596 2,188
Long-term borrowings 64,755 67,107
Net assets of consolidated variable interest entities $ 5,623 $ 5,525

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,
2022 2021
Interest income:
FFELP Loans $ 349 $ 373
Private Education Loans 276 319
Cash and investments 1 —
Total interest income 626 692
Total interest expense 289 329
Net interest income 337 363
Less: provisions for loan losses 16 (87 )
Net interest income after provisions for loan losses 321 450
Other income (loss):
Servicing revenue 18 53
Asset recovery and business processing revenue 97 139
Other income 10 —
Gains on sales of loans — 76
Gains (losses) on derivative and hedging activities, net 98 36
Total other income 223 304
Expenses:
Salaries and benefits 120 149
Other operating expenses 85 110
Total operating expenses 205 259
Goodwill and acquired intangible asset impairment and<br><br><br>amortization expense 4 5
Restructuring/other reorganization expenses 3 6
Total expenses 212 270
Income before income tax expense 332 484
Income tax expense 77 114
Net income $ 255 $ 370
Basic earnings per common share $ 1.69 $ 2.02
Average common shares outstanding 151 183
Diluted earnings per common share $ 1.67 $ 2.00
Average common and common equivalent shares<br><br><br>outstanding 153 185
Dividends per common share $ .16 $ .16

See accompanying notes to consolidated financial statements.

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

Three Months Ended March 31,
2022 2021
Net income $ 255 $ 370
Net changes in cash flow hedges, net of taxes^(1)^ 114 48
Total comprehensive income $ 369 $ 418
^(1)^ See “Note 4 – Derivative Financial Instruments.”
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See accompanying notes to consolidated financial statements.

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In millions, except share and per share amounts)

(Unaudited)

Accumulated
Additional Other Total
Common Paid-In Comprehensive Retained Treasury Stockholders' Noncontrolling Total
Treasury Outstanding Stock Capital Income (Loss) Earnings Stock Equity Interest Equity
Balance at December 31, 2020 453,778,975 (267,476,521 ) 186,302,454 $ 4 $ 3,226 $ (274 ) $ 3,331 $ (3,854 ) $ 2,433 $ 14 $ 2,447
Comprehensive income (loss):
Net income — — — — — — 370 — 370 — 370
Other comprehensive income (loss), net of tax — — — — — 48 — — 48 — 48
Total comprehensive income (loss) — — — — — — — — 418 — 418
Cash dividends:
Common stock (.16 per share) — — — — — — (29 ) — (29 ) — (29 )
Dividend equivalent units related to employee<br>   stock-based compensation plans — — — — — — (2 ) — (2 ) — (2 )
Issuance of common shares 3,624,586 — 3,624,586 — 19 — — — 19 — 19
Stock-based compensation expense — — — — 10 — — — 10 — 10
Common stock repurchased — (8,178,100 ) (8,178,100 ) — — — — (100 ) (100 ) — (100 )
Shares repurchased related to employee<br>   stock-based compensation plans — (2,235,658 ) (2,235,658 ) — — — — (26 ) (26 ) — (26 )
Balance at March 31, 2021 457,403,561 (277,890,279 ) 179,513,282 $ 4 $ 3,255 $ (226 ) $ 3,670 $ (3,980 ) $ 2,723 $ 14 $ 2,737
Balance at December 31, 2021 458,629,384 (304,886,613 ) 153,742,771 $ 4 $ 3,282 $ (133 ) $ 3,939 $ (4,495 ) $ 2,597 $ 11 $ 2,608
Comprehensive income (loss):
Net income — — — — — — 255 — 255 — 255
Other comprehensive income (loss), net of tax — — — — — 114 — — 114 — 114
Total comprehensive income (loss) — — — — — — — — 369 — 369
Cash dividends: —
Common stock (.16 per share) — — — — — — (24 ) — (24 ) — (24 )
Dividend equivalent units related to employee<br>   stock-based compensation plans — — — — — — (3 ) — (3 ) — (3 )
Issuance of common shares 2,359,901 — 2,359,901 — 11 — — — 11 — 11
Stock-based compensation expense — — — — 9 — — — 9 — 9
Common stock repurchased — (6,247,437 ) (6,247,437 ) — — — — (115 ) (115 ) — (115 )
Shares repurchased related to employee<br>   stock-based compensation plans — (1,110,584 ) (1,110,584 ) — — — — (20 ) (20 ) — (20 )
Net activity in noncontrolling interest — — — — — — — — — (5 ) (5 )
Balance at March 31, 2022 460,989,285 (312,244,634 ) 148,744,651 $ 4 $ 3,302 $ (19 ) $ 4,167 $ (4,630 ) $ 2,824 $ 6 $ 2,830

All values are in US Dollars.

See accompanying notes to consolidated financial statements.

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

Three Months Ended March 31,
2022 2021
Cash flows from operating activities
Net income $ 255 $ 370
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
(Gains) on sales of education loans — (76 )
Goodwill and acquired intangible asset impairment and amortization expense 4 5
Stock-based compensation expense 9 10
Mark-to-market (gains) losses on derivative and hedging activities, net (314 ) (198 )
Provisions for loan losses 16 (87 )
Decrease in accrued interest receivable 48 80
(Decrease) in accrued interest payable (15 ) (45 )
Decrease in other assets 174 111
(Decrease) increase in other liabilities (286 ) 9
Total adjustments (364 ) (191 )
Net cash (used in) provided by operating activities (109 ) 179
Cash flows from investing activities
Education loans originated and acquired (1,091 ) (1,734 )
Proceeds from payments on education loans 2,789 3,009
Proceeds from sales of education loans — 1,588
Other investing activities, net 53 22
Net cash provided by investing activities 1,751 2,885
Cash flows from financing activities
Borrowings collateralized by loans in trust - issued 995 1,828
Borrowings collateralized by loans in trust - repaid (3,296 ) (2,846 )
Asset-backed commercial paper conduits, net 391 (1,735 )
Long-term unsecured notes issued — 495
Long-term unsecured notes repaid — (78 )
Other financing activities, net 43 (34 )
Common stock repurchased (115 ) (100 )
Common dividends paid (24 ) (29 )
Net cash used in financing activities (2,006 ) (2,499 )
Net (decrease) increase in cash, cash equivalents, restricted cash and restricted cash equivalents (364 ) 565
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period 3,578 3,537
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period $ 3,214 $ 4,102
Supplemental disclosure of cash flow information:
Cash disbursements made (refunds received) for:
Interest paid $ 300 $ 362
Income taxes paid $ 5 $ 1
Income taxes refunds received $ (4 ) $ —
Noncash activity:
Investing activity - Held-to-maturity asset backed securities retained related to sales of<br><br><br>education loans $ — $ 53
Operating activity - Servicing assets recognized upon sales of education loans $ — $ 20
Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated<br><br><br>Balance Sheets:
Cash and cash equivalents $ 708 $ 1,497
Restricted cash and restricted cash equivalents 2,506 2,605
Total cash, cash equivalents, restricted cash and restricted cash equivalents at end of period $ 3,214 $ 4,102

See accompanying notes to consolidated financial statements.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

1.   Significant Accounting Policies

Basis of Presentation

The accompanying unaudited, consolidated financial statements of Navient have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. The consolidated financial statements include the accounts of Navient and its majority-owned and controlled subsidiaries and those Variable Interest Entities (VIEs) for which we are the primary beneficiary, after eliminating the effects of intercompany accounts and transactions. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results for the year ending December 31, 2021 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, 2021 (the 2021 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 2021 Form 10-K.

Recently Issued Accounting Pronouncements

In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments – Credit Losses: Troubled Debt Restructurings and Vintage Disclosures,” which eliminates the troubled debt restructurings (TDRs) recognition and measurement guidance and instead requires an entity to evaluate whether the modification represents a new loan or a continuation of an existing loan. The ASU also enhances the disclosure requirements for certain modifications of receivables made to borrowers experiencing financial difficulty. This guidance is effective on January 1, 2023. Early adoption is permissible. The Company is currently assessing the potential impact of this amendment.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

2.   Allowance for Loan Losses

Allowance for Loan Losses Metrics

Three Months Ended March 31, 2022
(Dollars in millions) FFELP Loans Private Education Loans Total
Allowance at beginning of period $ 262 $ 1,009 $ 1,271
Total provision — 16 16
Charge-offs^(1)^ (7 ) (69 ) (76 )
Decrease in expected future recoveries on charged-off loans^(2)^ — 8 8
Allowance at end of period 255 964 1,219
Plus: expected future recoveries on charged-off loans^(2)^ — 321 321
Allowance at end of period excluding expected future recoveries on<br><br><br>charged-off loans^(3)^ $ 255 $ 1,285 $ 1,540
Charge-offs as a percentage of average loans in repayment<br><br><br>(annualized) .07 % 1.38 %
Allowance coverage of charge-offs (annualized)^(3)^ 8.8 4.6
Allowance as a percentage of the ending total loan balance^(3)^ .5 % 6.1 %
Allowance as a percentage of ending loans in repayment^(3)^ .6 % 6.3 %
Ending total loans $ 51,268 $ 21,052
Average loans in repayment $ 43,125 $ 20,387
Ending loans in repayment $ 42,724 $ 20,257
^(1)^ Charge-offs are reported net of expected recoveries. For Private Education Loans, at the time of charge-off, the expected recovery amount is transferred from the education loan balance to the allowance for loan loss and is referred to as the expected future recoveries on charged-off loans. For FFELP Loans, the recovery is received at the time of charge-off.
--- ---
^(^^2^^)^ At the end of each month, for Private Education Loans that are 212 or more days past due, we charge off the estimated loss of a defaulted loan balance. Actual recoveries are applied against the remaining loan balance that was not charged off. We refer to this as the “expected future recoveries on charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately charged off through the allowance for Private Education Loan losses with an offsetting reduction in the expected future recoveries for charged-off loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. The following table summarizes the activity in the expected future recoveries on charged-off loans:
--- ---
Three Months Ended March 31,
--- --- --- ---
(Dollars in millions) 2022
Beginning of period expected recoveries $ 329
Expected future recoveries of current period defaults^(1)^ 12
Recoveries^(2)^ (15 )
Charge-offs^(3)^ (5 )
End of period expected recoveries $ 321
Change in balance during period $ (8 )
^(^^3^^)^ The allowance used for these metrics excludes the expected future recoveries on charged-off loans to better reflect the current expected credit losses remaining in the portfolio.
--- ---

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

2.   Allowance for Loan Losses (Continued)

Three Months Ended March 31, 2021
(Dollars in millions) FFELP Loans Private Education<br><br><br>Loans Total
Allowance at beginning of period $ 288 $ 1,089 $ 1,377
Provision:
Reversal of allowance related to loan sales^(1)^ — (102 ) (102 )
Remaining provision — 15 15
Total provision — (87 ) (87 )
Charge-offs^(2)^ (6 ) (35 ) (41 )
Decrease in expected future recoveries on charged-off loans^(3)^ — 25 25
Allowance at end of period 282 992 1,274
Plus: expected future recoveries on charged-off loans^(3)^ — 454 454
Allowance at end of period excluding expected future recoveries on<br><br><br>charged-off loans^(4)^ $ 282 $ 1,446 $ 1,728
Charge-offs as a percentage of average loans in repayment<br><br><br>(annualized) .06 % .68 %
Allowance coverage of charge-offs^(4)^ 10.7 10.2
Allowance as a percentage of the ending total loan balance^(4)^ .5 % 7.0 %
Allowance as a percentage of ending loans in repayment^(4)^ .6 % 7.4 %
Ending total loans $ 57,155 $ 20,734
Average loans in repayment $ 47,044 $ 20,883
Ending loans in repayment $ 45,922 $ 19,480
^(1)^ In connection with the sale of approximately $1.6 billion of Private Education Loans.
--- ---
^(^^2^^)^ Charge-offs are reported net of expected recoveries. For Private Education Loans, at the time of charge-off, the expected recovery amount is transferred from the education loan balance to the allowance for loan loss and is referred to as the expected future recoveries on charged-off loans. For FFELP Loans, the recovery is received at the time of charge-off.
--- ---
^(^^3^^)^ At the end of each month, for Private Education Loans that are 212 or more days past due, we charge off the estimated loss of a defaulted loan balance. Actual recoveries are applied against the remaining loan balance that was not charged off. We refer to this as the “expected future recoveries on charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately charged off through the allowance for Private Education Loan losses with an offsetting reduction in the expected future recoveries for charged-off loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. The following table summarizes the activity in the expected future recoveries on charged-off loans:
--- ---
Three Months Ended March 31,
--- --- --- ---
(Dollars in millions) 2021
Beginning of period expected recoveries $ 479
Expected future recoveries of current period defaults 5
Recoveries (25 )
Charge-offs (5 )
End of period expected recoveries $ 454
Change in balance during period $ (25 )
^(^^4^^)^ The allowance used for these metrics excludes the expected future recoveries on charged-off loans to better reflect the current expected credit losses remaining in the portfolio.
--- ---

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

2.   Allowance for Loan Losses (Continued)

Troubled Debt Restructurings (“TDRs”)

We sometimes modify the terms of loans for customers experiencing financial difficulty. Certain Private Education Loans for which we have granted either a forbearance of greater than three months, an interest rate reduction or an extended repayment plan are classified as TDRs. Approximately 75% of the loans granted forbearance have qualified as a TDR loan at both March 31, 2022 and December 31, 2021. The unpaid principal balance of TDR loans that were in an interest rate reduction program as of March 31, 2022 and December 31, 2021 was $838 million and $831 million, respectively.

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

Three Months Ended March 31,
(Dollars in millions) 2022 2021
Modified loans $ 55 $ 40
Charge-offs $ 56 $ 26
Payment default $ 9 $ 5

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

2.   Allowance for Loan Losses (Continued)

Key Credit Quality Indicators

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

FFELP Loans

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

FFELP Loan Delinquencies
March 31, 2022 December 31, 2021 March 31, 2021
(Dollars in millions) Balance % Balance % Balance %
Loans in-school/grace/deferment^(1)^ $ 2,232 $ 2,220 $ 2,781
Loans in forbearance^(2)^ 6,312 6,292 8,452
Loans in repayment and percentage of each status:
Loans current 36,948 86.5 % 39,679 89.4 % 42,127 91.7 %
Loans delinquent 31-60 days^(3)^ 1,888 4.4 1,696 3.8 1,377 3.0
Loans delinquent 61-90 days^(3)^ 1,148 2.7 904 2.0 813 1.8
Loans delinquent greater than 90 days^(3)^ 2,740 6.4 2,112 4.8 1,605 3.5
Total FFELP Loans in repayment 42,724 100 % 44,391 100 % 45,922 100 %
Total FFELP Loans 51,268 52,903 57,155
FFELP Loan allowance for losses (255 ) (262 ) (282 )
FFELP Loans, net $ 51,013 $ 52,641 $ 56,873
Percentage of FFELP Loans in repayment 83.3 % 83.9 % 80.3 %
Delinquencies as a percentage of FFELP Loans in<br><br><br>repayment 13.5 % 10.6 % 8.3 %
FFELP Loans in forbearance as a percentage of<br><br><br>loans in repayment and forbearance 12.9 % 12.4 % 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 such as disaster relief, including COVID-19 relief programs, consistent with established loan program servicing policies and procedures.
--- ---
^(3)^ The period of delinquency is based on the number of days scheduled payments are contractually past due.
--- ---

Loan type:

(Dollars in millions) March 31, 2022 March 31, 2021 Change
Stafford Loans $ 15,975 $ 17,327 $ (1,352 )
Consolidation Loans 30,665 34,961 (4,296 )
Rehab Loans 4,628 4,867 (239 )
Total loans, gross $ 51,268 $ 57,155 $ (5,887 )

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

2.   Allowance for Loan Losses (Continued)

Private Education Loans

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

Private Education Loan Credit Quality Indicators by Origination Year
March 31, 2022
(Dollars in millions) March 31, 2022 2021 2020 2019 2018 Prior Total % of Total
Credit Quality<br><br><br>Indicators
FICO Scores:
640 and above $ 948 $ 5,037 $ 1,783 $ 1,683 $ 626 $ 9,314 $ 19,391 92 %
Below 640 8 44 16 37 21 1,535 $ 1,661 8
Total $ 956 $ 5,081 $ 1,799 $ 1,720 $ 647 $ 10,849 $ 21,052 100 %
Loan Status:
In-school/grace/<br><br><br>deferment/forbearance $ 5 $ 64 $ 25 $ 34 $ 13 $ 654 $ 795 4 %
Current/90 days or<br><br><br>less delinquent 951 5,015 1,772 1,684 632 9,889 $ 19,943 95
Greater than 90 days<br><br><br>delinquent — 2 2 2 2 306 314 1
Total $ 956 $ 5,081 $ 1,799 $ 1,720 $ 647 $ 10,849 $ 21,052 100 %
Seasoning^(1)^:
1-12 payments $ 951 $ 4,740 $ 26 $ 17 $ 3 $ 115 $ 5,852 28 %
13-24 payments — 300 1,555 108 11 134 $ 2,108 10
25-36 payments — — 201 1,507 46 225 $ 1,979 9
37-48 payments — — — 68 545 369 $ 982 5
More than 48<br><br><br>payments — — — — 35 9,719 $ 9,754 46
Loans in-school/<br><br><br>grace/deferment 5 41 17 20 7 287 377 2
Total $ 956 $ 5,081 $ 1,799 $ 1,720 $ 647 $ 10,849 $ 21,052 100 %
TDR Status:
TDR $ — $ 9 $ 15 $ 43 $ 28 $ 6,998 $ 7,093 34 %
Non-TDR 956 5,072 1,784 1,677 619 3,851 13,959 66
Total $ 956 $ 5,081 $ 1,799 $ 1,720 $ 647 $ 10,849 $ 21,052 100 %
Cosigners:
With cosigner^(2)^ $ 11 $ 97 $ 31 $ 11 $ — $ 6,994 $ 7,144 34 %
Without cosigner 945 4,984 1,768 1,709 647 3,855 13,908 66
Total $ 956 $ 5,081 $ 1,799 $ 1,720 $ 647 $ 10,849 $ 21,052 100 %
School Type:
Not-for-profit $ 893 $ 4,786 $ 1,719 $ 1,602 $ 595 $ 9,048 $ 18,643 89 %
For-profit 63 295 80 118 52 1,801 2,409 11
Total $ 956 $ 5,081 $ 1,799 $ 1,720 $ 647 $ 10,849 $ 21,052 100 %
Allowance for loan<br><br><br>losses (964 )
Total loans, net $ 20,088
^(1)^ Number of months in active repayment for which a scheduled payment was received.
--- ---
^(2)^ Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 65% for total loans at March 31, 2022.
--- ---

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

2.   Allowance for Loan Losses (Continued)

Private Education Loan Credit Quality Indicators by Origination Year
March 31, 2021
(Dollars in millions) March 31, 2021 2020 2019 2018 2017 Prior Total % of Total
Credit Quality<br><br><br>Indicators
FICO Scores:
640 and above $ 1,485 $ 2,835 $ 2,553 $ 929 $ 291 $ 10,736 $ 18,829 91 %
Below 640 10 12 35 24 9 1,815 $ 1,905 9
Total $ 1,495 $ 2,847 $ 2,588 $ 953 $ 300 $ 12,551 $ 20,734 100 %
Loan Status:
In-school/grace/<br><br><br>deferment/forbearance $ 6 $ 29 $ 45 $ 23 $ 8 $ 1,143 $ 1,254 6 %
Current/90 days or<br><br><br>less delinquent 1,489 2,817 2,541 929 291 11,232 $ 19,299 93
Greater than 90 days<br><br><br>delinquent — 1 2 1 1 176 181 1
Total $ 1,495 $ 2,847 $ 2,588 $ 953 $ 300 $ 12,551 $ 20,734 100 %
Seasoning^(1)^:
1-12 payments $ 1,491 $ 2,517 $ 131 $ 6 $ 1 $ 159 $ 4,305 21 %
13-24 payments — 314 2,330 54 5 198 $ 2,901 14
25-36 payments — — 105 823 28 327 $ 1,283 6
37-48 payments — — — 58 251 512 $ 821 4
More than 48<br><br><br>payments — — — — 12 10,955 $ 10,967 53
Loans in-school/<br><br><br>grace/deferment 4 16 22 12 3 400 457 2
Total $ 1,495 $ 2,847 $ 2,588 $ 953 $ 300 $ 12,551 $ 20,734 100 %
TDR Status:
TDR $ — $ 2 $ 18 $ 25 $ 31 $ 7,742 $ 7,818 38 %
Non-TDR 1,495 2,845 2,570 928 269 4,809 12,916 62
Total $ 1,495 $ 2,847 $ 2,588 $ 953 $ 300 $ 12,551 $ 20,734 100 %
Cosigners:
With cosigner^(2)^ $ 3 $ 32 $ 13 $ 1 $ 43 $ 8,249 $ 8,341 40 %
Without cosigner 1,492 2,815 2,575 952 257 4,302 12,393 60
Total $ 1,495 $ 2,847 $ 2,588 $ 953 $ 300 $ 12,551 $ 20,734 100 %
School Type:
Not-for-profit $ 1,408 $ 2,718 $ 2,416 $ 879 $ 287 $ 10,417 $ 18,125 87 %
For-profit 87 129 172 74 13 2,134 2,609 13
Total $ 1,495 $ 2,847 $ 2,588 $ 953 $ 300 $ 12,551 $ 20,734 100 %
Allowance for loan<br><br><br>losses (992 )
Total loans, net $ 19,742
^(1)^ Number of months in active repayment for which a scheduled payment was received.
--- ---
^(2)^ Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 65% for total loans at March 31, 2021.
--- ---

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

2.   Allowance for Loan Losses (Continued)

Private Education Loan Delinquencies
TDRs
March 31, 2022 December 31, 2021 March 31, 2021
(Dollars in millions) Balance % Balance % Balance %
Loans in-school/grace/deferment^(1)^ $ 191 $ 194 $ 255
Loans in forbearance^(2)^ 338 446 668
Loans in repayment and percentage of each status:
Loans current 5,823 88.7 % 6,023 91.0 % 6,477 94.0 %
Loans delinquent 31-60 days^(3)^ 259 3.9 199 3.0 160 2.3
Loans delinquent 61-90 days^(3)^ 189 2.9 120 1.8 92 1.3
Loans delinquent greater than 90 days^(3)^ 293 4.5 274 4.2 166 2.4
Total TDR loans in repayment 6,564 100 % 6,616 100 % 6,895 100 %
Total TDR loans 7,093 7,256 7,818
TDR loans allowance for losses (785 ) (829 ) (857 )
TDR loans, net $ 6,308 $ 6,427 $ 6,961
Percentage of TDR loans in repayment 92.5 % 91.2 % 88.2 %
Delinquencies as a percentage of TDR loans in<br><br><br>repayment 11.3 % 9.0 % 6.0 %
Loans in forbearance as a percentage of TDR<br><br><br>loans in repayment and forbearance 4.9 % 6.3 % 8.8 %
^(1)^ Loans for customers who are attending school or are in other permitted educational activities and are not yet required to make payments on their loans, e.g., internship periods, as well as loans for customers who have requested and qualify for other permitted program deferments such as various military eligible deferments.
--- ---
^(2)^ Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors such as disaster relief, including COVID-19 relief programs, consistent with established loan program servicing policies and procedures.
--- ---
^(3)^ The period of delinquency is based on the number of days scheduled payments are contractually past due.
--- ---

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

2.   Allowance for Loan Losses (Continued)

Private Education Loan Delinquencies
Non-TDRs
March 31, 2022 December 31, 2021 March 31, 2021
(Dollars in millions) Balance % Balance % Balance %
Loans in-school/grace/deferment^(1)^ $ 186 $ 167 $ 202
Loans in forbearance^(2)^ 80 89 129
Loans in repayment and percentage of each status:
Loans current 13,624 99.5 % 13,611 99.6 % 12,543 99.7 %
Loans delinquent 31-60 days^(3)^ 31 .2 23 .2 19 .1
Loans delinquent 61-90 days^(3)^ 17 .1 11 .1 8 .1
Loans delinquent greater than 90 days^(3)^ 21 .2 23 .1 15 .1
Total non-TDR loans in repayment 13,693 100 % 13,668 100 % 12,585 100 %
Total non-TDR loans 13,959 13,924 12,916
Non-TDR loans allowance for losses (179 ) (180 ) (135 )
Non-TDR loans, net $ 13,780 $ 13,744 $ 12,781
Percentage of non-TDR loans in repayment 98.1 % 98.2 % 97.4 %
Delinquencies as a percentage of non-TDR loans in<br><br><br>repayment .5 % .4 % .3 %
Loans in forbearance as a percentage of non-TDR<br><br><br>loans in repayment and forbearance .6 % .6 % 1.0 %
^(1)^ Loans for customers who are attending school or are in other permitted educational activities and are not yet required to make payments on their loans, e.g., internship periods, as well as loans for customers who have requested and qualify for other permitted program deferments such as various military eligible deferments.
--- ---
^(2)^ Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors such as disaster relief, including COVID-19 relief programs, consistent with established loan program servicing policies and procedures.
--- ---
^(3)^ The period of delinquency is based on the number of days scheduled payments are contractually past due.
--- ---

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

3.   Borrowings

The following table summarizes our borrowings.

March 31, 2022 December 31, 2021
(Dollars in millions) Short<br><br><br>Term Long<br><br><br>Term Total Short<br><br><br>Term Long<br><br><br>Term Total
Unsecured borrowings:
Senior unsecured debt^(1)^ $ 999 $ 6,018 $ 7,017 $ — $ 7,014 $ 7,014
Total unsecured borrowings 999 6,018 7,017 — 7,014 7,014
Secured borrowings:
FFELP Loan securitizations^(2)(3)^ — 49,622 49,622 — 51,841 51,841
Private Education Loan securitizations^(4)^ 515 14,038 14,553 543 14,074 14,617
FFELP Loan ABCP facilities 619 145 764 282 150 432
Private Education Loan ABCP facilities 1,462 1,114 2,576 1,363 1,152 2,515
Other^(5)^ 204 — 204 302 — 302
Total secured borrowings 2,800 64,919 67,719 2,490 67,217 69,707
Total before hedge accounting adjustments 3,799 70,937 74,736 2,490 74,231 76,721
Hedge accounting adjustments 3 (112 ) (109 ) — 257 257
Total $ 3,802 $ 70,825 $ 74,627 $ 2,490 $ 74,488 $ 76,978
^(1)^ Includes principal amount of $1.0 billion and $0 of short-term debt as of March 31, 2022 and December 31, 2021, respectively. Includes principal amount of $6.0 billion and $7.0 billion of long-term debt as of March 31, 2022 and December 31, 2021, respectively.
--- ---
^(2)^ Includes $93 million and $49 million of long-term debt related to the FFELP Loan asset-backed securitization repurchase facilities (FFELP Loan Repurchase Facilities) as of March 31, 2022 and December 31, 2021, respectively.
--- ---
^(^^3^^)^ Includes defaulted FFELP secured debt tranches with a remaining principal amount of $683 million as of March 31, 2022 as a result of not maturing by their respective contractual maturity dates. Notices were delivered to the trustee, rating agencies and bondholders alerting them to these maturity date defaults. At this time, it is expected the bonds will be paid in full between 2029 and 2035. There is no impact to the principal amount owed or the coupon at which the bonds accrue, and there is no revised contractual maturity date.
--- ---
^(^^4^^)^ Includes $515 million and $543 million of short-term debt related to the Private Education Loan asset-backed securitization repurchase facilities (Private Education Loan Repurchase Facilities) as of March 31, 2022 and December 31, 2021, respectively.
--- ---
^(^^5^^)^ “Other” primarily includes the obligation to return cash collateral held related to derivative exposures.
--- ---

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

3.   Borrowings (Continued)

Variable Interest Entities

We consolidated the following financing VIEs as of March 31, 2022 and December 31, 2021, as we are the primary beneficiary. As a result, these VIEs are accounted for as secured borrowings.

March 31, 2022
Debt Outstanding Carrying Amount of Assets Securing<br><br><br>Debt Outstanding
(Dollars in millions) Short<br><br><br>Term Long<br><br><br>Term Total Loans Cash Other<br><br><br>Assets Total
Secured Borrowings — VIEs:
FFELP Loan securitizations $ — $ 49,622 $ 49,622 $ 50,024 $ 1,860 $ 1,535 $ 53,419
Private Education Loan securitizations 515 14,038 14,553 15,467 518 138 16,123
FFELP Loan ABCP facilities 619 145 764 755 14 26 795
Private Education Loan ABCP facilities 1,462 1,114 2,576 2,757 79 30 2,866
Total before hedge accounting<br><br><br>adjustments 2,596 64,919 67,515 69,003 2,471 1,729 73,203
Hedge accounting adjustments — (164 ) (164 ) — — (229 ) (229 )
Total $ 2,596 $ 64,755 $ 67,351 $ 69,003 $ 2,471 $ 1,500 $ 72,974
December 31, 2021
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Debt Outstanding Carrying Amount of Assets Securing<br><br><br>Debt Outstanding
(Dollars in millions) Short<br><br><br>Term Long<br><br><br>Term Total Loans Cash Other<br><br><br>Assets Total
Secured Borrowings — VIEs:
FFELP Loan securitizations $ — $ 51,841 $ 51,841 $ 52,066 $ 2,073 $ 1,520 $ 55,659
Private Education Loan securitizations 543 14,074 14,617 15,506 505 150 16,161
FFELP Loan ABCP facilities 282 150 432 436 8 15 459
Private Education Loan ABCP facilities 1,363 1,152 2,515 2,641 63 32 2,736
Total before hedge accounting<br><br><br>adjustments 2,188 67,217 69,405 70,649 2,649 1,717 75,015
Hedge accounting adjustments — (110 ) (110 ) — — (195 ) (195 )
Total $ 2,188 $ 67,107 $ 69,295 $ 70,649 $ 2,649 $ 1,522 $ 74,820

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

4.   Derivative Financial Instruments

Summary of Derivative Financial Statement Impact

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

Impact of Derivatives on Balance Sheet

Cash Flow Fair Value^(3)^ Trading Total
(Dollars in millions) Hedged Risk<br><br><br>Exposure Mar 31, 2022 Dec 31, 2021 Mar 31, 2022 Dec 31, 2021 Mar 31, 2022 Dec 31, 2021 Mar 31, 2022 Dec 31, 2021
Fair Values^(1)^
Derivative Assets:
Interest rate swaps Interest rate $ — $ — $ 150 $ 222 $ 1 $ 2 $ 151 $ 224
Cross-currency interest rate<br><br><br>swaps Foreign currency and<br><br><br>interest rate — — — — — — — —
Total derivative assets^(2)^ — — 150 222 1 2 151 224
Derivative Liabilities:
Interest rate swaps Interest rate — — — — (4 ) (5 ) (4 ) (5 )
Floor Income Contracts Interest rate — — — — (9 ) (65 ) (9 ) (65 )
Cross-currency interest rate<br><br><br>swaps Foreign currency and<br><br><br>interest rate — — (226 ) (190 ) — — (226 ) (190 )
Total derivative liabilities^(2)^ — — (226 ) (190 ) (13 ) (70 ) (239 ) (260 )
Net total derivatives $ — $ — $ (76 ) $ 32 $ (12 ) $ (68 ) $ (88 ) $ (36 )
^(1)^ Fair values reported are exclusive of collateral held and pledged and accrued interest. Assets and liabilities are presented without consideration of master netting agreements. Derivatives are carried on the balance sheet based on net position by counterparty under master netting agreements and classified in other assets or other liabilities depending on whether in a net positive or negative position.
--- ---
^(2)^ The following table reconciles gross positions without the impact of master netting agreements to the balance sheet classification:
--- ---
Other Assets Other Liabilities
--- --- --- --- --- --- --- --- --- --- --- --- ---
(Dollar in millions) March 31, 2022 December 31, 2021 March 31, 2022 December 31, 2021
Gross position $ 151 $ 224 $ (239 ) $ (260 )
Impact of master netting agreements — (6 ) — 6
Derivative values with impact of master netting<br><br><br>agreements (as carried on balance sheet) 151 218 (239 ) (254 )
Cash collateral (held) pledged (152 ) (244 ) 95 147
Net position $ (1 ) $ (26 ) $ (144 ) $ (107 )
^(^^3^^)^ The following table shows the carrying value of liabilities in fair value hedges and the related fair value hedging adjustments to these liabilities:
--- ---
As of March 31, 2022 As of December 31, 2021
--- --- --- --- --- --- --- --- --- ---
(Dollar in millions) Carrying<br><br><br>Value Hedge Basis Adjustments Carrying<br><br><br>Value Hedge Basis Adjustments
Short-term borrowings $ 1,000 $ 3 $ — $ —
Long-term borrowings $ 7,076 $ (116 ) $ 8,503 $ 252

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

4.   Derivative Financial Instruments (Continued)

The above fair values include adjustments when necessary for counterparty credit risk for both when we are exposed to the counterparty, net of collateral postings, and when the counterparty is exposed to us, net of collateral postings. The net adjustments decreased the asset position at March 31, 2022 and December 31, 2021 by $9 million and $8 million, respectively. In addition, the above fair values reflect adjustments for illiquid derivatives as indicated by a wide bid/ask spread in the interest rate indices to which the derivatives are indexed. These adjustments decreased the overall net asset positions at March 31, 2022 and December 31, 2021 by $2 million and $2 million, respectively.

Cash Flow Fair Value Trading Total
(Dollars in billions) Mar 31, 2022 Dec 31, 2021 Mar 31, 2022 Dec 31, 2021 Mar 31, 2022 Dec 31, 2021 Mar 31, 2022 Dec 31, 2021
Notional Values:
Interest rate swaps $ 11.4 $ 12.1 $ 6.2 $ 6.2 $ 26.8 $ 28.4 $ 44.4 $ 46.7
Floor Income Contracts — — — — 8.1 12.5 8.1 12.5
Cross-currency interest rate swaps — — 2.0 2.1 — — 2.0 2.1
Total derivatives $ 11.4 $ 12.1 $ 8.2 $ 8.3 $ 34.9 $ 40.9 $ 54.5 $ 61.3

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

Total Gains (Losses)
Three Months Ended March 31,
(Dollars in millions) 2022 2021
Fair Value Hedges:
Interest Rate Swaps
Gains (losses) recognized in net income on derivatives $ (288 ) $ (197 )
Gains (losses) recognized in net income on hedged items 313 212
Net fair value hedge ineffectiveness gains (losses) 25 15
Cross currency interest rate swaps
Gains (losses) recognized in net income on derivatives (36 ) 70
Gains (losses) recognized in net income on hedged items 52 (40 )
Net fair value hedge ineffectiveness gains (losses) 16 30
Total fair value hedges^(1)(2)^ 41 45
Cash Flow Hedges:
Total cash flow hedges^(2)^ — —
Trading:
Interest rate swaps 62 22
Floor income contracts 36 14
Cross currency interest rate swaps — —
Other — —
Total trading derivatives^(3)^ 98 36
Mark-to-market gains (losses) recognized $ 139 $ 81
^(1)^ Recorded in interest expense in the consolidated statements of income.
--- ---
^(2)^ The accrued interest income (expense) on fair value hedges and cash flow hedges is recorded in interest expense and is excluded from this table.
--- ---
^(3)^ Recorded in “gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.
--- ---

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

4.   Derivative Financial Instruments (Continued)

Impact of Derivatives on Other Comprehensive Income (Equity)

Three Months Ended March 31,
(Dollars in millions) 2022 2021
Total gains (losses) on cash flow hedges $ 93 $ 27
Reclassification adjustments for derivative (gains) losses<br><br><br>included in net income (interest expense)^(1)^ 21 21
Net changes in cash flow hedges, net of tax $ 114 $ 48
^(1)^ Includes net settlement income/expense.
--- ---

Collateral

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

(Dollars in millions) March 31, 2022 December 31, 2021
Collateral held:
Cash (obligation to return cash collateral is recorded in short-term borrowings) $ 152 $ 244
Securities at fair value — corporate derivatives (not recorded in financial<br><br><br>statements)^(1)^ — —
Securities at fair value — on-balance sheet securitization derivatives (not<br><br><br>recorded in financial statements)^(2)^ — 1
Total collateral held $ 152 $ 245
Derivative asset at fair value including accrued interest $ 159 $ 242
Collateral pledged to others:
Cash (right to receive return of cash collateral is recorded in investments) $ 95 $ 147
Total collateral pledged $ 95 $ 147
Derivative liability at fair value including accrued interest and premium<br><br><br>receivable $ 256 $ 271
^(1)^ The Company has the ability to sell or re-pledge securities it holds as collateral.
--- ---
^(2)^ The trusts do not have the ability to sell or re-pledge securities they hold as collateral.
--- ---

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

4.   Derivative Financial Instruments (Continued)

Our corporate derivatives contain credit contingent features. At our current unsecured credit rating, we have fully collateralized our corporate derivative liability position (including accrued interest and net of premiums receivable) of $24 million with our counterparties. Downgrades in our unsecured credit rating would not result in any additional collateral requirements. Trust related derivatives do not contain credit contingent features related to our or the trusts’ credit ratings. At March 31, 2022 and December 31, 2021, we had a net positive exposure (derivative gain positions to us less collateral which has been posted by counterparties to us) related to Navient Corporation derivatives of $15 million and $9 million, respectively. The trusts are not required to post collateral to the counterparties. At March 31, 2022 and December 31, 2021, the net positive exposure on swaps in securitization trusts was $0 and $0, respectively

The table below highlights credit exposure related to our derivative counterparties at March 31, 2022.

(Dollars in millions) Corporate<br><br><br>Contracts Securitization<br><br><br>Trust<br><br><br>Contracts
Exposure, net of collateral $ 15 $ —
Percent of exposure to counterparties with credit ratings<br><br><br>below S&P AA- or Moody’s Aa3 100 % — %
Percent of exposure to counterparties with credit ratings<br><br><br>below S&P A- or Moody’s A3 32 % — %

5.   Other Assets

The following table provides the detail of our other assets.

(Dollars in millions) March 31, 2022 December 31, 2021
Accrued interest receivable $ 1,834 $ 1,881
Benefit and insurance-related investments 456 462
Income tax asset, net 255 369
Derivatives at fair value 151 218
Accounts receivable 109 159
Fixed assets 91 95
Other 15 39
Total $ 2,911 $ 3,223

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

6.   Stockholders’ Equity

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

Three Months Ended March 31,
(Dollars and shares in millions, except per share amounts) 2022 2021
Common stock repurchased^(1)^ 6.2 8.2
Common stock repurchased (in dollars)^(1)^ $ 115 $ 100
Average purchase price per share^(1)^ $ 18.41 $ 12.23
Remaining common stock repurchase authority^(1)^ $ 885 $ 500
Shares repurchased related to employee stock-<br><br><br>based compensation plans^(2)^ 1.1 2.2
Average purchase price per share^(2)^ $ 17.92 $ 11.91
Common shares issued^(3)^ 2.4 3.6
Dividends paid $ 24 $ 29
Dividends per share $ .16 $ .16
^(1)^ Common shares purchased under our share repurchase program. Our board of directors authorized a $1 billion multi-year share repurchase program in December 2021.
--- ---
^(2)^ Comprises shares withheld from stock option exercises and vesting of restricted stock for employees’ tax withholding obligations and shares tendered by employees to satisfy option exercise costs.
--- ---
^(3)^ Common shares issued under our various compensation and benefit plans.
--- ---

The closing price of our common stock on March 31, 2022 was $17.04.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

7.   Earnings (Loss) per Common Share

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

Three Months Ended March 31,
(In millions, except per share data) 2022 2021
Numerator:
Net income $ 255 $ 370
Denominator:
Weighted average shares used to compute basic EPS 151 183
Effect of dilutive securities:
Dilutive effect of stock options, restricted stock,<br><br><br>restricted stock units, performance stock units,<br><br><br>and Employee Stock Purchase Plan (ESPP)^(1)^ 2 2
Dilutive potential common shares^(2)^ 2 2
Weighted average shares used to compute<br><br><br>diluted EPS 153 185
Basic earnings per common share $ 1.69 $ 2.02
Diluted earnings per common share $ 1.67 $ 2.00
^(1)^ Includes the potential dilutive effect of additional common shares that are issuable upon exercise of outstanding stock options, restricted stock, restricted stock units, performance stock units and the outstanding commitment to issue shares under applicable ESPPs, determined by the treasury stock method.
--- ---
^(2)^ For the three months ended March 31, 2022 and 2021, securities covering approximately 0 million and 2 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive.
--- ---

8.   Fair Value Measurements

We use estimates of fair value in applying various accounting standards in our financial statements. We categorize our fair value estimates based on a hierarchical framework associated with three levels of price transparency utilized in measuring financial instruments at fair value. See “Note 11 – Fair Value Measurements” in our 2021 Form 10-K for a full discussion.

During the three months ended March 31, 2022, there were no significant transfers of financial instruments between levels, or changes in our methodology used to value our financial instruments.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

8.   Fair Value Measurements (Continued)

The following table summarizes the valuation of our financial instruments that are marked-to-market on a recurring basis. During the third quarters of 2022 and 2021, there were no significant transfers of financial instruments between levels.

Fair Value Measurements on a Recurring Basis
March 31, 2022 December 31, 2021
(Dollars in millions) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Assets
Derivative instruments:^(1)^
Interest rate swaps — 150 1 151 — 223 1 224
Cross-currency interest rate swaps — — — — — — — —
Total derivative assets^(2)^ — 150 1 151 — 223 1 224
Total $ — $ 150 $ 1 $ 151 $ — $ 223 $ 1 $ 224
Liabilities^(3)^
Derivative instruments^(1)^
Interest rate swaps $ — $ — $ (4 ) $ (4 ) $ — $ — $ (5 ) $ (5 )
Floor Income Contracts — (9 ) — (9 ) — (65 ) — (65 )
Cross-currency interest rate swaps — — (226 ) (226 ) — — (190 ) (190 )
Total derivative liabilities^(2)^ — (9 ) (230 ) (239 ) — (65 ) (195 ) (260 )
Total $ — $ (9 ) $ (230 ) $ (239 ) $ — $ (65 ) $ (195 ) $ (260 )
^(1)^ Fair value of derivative instruments excludes accrued interest and the value of collateral.
--- ---
^(2)^ See "Note 4 – Derivative Financial Instruments" for a reconciliation of gross positions without the impact of master netting agreements to the balance sheet classification.
--- ---
^(3)^ Borrowings which are the hedged item in a fair value hedge relationship and which are adjusted for changes in value due to benchmark interest rates only are not carried at full fair value and not reflected in this table.
--- ---

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

8.   Fair Value Measurements (Continued)

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

Three Months Ended March 31,
2022 2021
Derivative instruments Derivative instruments
(Dollars in millions) Interest<br><br><br>Rate Swaps Cross<br><br><br>Currency<br><br><br>Interest<br><br><br>Rate Swaps Other Total<br><br><br>Derivative<br><br><br>Instruments Interest<br><br><br>Rate Swaps Cross<br><br><br>Currency<br><br><br>Interest<br><br><br>Rate Swaps Other Total<br><br><br>Derivative<br><br><br>Instruments
Balance, beginning of period $ (4 ) $ (190 ) $ — $ (194 ) $ (8 ) $ (294 ) $ — $ (302 )
Total gains/(losses):
Included in earnings^(1)^ 1 (41 ) — (40 ) 1 62 — 63
Included in other comprehensive income — — — — — — — —
Settlements — 5 — 5 — 7 — 7
Transfers in and/or out of level 3 — — — — — — — —
Balance, end of period $ (3 ) $ (226 ) $ — $ (229 ) $ (7 ) $ (225 ) $ — $ (232 )
Change in mark-to-market gains/(losses)<br><br><br>relating to instruments still held at the<br><br><br>reporting date^(2)^ $ 1 $ (36 ) $ — $ (35 ) $ 1 $ (91 ) $ — $ (90 )
^(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) 2022 2021
Gains (losses) on derivative and hedging activities, net $ 1 $ 1
Interest expense (41 ) 62
Total $ (40 ) $ 63
^(2)^ Recorded in “gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.
--- ---

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

8.   Fair Value Measurements (Continued)

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

(Dollars in millions) Fair Value at March 31, 2022 Valuation<br><br><br>Technique Input Range and<br><br><br>Weighted<br><br><br>Average
Derivatives
Prime/LIBOR basis swaps $ (3 ) Discounted cash flow Constant Prepayment Rate 9%
Bid/ask adjustment to<br><br><br>discount rate .08%
Cross-currency interest rate swaps (226 ) Discounted cash flow Constant Prepayment Rate 5%
Other —
Total $ (229 )

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

March 31, 2022 December 31, 2021
(Dollars in millions) Fair<br><br><br>Value Carrying<br><br><br>Value Difference Fair<br><br><br>Value Carrying<br><br><br>Value Difference
Earning assets
FFELP Loans $ 50,375 $ 51,013 $ (638 ) $ 53,632 $ 52,641 $ 991
Private Education Loans 20,213 20,088 125 21,140 20,171 969
Cash and investments 3,424 3,424 — 3,845 3,845 —
Total earning assets 74,012 74,525 (513 ) 78,617 76,657 1,960
Interest-bearing liabilities
Short-term borrowings 3,813 3,802 (11 ) 2,492 2,490 (2 )
Long-term borrowings 69,515 70,825 1,310 74,548 74,488 (60 )
Total interest-bearing liabilities 73,328 74,627 1,299 77,040 76,978 (62 )
Derivative financial instruments
Floor Income Contracts (9 ) (9 ) — (65 ) (65 ) —
Interest rate swaps 147 147 — 219 219 —
Cross-currency interest rate swaps (226 ) (226 ) — (190 ) (190 ) —
Other — — — — — —
Excess of net asset fair value over carrying value $ 786 $ 1,898

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

9.   Commitments and Contingencies

Legal Proceedings

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

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

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

Certain Cases

During the first quarter of 2016, Navient Corporation, certain Navient officers and directors, and the underwriters of certain Navient securities offerings were sued in three putative securities class action lawsuits filed on behalf of certain investors in Navient stock or Navient unsecured debt. These three cases, which were filed in the U.S. District Court for the District of Delaware, were consolidated by the District Court, with Lord Abbett Funds appointed as Lead Plaintiff. The caption of the consolidated case is Lord Abbett Affiliated Fund, Inc., et al. v. Navient Corporation, et al.   Additionally, two putative class actions have been filed in the U.S. District Court for the District of New Jersey captioned Eli Pope v. Navient Corporation, John F. Remondi, Somsak Chivavibul and Christian Lown, and Melvin Gross v. Navient Corporation, John F. Remondi, Somsak Chivavibul and Christian M. Lown, both of which allege violations of the federal securities laws under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The cases were consolidated by the Court in February 2018 under the caption In Re Navient Corporation Securities Litigation and the plaintiffs filed a consolidated amended complaint in April 2018. In the third quarter of 2021, the Company reached tentative agreements to settle both cases. The settlements, in which the Company and other defendants expressly deny any admission or concession of wrongdoing or fault, have received final court approval and are covered by insurance.

The Company has been named as defendant in a number of putative class action cases alleging violations of various state and federal consumer protection laws including the Telephone Consumer Protection Act (TCPA), the Consumer Financial Protection Act of 2010 (CFPA), the Fair Credit Reporting Act (FCRA), the Fair Debt Collection Practices Act (FDCPA), in adversarial proceedings under the U.S. Bankruptcy Code, and various state consumer protection laws. At this point in time, the Company is unable to anticipate the timing of a resolution or the impact that these legal proceedings may have on the Company’s consolidated financial position, liquidity, results of operation or cash flows. As a result, it is not possible at this time to estimate a range of potential exposure, if any, for amounts that may be payable in connection with these matters and reserves have not been established. It is possible that an adverse ruling or rulings may have a material adverse impact on the Company.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

9.   Commitments and Contingencies (Continued)

In January 2017, the Consumer Financial Protection Bureau (the CFPB) and Attorneys General for the State of Illinois and the State of Washington initiated civil actions naming Navient Corporation and several of its subsidiaries as defendants alleging violations of certain Federal and State consumer protection statutes, including the CFPA, FCRA, FDCPA and various state consumer protection laws.  The Attorneys General for the States of Pennsylvania, California, Mississippi, and New Jersey also initiated actions against the Company and certain subsidiaries alleging violations of various state and federal consumer protection laws based upon similar alleged acts or failures to act.   In addition to these matters, a number of lawsuits have been filed by nongovernmental parties or, in the future, may be filed by additional governmental or nongovernmental parties seeking damages or other remedies related to similar issues raised by the CFPB and the State Attorneys General. In January 2022, we entered into a series of Consent Judgment and Orders (the “Agreements”) with 40 State Attorneys General to resolve all matters in dispute related to the State Attorneys General cases as well as the related investigations, subpoenas, civil investigative demands and inquiries from various other state regulators. These Agreements do not resolve the litigation involving the Company and the CFPB. The Company will cancel the loan balance of approximately 66,000 borrowers with qualifying private education loans that were originated largely between 2002 and 2010 and later defaulted and charged off. The loans to be cancelled have aggregate outstanding balances of approximately $1.7 billion. The expense to the Company to cancel these loans is approximately $50 million which represents the amount of expected future recoveries of these charged-off loans on the balance sheet. In addition, the Company agreed to make a one-time payment of approximately $145 million to the states. In the fourth quarter of 2021 when such loss became probable, the Company recognized total regulatory expenses of approximately $205 million related to this matter.

As the Company has previously stated, we believe the allegations in the CFPB suit are false and that they improperly seek to impose penalties on Navient based on new, previously unannounced servicing standards applied retroactively against only one servicer. We therefore have denied these allegations and are vigorously defending against the allegations in that case. At this point in time, it is reasonably possible that a loss contingency exists; however, the Company is unable to anticipate the timing of a resolution or the impact that an adverse ruling in the CFPB case may have on the Company’s consolidated financial position, liquidity, results of operation or cash flows. As a result, it is not possible at this time to estimate a range of potential exposure, if any, for amounts that may be payable in connection with this matter and reserves have not been established. It is possible that an adverse ruling or rulings may have a material adverse impact on the Company.

Regulatory Matters

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

Under the terms of the Separation and Distribution Agreement between the Company and SLM BankCo, Navient agreed to indemnify SLM BankCo for claims, actions, damages, losses or expenses that may arise from the conduct of activities of pre-Spin-Off SLM BankCo occurring prior to the Spin-Off other than those specifically excluded in that agreement. Also, as part of the Separation and Distribution Agreement, SLM BankCo agreed to indemnify Navient for certain claims, actions, damages, losses or expenses subject to the terms, conditions and limitations set forth in that agreement. As a result, subject to the terms, conditions and limitations set forth in that agreement, Navient agreed to indemnify and hold harmless Sallie Mae and its subsidiaries, including Sallie Mae Bank from liabilities arising out of the regulatory matters and CFPB and State Attorneys General lawsuits mentioned above. In addition, we asserted various claims for indemnification against Sallie Mae and Sallie Mae Bank for such specifically excluded items arising out of the CFPB and the State Attorneys General lawsuits if and to the extent any indemnified liabilities exist now or in the future toward conclusion. Navient has no reserves related to indemnification matters with SLM BankCo as of March 31, 2022.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

9.   Commitments and Contingencies (Continued)

OIG Audit

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

Contingencies

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

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

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

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

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

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

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

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

Revenue by Service Type

Three Months Ended March 31,
2022 2021
(Dollars in millions) Federal Education Loans Business Processing Total Revenue Federal Education Loans Business Processing Total Revenue
Federal Education Loan<br><br><br>asset recovery services $ 1 $ — $ 1 $ 5 $ — $ 5
Government services — 49 49 — 63 63
Healthcare services — 45 45 — 62 62
Total $ 1 $ 94 $ 95 $ 5 $ 125 $ 130

Revenue by Client Type

Three Months Ended March 31,
2022 2021
(Dollars in millions) Federal Education Loans Business Processing Total Revenue Federal Education Loans Business Processing Total Revenue
Federal government $ — $ 2 $ 2 $ 1 $ 8 $ 9
Guarantor agencies 1 — 1 4 — 4
Other institutions — — — — — —
State and local government — 33 33 — 42 42
Tolling authorities — 14 14 — 13 13
Hospitals and other<br><br><br>healthcare providers — 45 45 — 62 62
Total $ 1 $ 94 $ 95 $ 5 $ 125 $ 130

As of March 31, 2022 and March 31, 2021, there was $90 million and $113 million respectively, of net accounts receivable related to these contracts. Navient had no material contract assets or contract liabilities.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

11.   Segment Reporting

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

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

Federal Education Loans Segment

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

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

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

(Dollars in millions) March 31, 2022 December 31, 2021
FFELP Loans, net $ 51,013 $ 52,641
Cash and investments^(1)^ 1,879 2,071
Other 2,008 2,183
Total assets $ 54,900 $ 56,895
^(1)^ Includes restricted cash and investments.
--- ---

Consumer Lending Segment

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

The following table includes asset information for our Consumer Lending segment

(Dollars in millions) March 31, 2022 December 31, 2021
Private Education Loans, net $ 20,088 $ 20,171
Cash and investments^(1)^ 774 824
Other 720 815
Total assets $ 21,582 $ 21,810
^(1)^ Includes restricted cash and investments.
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NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

11.   Segment Reporting (Continued)

Business Processing Segment

In this segment, Navient performs business processing services for over 600 government and healthcare clients.

• Government services: We provide state governments, agencies, court systems, municipalities, and parking and tolling authorities with leveraging our scale, integrated technology solutions, decades of differentiated customer experience expertise and evidence-based approach. Our support enables our clients to better serve their constituents, meet rapidly changing needs, improve technology, reduce operating expenses, manage risk and optimize revenue opportunities.
• Healthcare services: We perform revenue cycle outsourcing, accounts receivable management, extended business office support, consulting engagements and public health programs. We offer customizable solutions for our clients that include hospitals, hospital systems, medical centers, large physician groups, other healthcare providers and public health departments.
--- ---

At March 31, 2022 and December 31, 2021, the Business Processing segment had total assets of $402 million and $397 million, respectively.

Other Segment

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

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

At March 31, 2022 and December 31, 2021, the Other segment had total assets of $1.3 billion and $1.5 billion, respectively.

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

11.   Segment Reporting (Continued)

Measure of Profitability

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

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

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

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

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

11.   Segment Reporting (Continued)

Segment Results and Reconciliations to GAAP

Three Months Ended March 31, 2022
Adjustments
(Dollars in millions) Federal Education Loans Consumer Lending Business Processing Other Total<br><br><br>Core<br><br><br>Earnings Reclassi-<br><br><br>fications Additions/<br><br><br>(Subtractions) Total<br><br><br>Adjustments^(1)^ Total<br><br><br>GAAP
Interest income:
Education loans $ 334 $ 276 $ — $ — $ 610 $ 19 $ (4 ) $ 15 $ 625
Cash and investments — 1 — — 1 — — — 1
Total interest income 334 277 — — 611 19 (4 ) 15 626
Total interest expense 195 125 — 15 335 — (46 ) (46 ) 289
Net interest income (loss) 139 152 — (15 ) 276 19 42 61 337
Less: provisions for loan losses — 16 — — 16 — — — 16
Net interest income (loss) after<br><br><br>provisions for loan losses 139 136 — (15 ) 260 19 42 61 321
Other income (loss):
Servicing revenue 15 3 — — 18 — — — 18
Asset recovery and business<br><br><br>processing revenue 3 — 94 — 97 — — — 97
Other income (loss) 11 — — (1 ) 10 (19 ) 117 98 108
Total other income (loss) 29 3 94 (1 ) 125 (19 ) 117 98 223
Expenses:
Direct operating expenses 28 35 76 — 139 — — — 139
Unallocated shared services<br><br><br>expenses — — — 66 66 — — — 66
Operating expenses 28 35 76 66 205 — — — 205
Goodwill and acquired intangible<br><br><br>asset impairment and<br><br><br>amortization — — — — — — 4 4 4
Restructuring/other reorganization<br><br><br>expenses — — — 3 3 — — — 3
Total expenses 28 35 76 69 208 — 4 4 212
Income (loss) before income tax<br><br><br>expense (benefit) 140 104 18 (85 ) 177 — 155 155 332
Income tax expense (benefit)^(^^2)^ 33 25 4 (20 ) 42 — 35 35 77
Net income (loss) $ 107 $ 79 $ 14 $ (65 ) $ 135 $ — $ 120 $ 120 $ 255
^(1)^ Core Earnings adjustments to GAAP:
--- ---
Three Months Ended March 31, 2022
--- --- --- --- --- --- --- ---
(Dollars in millions) Net Impact of<br><br><br>Derivative<br><br><br>Accounting Net Impact of<br><br><br>Goodwill and<br><br><br>Acquired<br><br><br>Intangibles Total
Net interest income (loss) after provisions for loan losses $ 61 $ — $ 61
Total other income (loss) 98 — 98
Goodwill and acquired intangible asset impairment and amortization — 4 4
Total Core Earnings adjustments to GAAP $ 159 $ (4 ) 155
Income tax expense (benefit) 35
Net income (loss) $ 120
^(2)^ Income taxes are based on a percentage of net income before tax for the individual reportable segment.
--- ---

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

11.   Segment Reporting (Continued)

Three Months Ended March 31, 2021
Adjustments
(Dollars in millions) Federal Education Loans Consumer Lending Business Processing Other Total<br><br><br>Core<br><br><br>Earnings Reclassi-<br><br><br>fications Additions/<br><br><br>(Subtractions) Total<br><br><br>Adjustments^(1)^ Total<br><br><br>GAAP
Interest income:
Education loans $ 359 $ 319 $ — $ — $ 678 $ 23 $ (9 ) $ 14 $ 692
Cash and investments — — — — — — — — —
Total interest income 359 319 — — 678 23 (9 ) 14 692
Total interest expense 215 150 — 18 383 (1 ) (53 ) (54 ) 329
Net interest income (loss) 144 169 — (18 ) 295 24 44 68 363
Less: provisions for loan losses — (87 ) — — (87 ) — — — (87 )
Net interest income (loss) after<br><br><br>provisions for loan losses 144 256 — (18 ) 382 24 44 68 450
Other income (loss):
Servicing revenue 52 1 — — 53 — — — 53
Asset recovery and business<br><br><br>processing revenue 14 — 125 — 139 — — — 139
Other income (loss) — — — — — (11 ) 47 36 36
Gains on sales of loans — 89 — — 89 (13 ) — (13 ) 76
Total other income (loss) 66 90 125 — 281 (24 ) 47 23 304
Expenses:
Direct operating expenses 63 41 91 — 195 — — — 195
Unallocated shared services<br><br><br>expenses — — — 64 64 — — — 64
Operating expenses 63 41 91 64 259 — — — 259
Goodwill and acquired intangible<br><br><br>asset impairment and amortization — — — — — — 5 5 5
Restructuring/other reorganization<br><br><br>expenses — — — 6 6 — — — 6
Total expenses 63 41 91 70 265 — 5 5 270
Income (loss) before income tax<br><br><br>expense (benefit) 147 305 34 (88 ) 398 — 86 86 484
Income tax expense (benefit)^(^^2)^ 35 71 8 (21 ) 93 — 21 21 114
Net income (loss) $ 112 $ 234 $ 26 $ (67 ) $ 305 $ — $ 65 $ 65 $ 370
^(1)^ Core Earnings adjustments to GAAP:
--- ---
Three Months Ended March 31, 2021
--- --- --- --- --- --- --- ---
(Dollars in millions) Net Impact of<br><br><br>Derivative<br><br><br>Accounting Net Impact of<br><br><br>Goodwill and<br><br><br>Acquired<br><br><br>Intangibles Total
Net interest income (loss) after provisions for loan losses $ 68 $ — $ 68
Total other income (loss) 23 — 23
Goodwill and acquired intangible asset impairment and amortization — 5 5
Total Core Earnings adjustments to GAAP $ 91 $ (5 ) 86
Income tax expense (benefit) 21
Net income (loss) $ 65
^(2)^ Income taxes are based on a percentage of net income before tax for the individual reportable segment.
--- ---

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2022 and for the three months ended

March 31, 2022 and 2021 is unaudited)

11.   Segment Reporting (Continued)

Summary of Core Earnings Adjustments to GAAP

Three Months Ended March 31,
(Dollars in millions) 2022 2021
Core Earnings net income $ 135 $ 305
Core Earnings adjustments to GAAP:
Net impact of derivative accounting^(1)^ 159 91
Net impact of goodwill and acquired intangible assets^(2)^ (4 ) (5 )
Net tax effect^(3)^ (35 ) (21 )
Total Core Earnings adjustments to GAAP 120 65
GAAP net income $ 255 $ 370
^(1)^ Derivative accounting: Core Earnings exclude periodic gains and losses that are caused by the mark-to-market valuations on derivatives that do not qualify for hedge accounting treatment under GAAP as well as the periodic mark-to-market gains and losses that are a result of ineffectiveness recognized related to effective hedges under GAAP. Under GAAP, for our derivatives that are held to maturity, the mark-to-market gain or loss over the life of the contract will equal $0 except for Floor Income Contracts where the mark-to-market gain will equal the amount for which we sold the contract. In our Core Earnings presentation, we recognize the economic effect of these hedges, which generally results in any net settlement cash paid or received being recognized ratably as an interest expense or revenue over the hedged item’s life.
--- ---
^(2)^ Goodwill and acquired intangible assets: Our Core Earnings exclude goodwill and intangible asset impairment and amortization of acquired intangible assets.
--- ---
^(3)^ Net tax effect: Such tax effect is based upon our Core Earnings effective tax rate for the year.
--- ---

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<br><br><br>(Registrant)
By: /s/ JOE FISHER
Joe Fisher
Chief Financial Officer
(Principal Financial and Accounting Officer)

Date: April 27, 2022

APPENDIX A

form 10-Q cross-reference index

Page<br><br><br>Number
Part I. Financial Information
--- --- ---
Item 1. Financial Statements 42-76
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 7-33
Item 3. Quantitative and Qualitative Disclosures about Market Risk 35-39
Item 4. Controls and Procedures 40
Part II. Other Information
Item 1. Legal Proceedings 34, 67
Item 1A. Risk Factors 34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 40
Item 3. Defaults Upon Senior Securities Not Applicable
Item 4. Mine Safety Disclosures Not Applicable
Item 5. Other Information Not Applicable
Item 6. Exhibits 41
Signatures 77

78

navi-ex101_54.htm

Exhibit 10.1

Navient Corporation 2014 Omnibus Incentive Plan Performance Stock Unit Agreement

Pursuant to the terms and conditions of the Navient Corporation 2014 Omnibus Incentive Plan, amended and restated as of May 24, 2018 (the “Plan”), the Compensation and Human Resources Committee (the “Committee”) of the Navient Corporation Board of Directors (“Board”) hereby grants to ________________ (the “Grantee”) on February 4, 2022 (the “Grant Date”) an award (the “Award”) of __________ shares of Performance Stock Units (“PSUs”), which represent the right to acquire shares of common stock of Navient Corporation (the “Corporation”) subject to the following terms and conditions of this Performance Stock Unit Agreement (the “Agreement”):

1. Vesting Schedule.  Unless vested earlier as set forth below, the PSUs will vest, and will be settled in shares of the Corporation’s common stock, based on the following vesting terms:
• Subject to the other provisions of this Section 1, a specified percentage of the total PSUs granted shall vest (subject to application of the rTSR Modifier defined below) based on the Corporation’s performance for fiscal years 2022, 2023 and 2024 in the aggregate, as shown in the following performance chart (which reflects the Return on Equity performance target and range for 2022 only):
--- ---
Performance Metric^*^ Weight Percentage of PSUs Vesting^**^
--- --- --- --- --- ---
0% 50% 100% 150%
Net Student Loan Cash Flows 55% Less than<br>$6.709 billion $6.709 billion $7.680 billion $8.677 billion<br>or greater
Return on Equity 15% / 15% / 15% Less than<br>14.3% 14.3% 15.7% 17.7%
* Net Student Loan Cash Flows performance targets and range for 2022-2024 in the aggregate. Return on Equity (ROE) performance target and range for 2022 only. ROE performance targets and ranges for 2023 and 2024 to be established by the Committee at the beginning of each respective year, with each year’s performance counting 1/3 towards the total 45% weight. Vesting of any PSUs earned based on ROE performance for a given year remain subject to Grantee’s continued employment through the Vesting Date, subject to the terms below.
--- ---
** For points between each performance level, the vesting percentages will be interpolated. Subject to application of rTSR Modifier (defined below).
--- ---
• The vesting percentage determined above shall be multiplied by the rTSR Modifier, which is a vesting modifier based on where the Corporation’s total shareholder return
--- ---
(“TSR”), as that term is defined below, for the period commencing with the start of fiscal year 2022 and ending with the end of fiscal year 2024 (the “Performance Period”) ranks as a percentile compared to the TSRs for the companies in the Comparator Group (as defined below) for the Performance Period, as shown in the following performance chart:
---
Corporation’s TSR Percentile Rank* rTSR Modifier
--- ---
75^th^ or higher 120%
70^th^ 116%
65^th^ 112%
60^th^ 108%
55^th^ 104%
50^th^ 100%
45^th^ 96%
40^th^ 92%
35^th^ 88%
30^th^ 84%
25^th^ or lower 80%

*For points between each performance level, the vesting modifier will be interpolated.

For example, if the vesting percentage based on Net Student Loan Cash Flows and Return on Equity as determined above is 100%, and if the Corporation’s TSR for the Performance Period ranks in the 60^th^ percentile when compared to the TSRs of the Comparator Group for the Performance Period, then 108% of the PSUs would vest.

“Total shareholder return” or “TSR” shall equal the quotient of ((X – Y) + Z) / Y, where X equals the average closing price of a share of stock during December 2024, including any dividends paid on a share of stock in the underlying entity reinvested on the ex-dividend date, Y equals the average closing price of a share of stock during December 2021, including any dividends paid on a share of stock in the underlying entity reinvested on the ex-dividend date, and Z equals the total value of dividends paid on a share of stock during the period from the start of the beginning average period through the end of the Performance Period as if reinvested on the ex-dividend date, subject to adjustments for stock splits and other similar events.

The Corporation’s “Comparator Group” shall mean all companies in the S&P 400 Financials Index as of the first day of the Performance Period (“Peer Companies”), modified to take into account mergers, acquisitions, spin-offs and other similar events as follows:

1) In the event of a merger, acquisition or business combination transaction of a Peer Company with or by another Peer Company, the surviving entity shall remain a Peer Company;
2) In the event of a merger, acquisition or business combination transaction of a Peer Company with or by another company that is not a Peer Company, but where the Peer Company is the surviving entity and remains publicly traded, the surviving entity shall remain a Peer Company;
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3) In the event of a merger, acquisition or business combination transaction of a Peer Company by or with another company that is not a Peer Company, or in the event of a “going private transaction” involving the Peer Company, in each case where the Peer Company will not be the surviving entity or will otherwise no longer be publicly traded, the company shall cease to be a Peer Company;
--- ---
4) In the event of a stock distribution from a Peer Company consisting of the shares of a new publicly-traded company (a “spin-off”), the Peer Company shall remain a Peer Company and the stock distribution shall be treated as a dividend from the Peer Company based on the closing price of the shares of the spun-off company on its first day of trading.  The performance of the shares of the spun-off company shall not thereafter be tracked for purposes of calculating TSR; and
--- ---
5) In the event of a bankruptcy, liquidation or delisting of a Peer Company, such company shall remain a Peer Company.
--- ---
• Each vested PSU will be settled in shares of the Corporation’s common stock. PSUs shall vest on the second business day after the Corporation’s annual report on Form 10-K for the fiscal year 2024 is filed, and in no event later than March 15, 2025. Except as provided below in cases of death or Disability, shares of the Corporation’s common stock issued in settlement of vested PSUs shall be subject to a mandatory holding period of one year from the date of issuance, during which period the Grantee may not sell, transfer, or otherwise dispose of the shares, other than to cover required withholding taxes due upon the settlement of the vested PSUs.
--- ---
• “Net Student Loan Cash Flows” shall mean the Corporation’s aggregate cash flows net of secured borrowings from student loans realized for the fiscal years 2022, 2023 and 2024, including student loan cash flows realized from new acquisitions, but excluding the impact of cash flows for fiscal years beyond 2024 that are accelerated through securitizing or pledging unencumbered student loans or through loan sales and excluding regulatory and restructuring related charges.
--- ---
• “Return on Equity” shall mean a percentage equal to the Corporation’s “core earnings” net income for each of fiscal years 2022, 2023 and 2024, divided by average stockholder’s equity for each such year (determined using the average balance of stockholder’s equity on a “core earnings” basis for each quarter in a given year), using yearly “core earnings” net income as shown in the segment reporting footnote in the Corporation’s audited financial statements as published in the Corporation’s annual report on Form 10-K, excluding the impact of any regulatory and restructuring costs.
--- ---
• The Committee may adjust performance results for certain extraordinary items identified by the Committee, such as changes in accounting, the regulatory environment, strategic corporate transactions, impacts of new federal student loan debt forgiveness and other unusual or unplanned events.
--- ---
2. Employment Termination; Death; Disability.  Except as provided below, if the Grantee ceases to be an employee of the Corporation (or a Subsidiary) for any reason, he/she
--- ---
shall forfeit any portion of the Award that has not vested as of the date of such termination of employment.
---

If not previously vested, the Award will continue to vest, and will be settled in shares of the Corporation’s common stock, subject to the original performance goals and Performance Period set forth above, and on the original vesting terms and vesting dates set forth above, in the event that the Grantee’s employment is terminated by the Corporation (or a Subsidiary) for any reason other than for Cause.

If not previously vested, a portion of the Award (as determined below) will continue to vest, and will be settled in shares of the Corporation’s common stock, subject to the original performance goals and Performance Period set forth above, and on the original vesting terms and vesting dates set forth above, in the event that the Grantee voluntarily ceases to be an employee of the Corporation (or a Subsidiary) due to Retirement.  For purposes of the immediately preceding sentence: (i) the entire Award will continue to vest if the Grantee ceases employment on or after the third anniversary of the Grant Date; (ii) two-thirds of the Award will continue to vest if the Grantee ceases employment on or after the second anniversary (but before the third anniversary) of the Grant Date; (iii) one-third of the Award will continue to vest if the Grantee ceases employment on or after the first anniversary (but before the second anniversary) of the Grant Date; and (iv) no portion of the Award will vest if the Grantee ceases employment before the first anniversary of the Grant Date.

If not previously vested, the Award will vest, and will be settled in shares of the Corporation’s common stock, at the target levels set forth above, upon death or Disability (provided that such Disability qualifies as a “disability” within the meaning of Treasury Regulation Section 1.409A-3(i)(4)). Shares of the Corporation’s common stock issued in settlement of PSUs that vest upon death or Disability will not be subject to the mandatory one-year holding period described above.

The Award shall be forfeited upon termination of employment due to Cause.

3. Change in Control.  Notwithstanding anything to the contrary in this Agreement:
• In the event of a Change in Control described in clause (b) of the definition thereof in which the acquiring or surviving company in the transaction does not assume or continue outstanding Awards upon the Change in Control, then any portion of the Award that is not vested shall vest based on the level of achievement of the performance goals in Section 1 through the end of the month immediately preceding or coinciding with the date of the Change in Control, and shall be converted into shares of common stock as of immediately prior to the consummation of the Change in Control. The Committee shall proportionately reduce the “Net Student Loan Cash Flows” and the “Return on Equity” performance goals in Section 1 above based on the portion of the Performance Period elapsed through the end of the month immediately preceding or coinciding with the date of the Change in Control.
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• In the event of either (x) a Change in Control described in clause (a) of the definition thereof, or (y) a Change in Control described in clause (b) of the definition thereof in which the acquiring or surviving company in the transaction assumes or continues outstanding Awards, no acceleration of vesting shall occur upon such Change in Control, and the Award shall continue to vest in accordance with Section 1 hereof; provided, however, that if Grantee’s employment shall terminate within twenty-four months following such a Change in Control for any reason other than (i) by the Corporation (or a Subsidiary), or the surviving or acquiring entity in the transaction (as the case may be), for Cause, or (ii) by Grantee’s voluntary termination of employment that is not a Retirement or a termination of employment for Good Reason, any portion of the Award not previously vested shall immediately become vested at the 100% target level set forth in the vesting schedules herein, and shall be settled in shares of the Corporation’s common stock, upon such employment termination. Upon any termination of employment during such twenty-four month period described in clause (i) or (ii) of the preceding sentence, any unvested portion of the Award shall be forfeited. Upon any termination of employment occurring after the end of such twenty-four month period, vesting and settlement of any remaining unvested portion of the Award shall be governed by Section 2 hereof.
--- ---
• Notwithstanding anything stated herein, the Plan or in the Navient Corporation Change in Control Severance Plan for Senior Officers, this Award shall not be subject to the terms set forth in the Navient Corporation Change in Control Severance Plan for Senior Officers.
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4. Taxes; Dividends.  The Grantee of the Award shall make such arrangements as may reasonably be required by the Corporation, including transferring a sufficient number of shares of the Corporation’s stock, to satisfy the income and employment tax withholding requirements that accrue upon the Award becoming vested or, if applicable, settled in shares of the Corporation’s common stock (by approving this Agreement, the Committee hereby approves the transfer of such shares to the Corporation for purposes of SEC Rule 16b-3). Dividends declared on an unvested Award will not be paid currently. Instead, amounts equal to such dividends will be credited to an account established on behalf of the Grantee and such amounts will be deemed to be invested in additional shares of the Corporation’s common stock (“Dividend Equivalents”). Such Dividend Equivalents will be subject to the same vesting schedule to which the Award is subject. Upon vesting of any portion of the Award, the amount of Dividend Equivalents allocable to such Award (and any fractional share amount) will also vest and will be converted into shares of the Corporation’s common stock (provided that any fractional share amount shall be paid in cash).
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5. Section 409A.  For purposes of Section 409A of the Internal Revenue Code, the regulations and other guidance thereunder and any state law of similar effect (collectively “Section 409A”), each payment and benefit payable under this Agreement is hereby designated as a separate payment.  The parties intend that all PSUs provided under this Agreement and shares issuable hereunder comply with the requirements of
--- ---
Section 409A so that none of the payments or benefits will be subject to the adverse tax penalties imposed under Section 409A, and any ambiguities herein will be interpreted to so comply.  Notwithstanding anything in the Plan or this Agreement to the contrary, if the vesting of the balance, or some lesser portion of the balance, of the PSUs is to be accelerated in connection with the Grantee’s termination of service, such accelerated PSUs will not be settled by virtue of such acceleration until and unless the Grantee has a “separation from service” within the meaning of Section Treasury Regulation 1-409A-1(h), as determined by the Corporation, in its sole discretion.  Further, and notwithstanding anything in the Plan or this Agreement to the contrary, if (x) any of the PSUs to be provided in connection with the Grantee’s separation from service do not qualify for any reason to be exempt from Section 409A, (y) the Grantee is, at the time of such separation from service, a “specified employee” (as defined in Treasury Regulation Section 1.409A-1(i)) and (z) the settlement of such PSUs would result in the imposition of additional tax under Section 409A if such settlement occurs on or within the six (6) month period following the Grantee’s separation from service, then, to the extent necessary to avoid the imposition of such additional taxation, the settlement of any such PSUs during such six (6) month period will accrue and will not be settled until the date six (6) months and one (1) day following the date of the Grantee’s separation from service and on such date (or, if earlier, the date of the Grantee’s death), such PSUs will be settled.
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6. Clawback Provision.  Notwithstanding anything to the contrary herein, the Award shall be subject to any recoupment or clawback policy that is adopted by the Corporation, including any policy that is adopted after the Grant Date, or any recoupment or clawback policy that becomes applicable to the Corporation pursuant to any requirement of law or any exchange listing requirement, in either case to the extent provided therein.
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7. Securities Law Compliance. The Corporation may impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any transfer or sale by the Grantee of any shares of the Corporation’s common stock, including without limitation (a) restrictions under an insider trading policy and (b) restrictions that may be necessary in the absence of an effective registration statement under the Securities Act of 1933, as amended, covering the shares of the Corporation’s common stock.  The sale of the shares must also comply with other applicable laws and regulations governing the sale of such shares.
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8. Data Privacy.  As an essential term of this award, the Grantee consents to the collection, use and transfer, in electronic or other form, of personal data as described herein for the exclusive purpose of implementing, administering and managing Grantee’s participation in the Plan.  By accepting this award, the Grantee acknowledges that the Corporation holds certain personal information about the Grantee, including, but not limited to, name, home address and telephone number, date of birth, social security number or other identification number, salary, tax rates and amounts, nationality, job title, any shares of stock held in the Corporation, details of all options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or
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outstanding, for the purpose of implementing, administering and managing the Plan (“Data”).  Grantee acknowledges that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in jurisdictions that may have different data privacy laws and protections, and Grantee authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Grantee or the Corporation may elect to deposit any shares of the Corporation’s common stock.  Grantee acknowledges that Data may be held to implement, administer and manage the Grantee’s participation in the Plan as determined by the Corporation, and that Grantee may request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, provided however, that refusing or withdrawing Grantee’s consent may adversely affect Grantee’s ability to participate in the Plan.
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9. Electronic Delivery.  The Corporation may, in its sole discretion, decide to deliver any documents related to any awards granted under the Plan by electronic means or to request Grantee’s consent to participate in the Plan by electronic means. Grantee hereby consents to receive such documents by electronic delivery and, if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Corporation or another third party designated by the Corporation, and such consent shall remain in effect throughout Grantee’s term of service with the Corporation (or one of its subsidiaries) and thereafter until withdrawn in writing by Grantee.
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10. Board Interpretation.  The Grantee hereby agrees to accept as binding, conclusive, and final all decisions and interpretations of the Board and, where applicable, the Committee concerning any questions arising under this Agreement or the Plan.
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11. No Right to Continued Employment.  Nothing in the Plan, in this Agreement or any other instrument executed pursuant thereto or hereto shall confer upon the Grantee any right to continued employment with the Corporation or any of its subsidiaries or affiliates.
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12. Amendments for Accounting Charges.  The Committee reserves the right to unilaterally amend this Agreement to reflect any changes in applicable law or financial accounting standards.
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13. Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law.
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14. Notices.  All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if personally
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delivered, telefaxed or telecopied to, or, if mailed, when received by, the other party at the following addresses:
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If to the Corporation to:

Navient Corporation

Attn:  Human Resources, Equity Plan Administration

123 Justison Street

Wilmington, DE 19801

If to the Grantee, to (i) the last address maintained in the Corporation’s Human Resources files for the Grantee or (ii) the Grantee’s mail delivery code or place of work at the Corporation (or its subsidiaries).

15. Plan Controls; Entire Agreement; Capitalized Terms.  In the event of any conflict between the provisions of this Agreement and the provisions of the Plan, the terms of the Plan control, except as expressly stated otherwise herein.  This Agreement and the Plan together set forth the entire agreement and understanding between the parties as to the subject matter hereof and supersede all prior oral and written and all contemporaneous or subsequent oral discussions, agreements and understandings of any kind or nature.  Capitalized terms not defined herein shall have the meanings as described in the Plan.
16. Miscellaneous.  In the event that any provision of this Agreement is declared to be illegal, invalid or otherwise unenforceable by a court of competent jurisdiction, such provision shall be reformed, if possible, to the extent necessary to render it legal, valid and enforceable, or otherwise deleted, and the remainder of this Agreement shall not be affected except to the extent necessary to reform or delete such illegal, invalid or unenforceable provision.  The headings in this Agreement are solely for convenience of reference, and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction or effect.  The Grantee shall cooperate and take such actions as may be reasonably requested by the Corporation in order to carry out the provisions and purposes of the Agreement.  The Grantee is responsible for complying with all laws applicable to Grantee, including federal and state securities reporting laws.
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NAVIENT CORPORATION

By:

Jack Remondi

President and Chief Executive Officer

Accepted by:

Date

navi-ex311_71.htm

Exhibit 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, John F. Remondi, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Navient Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
--- ---
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
--- ---
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/ JOHN F. REMONDI
---
John F. Remondi
Chief Executive Officer
(Principal Executive Officer)
April 27, 2022

navi-ex312_72.htm

Exhibit 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Joe Fisher, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Navient Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/ JOE FISHER
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Joe Fisher
Chief Financial Officer
(Principal Financial and Accounting Officer)
April 27, 2022

navi-ex321_70.htm

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Navient Corporation (the “Company”) on Form 10-Q for the quarter ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John F. Remondi, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
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/s/ JOHN F. REMONDI
---
John F. Remondi
Chief Executive Officer
(Principal Executive Officer)
April 27, 2022

navi-ex322_69.htm

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Navient Corporation (the “Company”) on Form 10-Q for the quarter ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joe Fisher, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
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/s/ JOE FISHER
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Joe Fisher
Chief Financial Officer
(Principal Financial and Accounting Officer)
April 27, 2022

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