NAVIENT CORP 10-Q

10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2024 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-36228 Navient Corporation (Exact name of registrant as specified in its charter) Delaware 46-4054283 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 13865 Sunrise Valley Drive , Herndon , Virginia 20171 ( 703 ) 810-3000 (Address of principal executive offices) (Telephone Number) ( 703 ) 810-3000 (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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑ Securities registered pursuant to Section 12(b) of the Act. Title of each class Trading Symbol(s) Name of each exchange on which registered Common stock, par value $.01 per share NAVI The NASDAQ Global Select Market 6% Senior Notes due December 15, 2043 JSM The NASDAQ Global Select Market Preferred Stock Purchase Rights None The NASDAQ Global Select Market As of June 30, 2024 , there were 109,410,094 shares of common stock outstanding. TABLE OF CONTENTS Organization of Our Form 10-Q The order and presentation of content in our Quarterly Report on Form 10-Q (Form 10-Q) differs from the traditional Securities and Exchange Commission (SEC) Form 10-Q format. Our format is designed to improve readability and to better present how we organize and manage our business. See Appendix A, "Form 10-Q Cross-Reference Index" for a cross-reference index to the traditional SEC Form 10-Q format. Page Number Forward-Looking and Cautionary Statements 1 Use of Non-GAAP Financial Measures 2 Business 3 Overview and Fundamentals of Our Business 3 Recent Business Developments 5 How We Organize Our Business 5 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 Results of Operations 10 Segment Results 13 Financial Condition 20 Liquidity and Capital Resources 25 Critical Accounting Policies and Estimates 28 Non-GAAP Financial Measures 29 Legal Proceedings 39 Risk Factors 39 Quantitative and Qualitative Disclosures about Market Risk 40 Unregistered Sales of Equity Securities and Use of Proceeds 43 Controls and Procedures 45 Exhibits 46 Financial Statements 47 Signatures 88 Appendix A – Form 10-Q Cross-Reference Index 89 FORWARD-LOOKING AND CAUTIONARY STATEMENTS This 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: • general economic conditions, including the potential impact of inflation and interest rates on Navient and its clients and customers and on the creditworthiness of third parties; • increased defaults on education loans held by us; • unanticipated repayment trends on education loans including prepayments or deferrals resulting from new interpretations or the timing of the execution and implementation of current laws, rules or regulations or future laws, executive orders or other policy initiatives that operate to encourage or require consolidation, abolish existing or create additional income-based repayment or debt forgiveness programs or establish other policies and programs or extensions of previously announced deadlines which may increase or decrease the prepayment rates on education loans and accelerate or slow down the repayment of the bonds in our securitization trusts; • a reduction in our credit ratings; • changes to applicable laws, rules, regulations and government policies and expanded regulatory and governmental oversight; • changes in the general interest rate environment, including the availability of any relevant money-market index rate or the relationship between the relevant money-market index rate and the rate at which our assets are priced; • the interest rate characteristics of our assets do not always match those of our funding arrangements; • adverse market conditions or an inability to effectively manage our liquidity risk or access liquidity could negatively impact us; • the cost and availability of funding in the capital markets; • our ability to earn Floor Income and our ability to enter into hedges relative to that Floor Income are dependent on the future interest rate environment and therefore is variable; • our use of derivatives exposes us to credit and market risk; • our ability to continually and effectively align our cost structure with our business operations; • a failure or breach of our operating systems, infrastructure or information technology systems; • failure by any third party providing us material services or products or a breach or violation of law by one of these third parties; • our work with government clients exposes us to additional risks inherent in the government contracting environment; • acquisitions, strategic initiatives and investments or divestitures that we pursue; • shareholder activism; and • reputational risk and social factors. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business. The preparation of our consolidated financial statements also requires management to make certain estimates and assumptions including estimates and assumptions about future events. These estimates or assumptions may prove to be incorrect and actual results could differ materially. All forward-looking statements contained in this report are qualified by these cautionary statements and are made only as of the date of this report. We do not undertake any obligation to update or revise these forward-looking statements except as required by law. Through this discussion and analysis, we intend to provide the reader with some narrative context for how our management views our consolidated financial statements, additional context within which to assess our operating results, and information on the quality and variability of our earnings, liquidity and cash flows. 1 USE OF NON-GAAP FINANCIAL MEASURES We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate our business segments and present our 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 is our measure of profit or loss for our segments, 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 other non-GAAP financial measures: Tangible Equity, Adjusted Tangible Equity Ratio, Earnings before Interest, Taxes, Depreciation and Amortization Expense (EBITDA) (for the Business Processing segment), and Allowance for Loan Losses Excluding Expected Future Recoveries on Previously Fully Charged-off Loans. Definitions for the non-GAAP financial measures and reconciliations are provided below, except that reconciliations of forward-looking non-GAAP financial measures are not provided because the Company is unable to provide such reconciliations without unreasonable effort due to the uncertainty and inherent difficulty of predicting the occurrence and financial impact of certain items, including, but not limited to, the impact of any mark-to-market gains/losses resulting from our use of derivative instruments to hedge our economic risks. 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. 2 Business O verview 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, healthcare 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 and manage a portfolio of $32.9 billion of federally guaranteed Federal Family Education Loan Program (FFELP) Loans. We support the success of our customers and ensure a compliant, efficient customer experience. • Consumer Lending We own and manage a portfolio of $16.2 billion of Private Education Loans. Through our Earnest brand we also refinance and originate Private Education Loans. We help students and families succeed through the college journey with innovative planning tools, student loans and refinancing products through our Earnest brand. In the second quarter of 2024, we originated approximately $278 million of Private Education Loans. • Business Processing We leverage our loan servicing expertise to provide business processing solutions for approximately 500 public sector and healthcare organizations, and their tens of millions of clients, patients, and constituents. Our suite of omnichannel customer experience, digital processing and revenue cycle solutions enables our clients to deliver better results for the people they serve. Superior Performance with Deep Experience in Customer Service and Compliance Commitment We help our customers — both individuals and institutions — navigate the path to financial success through proactive, data-driven, simplified service and innovative solutions. • Delivering superior performance . Whether supporting student loan borrowers in successfully managing their loans, designing and implementing omnichannel contact center solutions for public sector agencies, generating additional revenue for hospitals and medical systems, or helping a state manage communications or recover revenue that funds essential services, Navient delivers value for our clients and customers. • Scalable, data-driven solutions . Annually, we support tens of millions of people in conducting hundreds of millions of transactions and interactions. Our systems are built for scale and rapid implementation. We harness the power of data to build tailored programs with analytics that optimize our clients’ results. • 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 to help customers and constituents achieve their goals. 3 • Commitment to compliance . We maintain a robust, multi-layered compliance management system and thoroughly understand and comply with applicable federal, state, and local laws. We follow the industry-leading “Three Lines Model” compliance framework. This framework and other compliance protocols ensure we adhere to key industry laws and regulations including but not limited to: 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); 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. • Corporate social responsibility . We are committed to contributing to the social and economic well being of our 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 a variety of leading organizations for our continued commitment to fostering diversity. Our employees are engaged in our communities through company-sponsored volunteering and philanthropic programs. Navient is committed to a sustainable future. We leverage technologies that minimize energy use in our office buildings and promote widespread adoption of “paperless” digital customer communications. Navient prioritizes the usage of power-saving features to our buildings to reduce energy usage. Energy efficiency and reducing carbon dioxide (CO2) and CO2 equivalents are among the many factors considered in our real estate decisions. Maximizing Cash Flows from Loan Portfolios and Maintaining a Strong Balance Sheet Our second-quarter 2024 results continue to demonstrate the strength of our balance sheet, credit risk management and underwriting of high-quality private education loans with attractive economics. Our business generates significant capital which allows for 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 of Directors approved a share repurchase program authorizing the purchase of up to $1 billion of the Company’s outstanding common stock. At June 30, 2024, $209 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 GAAP equity-to-asset ratio was 4.9% and our Adjusted Tangible Equity Ratio (1) was 8.2% as of June 30, 2024. (Dollars and shares in millions) Q2-24 Q2-23 Shares repurchased 2.5 4.9 Reduction in shares outstanding 2 % 4 % Total repurchases in dollars $ 38 $ 80 Dividends paid $ 17 $ 20 Total Capital Returned (2) $ 55 $ 100 GAAP equity-to-asset ratio 4.9 % 4.5 % Adjusted Tangible Equity Ratio (1) 8.2 % 8.4 % (1) Item is a non-GAAP financial measure. For a description and reconciliation, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures.” (2) Capital Returned is defined as share repurchases and dividends paid. 4 Recent Business Developments On January 30, 2024, as a result of an in-depth review of our business, Navient announced strategic actions to simplify our company, reduce our expense base, and enhance our flexibility. We have made substantial progress on these actions as follows: • Adopt a variable, outsourced servicing model. Navient entered into an outsourcing agreement in May 2024 that transitions our student loan servicing to MOHELA, a leading provider of student loan servicing for government and commercial enterprises. This transaction is intended to create a variable cost structure for the servicing of our student loan portfolios and provides attractive unit economics across a wide range of servicing volume scenarios. As part of the agreement, nearly 900 employees have transferred to MOHELA. We are now preparing for the borrower transition, which is expected to take place in October 2024 after a multi-stage communication strategy designed to educate borrowers in advance of the transition. Borrowers will continue to use the same account numbers, phone numbers, payment plans, and other details. Navient and MOHELA use the same third-party loan servicing technology platform, so a loan system conversion is not required. Navient will oversee the high service level standards contained in the servicing agreement. • Explore strategic options for the business processing segment, including potential divestment. Navient has launched a process to explore divesting our business processing segment. Through various subsidiary brands, this segment provides high-quality business processing services to a variety of government and healthcare clients, including hospitals, toll-road authorities, state revenue divisions, and federal agencies. In conjunction with the decision to outsource student loan servicing, exploring options for the business processing segment increases the opportunities for shared cost reduction. Navient is working with financial and legal advisors to assist the Company in exploring a sale of the segment in whole or in part. We are encouraged by the interest shown by potential buyers and are continuing with the divestment process. • Streamline shared services infrastructure and corporate footprint. As we implement the above actions, we are also reshaping our shared services functions and corporate footprint to align with the needs of a more focused, flexible and streamlined company. We continue to expect to be largely complete with these strategic actions by mid to end of 2025. How We Organi ze Our Business We operate our business in three primary segments: Federal Education Loans, Consumer Lending and Business Processing. Federal Education Loans Segment Navient owns and manages FFELP Loans and is the master servicer on this portfolio. Our long history of 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 our FFELP Loans. 5 Consumer Lending Segment Navient owns and manages Private Education Loans and is the master servicer for these portfolios. Through our Earnest brand, we also refinance and originate in-school Private Education Loans. "Refinance" Private Education Loans are loans where a borrower has refinanced their education loans, and "In-school" Private Education Loans are loans originally made to borrowers while they are attending school. We generate revenue primarily through net interest income on our Private Education Loan portfolio. Through our Earnest brand, we help students and families on the planning and paying for college journey. Our digital tools empower people to find scholarships and compare financial aid offers. We believe our 50 years of experience, product design, digital marketing strategies, and origination and servicing expertise provide a unique competitive advantage. We see meaningful growth opportunities in originating Private Education Loans, generating attractive long-term, risk-adjusted returns. Business Processing Segment Navient provides business processing solutions such as omnichannel contact center services, workflow processing, and revenue cycle optimization. We leverage the same expertise and intelligent tools we use to deliver successful results for portfolios we own. Our support enables our clients to ensure better constituent outcomes, meet rapidly changing needs, improve technology, reduce operating expenses, manage risk and optimize revenue opportunities. Our clients include: • Government : We offer our solutions to federal agencies, state governments, tolling and parking authorities, and other public sector clients. • Healthcare : Our clients include hospitals, hospital systems, medical centers, large physician groups, other healthcare providers and public health departments. 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. 6 Management’s Discussion and Analysis of Financial Condition and Results of Operations S elected Historical Financial Information and Ratios Three Months Ended June 30, Six Months Ended June 30, (In millions, except per share data) 2024 2023 2024 2023 GAAP Basis Net income $ 36 $ 66 $ 109 $ 177 Diluted earnings per common share $ .32 $ .52 $ .97 $ 1.39 Weighted average shares used to compute diluted earnings per share 112 125 113 128 Return on assets .26 % .41 % .39 % .55 % Core Earnings Basis (1) Net income (1) $ 33 $ 88 $ 86 $ 221 Diluted earnings per common share (1) $ .29 $ .70 $ .77 $ 1.73 Weighted average shares used to compute diluted earnings per share 112 125 113 128 Net interest margin, Federal Education Loans segment .36 % .97 % .46 % 1.05 % Net interest margin, Consumer Lending segment 2.89 % 2.97 % 2.94 % 3.05 % Return on assets .24 % .55 % .31 % .69 % Education Loan Portfolios Ending FFELP Loans, net $ 32,940 $ 40,851 $ 32,940 $ 40,851 Ending Private Education Loans, net 16,238 17,732 16,238 17,732 Ending total education loans, net $ 49,178 $ 58,583 $ 49,178 $ 58,583 Average FFELP Loans $ 34,741 $ 41,869 $ 35,950 $ 42,562 Average Private Education Loans 16,936 18,690 17,160 18,988 Average total education loans $ 51,677 $ 60,559 $ 53,110 $ 61,550 (1) Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures — Core Earnings.” 7 T he Quarter i n Review We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate our business segments and present financial results on a basis that differs from GAAP. We refer to this different basis of presentation as Core Earnings. We provide this Core Earnings basis of presentation on a consolidated basis and for each business segment because this is what we review internally when making management decisions regarding our performance and how we allocate resources. We also include this information in our presentations with credit rating agencies, lenders and investors. Because our Core Earnings basis of presentation corresponds to our segment financial presentations, we are required by GAAP to provide certain Core Earnings disclosures in the notes to our consolidated financial statements for our business segments. See “Non-GAAP Financial Measures — Core Earnings” for a further discussion and a complete reconciliation between GAAP net income and Core Earnings. Second-quarter 2024 GAAP net income was $36 million ($0.32 diluted earnings per share), compared with $66 million ($0.52 diluted earnings per share) for the year-ago quarter. See “Results of Operations – GAAP Comparison of Second-Quarter 2024 Results with Second-Quarter 2023" for a discussion of the primary contributors to the change in GAAP earnings between periods. Second-quarter 2024 Core Earnings net income was $33 million ($0.29 diluted Core Earnings per share), compared with $88 million ($0.70 diluted Core Earnings per share) for the year-ago quarter. See “Segment Results” for a discussion of the primary contributors to the change in Core Earnings between periods. GAAP and Core Earnings results included a net reduction to pre-tax income of $35 million ($0.24 diluted loss per share) comprised of the following items: • $16 million ($0.11 diluted loss per share) of restructuring expenses and $12 million ($0.08 diluted loss per share) of regulatory-related expenses. • FFELP Loan prepayments of $2.5 billion (compared to $1.6 billion in first-quarter 2024), resulting in the write-off of an additional $7 million ($0.05 diluted loss per share) of loan premium, a non-cash reduction to net interest income, compared to the prior quarter. 8 Financial highlights of second-quarter 2024 include: Federal Education Loans segment: • Net income of $28 million. • Net interest margin of 0.36%. • Successfully finalized servicing outsourcing agreement with MOHELA, a leading provider of student loan servicing for government and commercial enterprises. Consumer Lending segment: • Net income of $60 million. • Net interest margin of 2.89%. • Originated $278 million of Private Education Loans. • Successfully finalized servicing outsourcing agreement, as noted above. The Earnest team continues to provide customer service for Earnest and NaviRefi clients. Business Processing segment: • Revenue of $81 million. • Net income of $15 million and EBITDA (1) of $20 million. • EBITDA margin of 25%. • Launched process to identify options to divest the Business Processing division to further simplify our business. Capital, funding and liquidity: • GAAP equity-to-asset ratio of 4.9% and a djusted tangible equity ratio (1) of 8.2%. • Repurchased $38 million of common shares. $209 million common share repurchase authority remains outstanding. • Paid $17 million in common stock dividends. • Issued $728 million of asset-backed securities . Operating Expenses: • Operating expenses of $154 million, excluding $12 million of regulatory-related expenses. (1) Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.” 9 R esults of Operations GAAP Income Statements (Unaudited) Three Months Ended June 30, Increase (Decrease) Six Months Ended June 30, Increase (Decrease) (In millions, except per share data) 2024 2023 $ % 2024 2023 $ % Interest income FFELP Loans $ 608 $ 720 $ (112 ) (16 )% $ 1,269 $ 1,413 $ (144 ) (10 )% Private Education Loans 317 341 (24 ) (7 ) 645 686 (41 ) (6 ) Cash and investments 48 36 12 33 86 70 16 23 Total interest income 973 1,097 (124 ) (11 ) 2,000 2,169 (169 ) (8 ) Total interest expense 843 919 (76 ) (8 ) 1,718 1,756 (38 ) (2 ) Net interest income 130 178 (48 ) (27 ) 282 413 (131 ) (32 ) Less: provisions for loan losses 14 11 3 27 26 (3 ) 29 967 Net interest income after provisions for loan losses 116 167 (51 ) (31 ) 256 416 (160 ) (38 ) Other income (loss): Servicing revenue 18 16 2 13 35 33 2 6 Asset recovery and business processing revenue 81 83 (2 ) (2 ) 158 155 3 2 Other income 4 4 — - 13 11 2 18 Gains (losses) on derivative and hedging activities, net 14 26 (12 ) (46 ) 46 17 29 171 Total other income 117 129 (12 ) (9 ) 252 216 36 17 Expenses: Operating expenses 166 182 (16 ) (9 ) 350 368 (18 ) (5 ) Goodwill and acquired intangible assets impairment and amortization expense 3 3 — — 5 5 — — Restructuring/other reorganization expenses 16 15 1 7 17 19 (2 ) (11 ) Total expenses 185 200 (15 ) (8 ) 372 392 (20 ) (5 ) Income before income tax expense 48 96 (48 ) (50 ) 136 240 (104 ) (43 ) Income tax expense 12 30 (18 ) (60 ) 27 63 (36 ) (57 ) Net income $ 36 $ 66 $ (30 ) (45 )% $ 109 $ 177 $ (68 ) (38 )% Basic earnings per common share $ .32 $ .53 $ (.21 ) (40 )% $ .98 $ 1.40 $ (.42 ) (30 )% Diluted earnings per common share $ .32 $ .52 $ (.20 ) (38 )% $ .97 $ 1.39 $ (.42 ) (30 )% Dividends per common share $ .16 $ .16 $ — — $ .32 $ .32 $ — — 10 GAAP Comparison of Second-Quarter 2024 Results with Second-Quarter 2023 For the three months ended June 30, 2024, net income was $36 million, or $0.32 diluted earnings per common share, compared with net income of $66 million, or $0.52 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 $48 million primarily as a result of the paydown of the FFELP and Private Education Loan portfolios. The FFELP portfolio experienced a $1.9 billion increase in prepayments ($2.5 billion in the current quarter compared with $600 million in the year-ago quarter). This increase in prepayments resulted in the write-off of an additional $20 million of loan premium in the current quarter compared to the year-ago quarter. There was also a decrease in net interest income due to the impact of increasing interest rates on the different index resets for the FFELP loan assets and debt. These decreases were partially offset by a $42 million decrease in mark-to-market losses on fair value hedges recorded in interest expense. • Provisions for loan losses increased $3 million from $11 million to $14 million: o The provision for FFELP Loan losses decreased $7 million from $5 million to $(2) million. o The provision for Private Education Loan losses increased $10 million from $6 million to $16 million. The provision for FFELP Loan losses of $(2) million in the current period was the result of stable credit trends. The provision for Private Education Loan losses of $16 million in the current period included $6 million in connection with loan originations and $10 million related to a general reserve build. The provision of $6 million in the year-ago quarter included $4 million in connection with loan originations, and $2 million related to a general reserve build. • Net gains on derivative and hedging activities decreased $12 million, primarily due to interest rate fluctuations. Valuations of derivative instruments fluctuate based upon many factors including changes in interest rates and other market factors. As a result, net gains and losses on derivative and hedging activities may vary significantly in future periods. • Operating expenses decreased $16 million, primarily due to a decline in the business processing segment expenses as a result of several efficiency initiatives recently implemented as well as the year-ago period having elevated upfront start-up costs on new contracts. Additionally, there was a decline in overall servicing costs as well as lower in-school loan marketing spend as a result of improved marketing efficiencies. This decrease was partially offset by a $20 million contingency loss accrual (regulatory-related expense) recorded in the current period related to recent developments in connection with CFPB matters. • Restructuring expenses increased $1 million due to an increase in severance-related costs. The current quarter’s restructuring expense of $16 million included $13 million of severance-related costs in connection with the various strategic initiatives being implemented to simplify the Company, reduce our expense base and enhance our flexibility. We repurchased 2.5 million and 4.9 million shares of our common stock during the second quarters of 2024 and 2023, respectively. As a result of repurchases, our average outstanding diluted shares decreased by 13 million common shares (or 10%) from the year-ago period. 11 GAAP Comparison of Six Months Ended June 30, 2024 Results with Six Months Ended June 30, 2023 For the six months ended June 30, 2024, net income was $109 million, or $0.97 diluted earnings per common share, compared with net income of $177 million, or $1.39 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 $131 million primarily as a result of the paydown of the FFELP and Private Education Loan portfolios. The FFELP portfolio experienced a $2.8 billion increase in prepayments ($4.1 billion in the current period compared with $1.3 billion in the year-ago period). This increase in prepayments resulted in the write-off of an additional $28 million of loan premium in the current period compared to the year-ago period. There was also a decrease in net interest income due to the impact of increasing interest rates on the different index resets for the FFELP loan assets and debt. These decreases were partially offset by a $47 million decrease in mark-to-market losses on fair value hedges recorded in interest expense. • Provisions for loan losses increased $29 million from $(3) million to $26 million: o The provision for FFELP Loan losses decreased $16 million from $15 million to $(1) million. o The provision for Private Education Loan losses increased $45 million from $(18) million to $27 million. The provision for FFELP Loan losses of $(1) million in the current period was the result of stable credit trends. The provision for Private Education Loan losses of $27 million in the current period included $11 million in connection with loan originations and $16 million related to a general reserve build. The provision of $(18) million in the year-ago period included $(60) million in connection with the adoption of ASU No. 2022-02, $9 million in connection with loan originations, $23 million in connection with the resolution of certain private legacy loans in bankruptcy and $10 million related to a general reserve build. See our 2023 Form 10-K for further discussion on the adoption of ASU No. 2022-02 as well as the resolution of certain private legacy loans in bankruptcy. • Net gains on derivative and hedging activities increased $29 million, primarily due to interest rate fluctuations. Valuations of derivative instruments fluctuate based upon many factors including changes in interest rates and other market factors. As a result, net gains and losses on derivative and hedging activities may vary significantly in future periods. • Operating expenses decreased $18 million, primarily due to lower in-school loan marketing spend as a result of improved marketing efficiencies. There was a decrease in the business processing segment expenses as a result of several efficiency initiatives recently implemented as well as the year-ago period having elevated upfront start-up costs on new contracts. Additionally, there was a decline in overall servicing costs. This decrease was partially offset by a $32 million contingency loss accrual (regulatory-related expense) recorded in the current period related to recent developments in connection with CFPB matters. We repurchased 5.0 million and 9.8 million shares of our common stock during the six months ended June 30, 2024 and June 30, 2023, respectively. As a result of repurchases, our average outstanding diluted shares decreased by 15 million common shares (or 12%) from the year-ago period. 12 Segment Res ults Federal Education Loans Segment The following table presents Core Earnings results for our Federal Education Loans segment. Three Months Ended June 30, % Increase (Decrease) Six Months Ended June 30, % Increase (Decrease) (Dollars in millions) 2024 2023 2024 vs. 2023 2024 2023 2024 vs. 2023 Interest income: FFELP Loans $ 608 $ 721 (16 )% $ 1,269 $ 1,416 (10 )% Cash and investments 28 18 56 51 38 34 Total interest income 636 739 (14 ) 1,320 1,454 (9 ) Total interest expense 603 633 (5 ) 1,233 1,223 1 Net interest income 33 106 (69 ) 87 231 (62 ) Less: provision for loan losses (2 ) 5 (140 ) (1 ) 15 (107 ) Net interest income after provision for loan losses 35 101 (65 ) 88 216 (59 ) Other income (loss): Servicing revenue 15 13 15 28 27 4 Other revenue 2 2 — 5 7 (29 ) Total other income 17 15 13 33 34 (3 ) Direct operating expenses 16 18 (11 ) 33 38 (13 ) Income before income tax expense 36 98 (63 ) 88 212 (58 ) Income tax expense 8 22 (64 ) 20 50 (60 ) Net income $ 28 $ 76 (63 )% $ 68 $ 162 (58 )% Comparison of Second-Quarter 2024 Results with Second-Quarter 2023 • Net income was $28 million compared to $76 million. • Net interest income decreased $73 million primarily due to the paydown of the loan portfolio which included an increase in prepayments. The increase in prepayments of $1.9 billion ($2.5 billion in the current quarter compared with $600 million in the year-ago quarter) resulted in the write-off of an additional $20 million in the current quarter compared with the year-ago quarter. This reduced the net interest margin by 22 basis points. There was also a decrease in net interest income due to the impact of increased interest rates on the different index resets for the segment's assets and debt. • Provision for loan losses decreased $7 million. The $(2) million of provision for loan losses in second-quarter 2024 was the result of stable credit trends. o Net charge-offs were $10 million compared to $19 million. o Delinquencies greater than 90 days were $1.9 billion compared to $2.7 billion. o Forbearances were $5.3 billion compared to $6.3 billion. • Other income increased $2 million. • Expenses were $2 million lower primarily as a result of the paydown of the loan portfolio. • Our servicing outsourcing agreement with MOHELA took effect on July 1. Borrower transition is planned for this fall after comprehensive communications. Borrowers will continue to use the same account numbers, phone numbers, payment plans, and other details. 13 Key performance metrics are as follows: Three Months Ended June 30, Six Months Ended June 30, (Dollars in millions) 2024 2023 2024 2023 Segment net interest margin .36 % .97 % .46 % 1.05 % FFELP Loans: FFELP Loan spread .49 % 1.07 % .58 % 1.16 % Provision for loan losses $ (2 ) $ 5 $ (1 ) $ 15 Net charge-offs $ 10 $ 19 $ 20 $ 37 Net charge-off rate .14 % .22 % .14 % .22 % Greater than 30-days delinquency rate 13.5 % 16.1 % 13.5 % 16.1 % Greater than 90-days delinquency rate 7.0 % 8.2 % 7.0 % 8.2 % Forbearance rate 16.8 % 16.0 % 16.8 % 16.0 % Average FFELP Loans $ 34,741 $ 41,869 $ 35,950 $ 42,562 Ending FFELP Loans, net $ 32,940 $ 40,851 $ 32,940 $ 40,851 (Dollars in billions) Total federal loans serviced $ 38 $ 47 $ 38 $ 47 Net Interest Margin The following table details the net interest margin. Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 FFELP Loan yield 6.83 % 6.46 % 6.87 % 6.27 % Floor Income .21 .45 .23 .44 FFELP Loan net yield 7.04 6.91 7.10 6.71 FFELP Loan cost of funds (6.55 ) (5.84 ) (6.52 ) (5.55 ) FFELP Loan spread .49 1.07 .58 1.16 Other interest-earning asset spread impact (.13 ) (.10 ) (.12 ) (.11 ) Net interest margin (1) .36 % .97 % .46 % 1.05 % (1) The average balances of the interest-earning assets for the respective periods are: Three Months Ended June 30, Six Months Ended June 30, (Dollars in millions) 2024 2023 2024 2023 FFELP Loans $ 34,741 $ 41,869 $ 35,950 $ 42,562 Other interest-earning assets 2,192 1,621 2,026 1,796 Total FFELP Loan interest-earning assets $ 36,933 $ 43,490 $ 37,976 $ 44,358 The 61 basis point decrease in the net interest margin is primarily due to the impact of increased interest rates on the different index resets for the segment's assets and debt which resulted in a decrease of floor income (24 basis points) and an increased cost of funds (9 basis points). In addition, there was a $20 million increase in prepayments which contributed to an increase in the amortization of loan premium (22 basis points), a non-cash reduction to interest margin. As of June 30, 2024, our FFELP Loan portfolio totaled $32.9 billion, comprised of $11.8 billion of FFELP Stafford Loans and $21.1 billion of FFELP Consolidation Loans. The weighted-average life of these portfolios as of June 30, 2024 was 8 years and 7 years, respectively, assuming a Constant Prepayment Rate (CPR) of 7% and 5%, respectively. 14 Floor Income The following table analyzes on a Core Earnings basis the ability of the FFELP Loans in our portfolio to earn Floor Income after June 30, 2024 and 2023, based on interest rates as of those dates. (Dollars in billions) June 30, 2024 June 30, 2023 Education loans eligible to earn Floor Income $ 32.7 $ 40.5 Less: post-March 31, 2006 disbursed loans required to rebate Floor Income (15.7 ) (19.3 ) Less: economically hedged Floor Income (1.8 ) (5.9 ) Education loans eligible to earn Floor Income after rebates and economically hedged $ 15.2 $ 15.3 Education loans earning Floor Income $ .9 $ — The following table presents a projection of the average balance of FFELP Consolidation Loans for which Fixed Rate Floor Income has been economically hedged with derivatives for the period July 1, 2024 to December 31, 2028. (Dollars in billions) July 1, 2024 to December 31, 2024 2025 2026 2027 2028 Average balance of FFELP Consolidation Loans whose Floor Income is economically hedged $ 1.5 $ .8 $ .7 $ .3 $ .3 Operating Expenses Operating expenses for the Federal Education Loans segment primarily include costs incurred to perform servicing on our FFELP Loan portfolio and federal education loans held by other institutions. Expenses were $2 million lower as a result of the paydown of the loan portfolio. Various Federal Loan Forgiveness Plans On August 24, 2022, the Biden-Harris Administration announced its Student Debt Relief (SDR) Plan. The SDR Plan would have provided up to $20,000 in one-time debt relief to income-qualified recipients with ED held student loans and a repayment pause on ED held loans. Privately held FFELP Loans, like ours, were not eligible for debt forgiveness. A number of states and private organizations initiated legal challenges to the SDR Plan in various courts throughout the country. On June 30, 2023, the Supreme Court ruled that ED was prohibited from implementing the SDR Plan, and student loan payments on ED held loans resumed in October 2023. After the invalidation of the SDR Plan, ED announced that it had begun a new rulemaking process to consider other ways to provide debt relief to borrowers, which could include borrowers with privately held FFELP Loans. ED held several public meeting sessions with a negotiated rulemaking committee in the fourth quarter of 2023 and the first quarter of 2024, and in April 2024, ED published its first set of proposed rules with public comments that were due before May 17, 2024. In addition, on July 10, 2023, ED issued final regulations on income-driven repayment plans for Direct loans, which are student loans held by ED. Eligible FFELP borrowers can access the new changes by consolidating their loans into the Direct Loan Program. The new regulations (the Saving on a Valuable Education (SAVE) Program) are effective July 1, 2024; however, ED elected early implementation for some features starting July 30, 2023. The regulations provide a lower monthly loan payment on a Direct loan by decreasing discretionary income (i.e., taxable income over 225% of the federal poverty guideline), decreasing the percentage of discretionary income that must be paid toward a Direct loan to 5% (for undergraduates), and providing the option for married borrowers to exclude their spouse’s income from being factored by filing a separate tax return. Other changes provide for the elimination of accrued interest that is not covered by the monthly payment amount, provide credit towards loan forgiveness that counts certain periods of deferment and forbearance, a shorter loan forgiveness period (10-years) for borrowers with an original principal balance less than or equal to $12,000, and credit toward loan forgiveness for eligible payments on a Direct or FFELP loan that is repaid by a Direct Consolidation loan. Several lawsuits have been filed or announced (which Navient is not party to) looking to overturn these regulations, which could impact borrower consolidation activity. On July 18, 2024, a federal appeals court granted a motion for an administrative stay filed by the attorneys general of six states, preventing ED from implementing the SAVE program in its entirety. ED announced that it will place all borrowers enrolled in the SAVE program in an interest-free forbearance. We cannot predict how long the stay will remain in place or how long borrowers will remain in forbearance, the final outcome of this litigation or whether or not borrower consolidation activity will slow down as a result. 15 The proposed borrower debt relief regulations as well as the new income-driven repayment plan have increased, and may continue to increase, consolidation activity in the future as FFELP borrowers consolidate their loans into the Direct Loan Program in order to be eligible for potential debt relief and the new income-driven repayment plan. This consolidation activity could have a material impact on the Company’s results. Consumer Lending Segment The following table presents Core Earnings results for our Consumer Lending segment. Three Months Ended June 30, % Increase (Decrease) Six Months Ended June 30, % Increase (Decrease) (Dollars in millions) 2024 2023 2024 vs. 2023 2024 2023 2024 vs. 2023 Interest income: Private Education Loans $ 317 $ 341 (7 )% $ 645 $ 686 (6 )% Cash and investments 7 7 — 14 13 8 Interest income 324 348 (7 ) 659 699 (6 ) Interest expense 198 205 (3 ) 400 402 — Net interest income 126 143 (12 ) 259 297 (13 ) Less: provision for loan losses 16 6 167 27 (18 ) 250 Net interest income after provision for loan losses 110 137 (20 ) 232 315 (26 ) Other income (loss): Servicing revenue 3 3 — 7 6 17 Other revenue — 2 (100 ) 1 1 — Total other income 3 5 (40 ) 8 7 14 Direct operating expenses 34 42 (19 ) 67 79 (15 ) Income before income tax expense 79 100 (21 ) 173 243 (29 ) Income tax expense 19 25 (24 ) 40 58 (31 ) Net income $ 60 $ 75 (20 )% $ 133 $ 185 (28 )% Comparison of Second-Quarter 2024 Results with Second-Quarter 2023 • Originated $278 million of Private Education Loans compared to $197 million. o Refinance Loan originations were $222 million compared to $142 billion. o In-school loan originations were $56 million compared to $55 million. • Net income was $60 million compared to $75 million. • Net interest income decreased $17 million primarily due to the paydown of the loan portfolio. • Provision for loan losses increased $10 million. The provision for loan losses of $16 million in second quarter 2024 included $6 million in connection with loan originations and $10 million related to a general reserve build. The provision for loan losses of $6 million in the year-ago period included $4 million in connection with loan originations and $2 million related to a reserve build. o Net charge-offs were $67 million, up $5 million from $62 million. o Private Education Loan delinquencies greater than 90 days: $351 million, unchanged from $351 million. o Private Education Loan forbearances: $294 million, down $34 million from $328 million. • Other income decreased $2 million. • Expenses decreased $8 million due to improved marketing efficiencies. 16 Key performance metrics are as follows: Three Months Ended June 30, Six Months Ended June 30, (Dollars in millions) 2024 2023 2024 2023 Segment net interest margin 2.89 % 2.97 % 2.94 % 3.05 % Private Education Loans (including Refinance Loans): Private Education Loan spread 3.01 % 3.12 % 3.06 % 3.20 % Provision for loan losses $ 16 $ 6 $ 27 $ (18 ) Net charge-offs $ 67 $ 62 $ 166 $ 137 Net charge-off rate 1.65 % 1.39 % 2.03 % 1.51 % Greater than 30-days delinquency rate 5.2 % 4.4 % 5.2 % 4.4 % Greater than 90-days delinquency rate 2.2 % 2.0 % 2.2 % 2.0 % Forbearance rate 1.8 % 1.8 % 1.8 % 1.8 % Average Private Education Loans $ 16,936 $ 18,690 $ 17,160 $ 18,988 Ending Private Education Loans, net $ 16,238 $ 17,732 $ 16,238 $ 17,732 Private Education Refinance Loans: Net charge-offs $ 12 $ 8 $ 24 $ 16 Greater than 90-day delinquency rate .5 % .3 % .5 % .3 % Average balance of Private Education Refinance Loans $ 8,662 $ 9,293 $ 8,729 $ 9,406 Ending balance of Private Education Refinance Loans $ 8,494 $ 9,059 $ 8,494 $ 9,059 Private Education Refinance Loan originations $ 222 $ 142 $ 450 $ 277 Net Interest Margin The following table details the net interest margin. Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Private Education Loan yield 7.53 % 7.33 % 7.56 % 7.28 % Private Education Loan cost of funds (4.52 ) (4.21 ) (4.50 ) (4.08 ) Private Education Loan spread 3.01 3.12 3.06 3.20 Other interest-earning asset spread impact (.12 ) (.15 ) (.12 ) (.15 ) Net interest margin (1) 2.89 % 2.97 % 2.94 % 3.05 % (1) The average balances of the interest-earning assets for the respective periods are: Three Months Ended June 30, Six Months Ended June 30, (Dollars in millions) 2024 2023 2024 2023 Private Education Loans $ 16,936 $ 18,690 $ 17,160 $ 18,988 Other interest-earning assets 572 618 558 622 Total Private Education Loan interest-earning assets $ 17,508 $ 19,308 $ 17,718 $ 19,610 As of June 30, 2024, our Private Education Loan portfolio totaled $16.2 billion, comprised of $8.5 billion of refinance loans and $7.7 billion of non-refinance loans. The weighted-average life of these portfolios as of June 30, 2024 was 5 years and 5 years, respectively, assuming a CPR of 10% and 10%, respectively. 17 Provision for Loan Losses The provision for Private Education Loan losses increased $10 million. The provision for loan losses of $16 million in the current quarter included $6 million in connection with loan originations and $10 million related to a general reserve build. The provision for loan losses of $6 million in the year-ago period quarter included $4 million in connection with loan originations and $2 million related to a reserve build. 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 $8 million primarily due to lower in-school loan marketing spend. Business Processing Segment The following table presents Core Earnings results for our Business Processing segment. Three Months Ended June 30, % Increase (Decrease) Six Months Ended June 30, % Increase (Decrease) (Dollars in millions) 2024 2023 2024 vs. 2023 2024 2023 2024 vs. 2023 Business processing revenue $ 81 $ 83 (2 )% $ 158 $ 155 2 % Direct operating expenses 62 75 (17 ) 131 142 (8 ) Income before income tax expense 19 8 138 27 13 108 Income tax expense 4 2 100 6 3 100 Net income $ 15 $ 6 150 % $ 21 $ 10 110 % Comparison of Second-Quarter 2024 Results with Second-Quarter 2023 • Revenue was $81 million, $2 million lower. • Net income was $15 million compared to $6 million. • EBITDA (1) was $20 million, up $12 million, primarily as a result of several efficiency initiatives recently implemented as well as the year-ago period having elevated upfront start-up costs on new contracts. • EBITDA margin was 25%, up from 10%. Key performance metrics are as follows: Three Months Ended June 30, Six Months Ended June 30, (Dollars in millions) 2024 2023 2024 2023 Revenue from government services $ 49 $ 52 $ 97 $ 92 Revenue from healthcare services 32 31 61 63 Total fee revenue $ 81 $ 83 $ 158 $ 155 EBITDA (1) $ 20 $ 8 $ 29 $ 14 EBITDA margin (1) 25 % 10 % 18 % 9 % (1) Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.” 18 Other Segment The following table presents Core Earnings results for our Other segment. Three Months Ended June 30, % Increase (Decrease) Six Months Ended June 30, % Increase (Decrease) (Dollars in millions) 2024 2023 2024 vs. 2023 2024 2023 2024 vs. 2023 Net interest loss after provision for loan losses $ (23 ) $ (28 ) (18 )% $ (47 ) $ (54 ) (13 )% Other revenue (loss) 2 — 100 7 3 133 Expenses: Unallocated shared services operating expenses: Unallocated information technology costs 20 19 5 42 39 8 Unallocated corporate costs 34 28 21 77 70 10 Total unallocated shared services operating expenses 54 47 15 119 109 9 Restructuring/other reorganization expenses 16 15 7 17 19 (11 ) Total expenses 70 62 13 136 128 6 Loss before income tax benefit (91 ) (90 ) 1 (176 ) (179 ) (2 ) Income tax benefit (21 ) (21 ) — (40 ) (43 ) (7 ) Net income (loss) $ (70 ) $ (69 ) 1 % $ (136 ) $ (136 ) — % 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 amount of the net interest loss is primarily a result of the size of the liquidity portfolio as well as the cost of funds of the debt funding the corporate liquidity portfolio. Unallocated Shared Services Operating Expenses Unallocated shared services operating expenses are 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. Expenses increased $7 million from the year-ago quarter. Regulatory-related expenses were $12 million and $2 million in second-quarter 2024 and second-quarter 2023, respectively, with second quarter 2024 including a $20 million contingency loss accrual related to recent developments in connection to CFPB matters. The remaining $3 million decrease in expenses was primarily the result of ongoing initiatives to reduce costs and improve operating efficiency. 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 certain 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 certain 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 These expenses increased $1 million. The current quarter’s restructuring expense of $16 million included $13 million of severance-related costs in connection with the various strategic initiatives being implemented to simplify the Company, reduce our expense base and enhance our flexibility, and primarily related to severance and facility exit costs. The year-ago quarter's restructuring expenses were primarily due to severance costs in connection with the CEO transition. 19 F inancial Condition This section provides information regarding the balances, activity and credit performance metrics of our education loan portfolio. Summary of Our Education Loan Portfolio Ending Education Loan Balances, net June 30, 2024 (Dollars in millions) FFELP Stafford and Other FFELP Consolidation Loans Total FFELP Loans Private Education Loans Total Portfolio Total education loan portfolio: In-school (1) $ 11 $ — $ 11 $ 70 $ 81 Grace, repayment and other (2) 11,931 21,192 33,123 16,661 49,784 Total 11,942 21,192 33,134 16,731 49,865 Allowance for loan losses (146 ) (48 ) (194 ) (493 ) (687 ) Total education loan portfolio $ 11,796 $ 21,144 $ 32,940 $ 16,238 $ 49,178 % of total FFELP 36 % 64 % 100 % % of total 24 % 43 % 67 % 33 % 100 % December 31, 2023 (Dollars in millions) FFELP Stafford and Other FFELP Consolidation Loans Total FFELP Loans Private Education Loans Total Portfolio Total education loan portfolio: In-school (1) $ 12 $ — $ 12 $ 70 $ 82 Grace, repayment and other (2) 13,708 24,420 38,128 17,449 55,577 Total 13,720 24,420 38,140 17,519 55,659 Allowance for loan losses (156 ) (59 ) (215 ) (617 ) (832 ) Total education loan portfolio $ 13,564 $ 24,361 $ 37,925 $ 16,902 $ 54,827 % of total FFELP 36 % 64 % 100 % % of total 25 % 44 % 69 % 31 % 100 % June 30, 2023 (Dollars in millions) FFELP Stafford and Other FFELP Consolidation Loans Total FFELP Loans Private Education Loans Total Portfolio Total education loan portfolio: In-school (1) $ 13 $ — $ 13 $ 53 $ 66 Grace, repayment and other (2) 14,829 26,209 41,038 18,336 59,374 Total 14,842 26,209 41,051 18,389 59,440 Allowance for loan losses (147 ) (53 ) (200 ) (657 ) (857 ) Total education loan portfolio $ 14,695 $ 26,156 $ 40,851 $ 17,732 $ 58,583 % of total FFELP 36 % 64 % 100 % % of total 25 % 45 % 70 % 30 % 100 % (1) Loans for customers still attending school and are not yet required to make payments on the loan. (2) Includes loans in deferment or forbearance. 20 Education Loan Activity Three Months Ended June 30, 2024 (Dollars in millions) FFELP Stafford and Other FFELP Consolidation Loans Total FFELP Loans Private Education Loans Total Portfolio Beginning balance $ 12,677 $ 23,202 $ 35,879 $ 16,608 $ 52,487 Acquisitions (originations and purchases) (1) — — — 247 247 Capitalized interest and premium/discount amortization 120 127 247 47 294 Refinancings and consolidations to third parties (749 ) (1,636 ) (2,385 ) (49 ) (2,434 ) Repayments and other (252 ) (549 ) (801 ) (615 ) (1,416 ) Ending balance $ 11,796 $ 21,144 $ 32,940 $ 16,238 $ 49,178 Three Months Ended June 30, 2023 (Dollars in millions) FFELP Stafford and Other FFELP Consolidation Loans Total FFELP Loans Private Education Loans Total Portfolio Beginning balance $ 15,199 $ 26,949 $ 42,148 $ 18,275 $ 60,423 Acquisitions (originations and purchases) (1) — — — 164 164 Capitalized interest and premium/discount amortization 119 149 268 42 310 Refinancings and consolidations to third parties (163 ) (345 ) (508 ) (59 ) (567 ) Repayments and other (460 ) (597 ) (1,057 ) (690 ) (1,747 ) Ending balance $ 14,695 $ 26,156 $ 40,851 $ 17,732 $ 58,583 Six Months Ended June 30, 2024 (Dollars in millions) FFELP Stafford and Other FFELP Consolidation Loans Total FFELP Loans Total Private Education Loans Total Portfolio Beginning balance $ 13,564 $ 24,361 $ 37,925 $ 16,902 $ 54,827 Acquisitions (originations and purchases) (1) — — — 610 610 Capitalized interest and premium/discount amortization 254 267 521 106 627 Refinancings and consolidations to third parties (1,231 ) (2,424 ) (3,655 ) (99 ) (3,754 ) Repayments and other (791 ) (1,060 ) (1,851 ) (1,281 ) (3,132 ) Ending balance $ 11,796 $ 21,144 $ 32,940 $ 16,238 $ 49,178 Six Months Ended June 30, 2023 (Dollars in millions) FFELP Stafford and Other FFELP Consolidation Loans Total FFELP Loans Total Private Education Loans Total Portfolio Beginning balance $ 15,691 $ 27,834 $ 43,525 $ 18,725 $ 62,250 Acquisitions (originations and purchases) (1) — — — 438 438 Capitalized interest and premium/discount amortization 266 313 579 91 670 Refinancings and consolidations to third parties (416 ) (781 ) (1,197 ) (132 ) (1,329 ) Repayments and other (846 ) (1,210 ) (2,056 ) (1,390 ) (3,446 ) Ending balance $ 14,695 $ 26,156 $ 40,851 $ 17,732 $ 58,583 (1) Includes the origination of $44 million and $52 million of Private Education Refinance Loans in the second-quarters of 2024 and 2023, respectively, and $91 million and $102 million in the six months ended June 30, 2024 and 2023, respectively, that refinanced FFELP and Private Education Loans that were on our balance sheet. 21 FFELP Loan Portfolio Performance June 30, 2024 December 31, 2023 June 30, 2023 (Dollars in millions) Balance % Balance % Balance % Loans in-school/grace/deferment (1) $ 1,403 $ 1,557 $ 1,659 Loans in forbearance (2) 5,320 6,147 6,316 Loans in repayment and percentage of each status: Loans current 22,833 86.5 % 26,204 86.1 % 27,756 83.9 % Loans delinquent 31-60 days (3) 1,041 3.9 1,193 3.9 1,596 4.8 Loans delinquent 61-90 days (3) 680 2.6 746 2.5 1,013 3.1 Loans delinquent greater than 90 days (3) 1,857 7.0 2,293 7.5 2,711 8.2 Total FFELP Loans in repayment 26,411 100 % 30,436 100 % 33,076 100 % Total FFELP Loans 33,134 38,140 41,051 FFELP Loan allowance for losses (194 ) (215 ) (200 ) FFELP Loans, net $ 32,940 $ 37,925 $ 40,851 Percentage of FFELP Loans in repayment 79.7 % 79.8 % 80.6 % Delinquencies as a percentage of FFELP Loans in repayment 13.5 % 13.9 % 16.1 % FFELP Loans in forbearance as a percentage of loans in repayment and forbearance 16.8 % 16.8 % 16.0 % (1) Loans for customers who may still be attending school or engaging in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation, as well as loans for customers who have requested and qualify for other permitted program deferments such as military, unemployment, or economic hardships. (2) Loans for customers who have used their allowable deferment time or do not qualify for deferment, that need additional time to obtain employment or who have temporarily ceased making payments due to hardship or other factors such as disaster relief, including COVID-19 relief programs. (3) The period of delinquency is based on the number of days scheduled payments are contractually past due. Private Education Loan Portfolio Performance June 30, 2024 December 31, 2023 June 30, 2023 (Dollars in millions) Balance % Balance % Balance % Loans in-school/grace/deferment (1) $ 350 $ 360 $ 341 Loans in forbearance (2) 294 363 328 Loans in repayment and percentage of each status: Loans current 15,250 94.8 % 15,935 94.9 % 16,942 95.6 % Loans delinquent 31-60 days (3) 311 1.9 308 1.8 276 1.6 Loans delinquent 61-90 days (3) 175 1.1 173 1.0 151 .8 Loans delinquent greater than 90 days (3) 351 2.2 380 2.3 351 2.0 Total Private Education Loans in repayment 16,087 100 % 16,796 100 % 17,720 100 % Total Private Education Loans 16,731 17,519 18,389 Private Education Loan allowance for losses (493 ) (617 ) (657 ) Private Education Loans, net $ 16,238 $ 16,902 $ 17,732 Percentage of Private Education Loans in repayment 96.2 % 95.9 % 96.4 % Delinquencies as a percentage of Private Education Loans in repayment 5.2 % 5.1 % 4.4 % Loans in forbearance as a percentage of loans in repayment and forbearance 1.8 % 2.1 % 1.8 % Percentage of Private Education Loans with a cosigner (4) 32 % 33 % 33 % (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. (4) Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 66%, 65% and 65% for second-quarter 2024, fourth-quarter 2023 and second-quarter 2023, respectively. 22 Allowance for Loan Losses Three Months Ended June 30, 2024 2023 (Dollars in millions) FFELP Loans Private Education Loans Total FFELP Loans Private Education Loans Total Allowance at beginning of period $ 206 $ 538 $ 744 $ 214 $ 706 $ 920 Total provision (2 ) 16 14 5 6 11 Charge-offs: Gross charge-offs (10 ) (77 ) (87 ) (19 ) (73 ) (92 ) Expected future recoveries on current period gross charge-offs — 10 10 — 11 11 Net charge-offs (1) (10 ) (67 ) (77 ) (19 ) (62 ) (81 ) Decrease in expected future recoveries on previously fully charged-off loans (2) — 6 6 — 7 7 Allowance at end of period (GAAP) 194 493 687 200 657 857 Plus: expected future recoveries on previously fully charged-off loans (2) — 211 211 — 262 262 Allowance at end of period excluding expected future recoveries on previously fully charged-off loans (Non-GAAP Financial Measure) (3) $ 194 $ 704 $ 898 $ 200 $ 919 $ 1,119 Net charge-offs as a percentage of average loans in repayment (annualized) .14 % 1.65 % .22 % 1.39 % Allowance coverage of charge-offs (annualized) (3) 5.0 2.6 (Non-GAAP) 2.7 3.7 (Non-GAAP) Allowance as a percentage of the ending total loan balance (3) .6 % 4.2 % (Non-GAAP) .5 % 5.0 % (Non-GAAP) Allowance as a percentage of ending loans in repayment (3) .7 % 4.4 % (Non-GAAP) .6 % 5.2 % (Non-GAAP) Ending total loans $ 33,134 $ 16,731 $ 41,051 $ 18,389 Average loans in repayment $ 27,509 $ 16,271 $ 33,790 $ 17,990 Ending loans in repayment $ 26,411 $ 16,087 $ 33,076 $ 17,720 (1) Charge-offs are reported net of expected recoveries. For Private Education Loans, we charge off the estimated loss of a defaulted loan balance by charging off the entire defaulted loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as “expected future recoveries on previously fully 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 by charging off the entire loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as "expected future recoveries on previously fully charged-off loans." If actual periodic recoveries are less than expected, the difference is immediately reflected as a reduction to expected future recoveries on previously fully 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 previously fully charged-off loans: Three Months Ended June 30, (Dollars in millions) 2024 2023 Beginning of period expected future recoveries on previously fully charged-off loans $ 217 $ 268 Expected future recoveries of current period defaults 10 11 Recoveries (cash collected) (10 ) (11 ) Charge-offs (as a result of lower recovery expectations) (6 ) (6 ) End of period expected future recoveries on previously fully charged-off loans $ 211 $ 262 Change in balance during period $ (6 ) $ (7 ) (3) The allowance used for these metrics excludes the expected future recoveries on previously fully charged-off loans to better reflect the current expected credit losses remaining in the portfolio. 23 Six Months Ended June 30, 2024 2023 (Dollars in millions) FFELP Loans Private Education Loans Total FFELP Loans Private Education Loans Total Beginning balance $ 215 $ 617 $ 832 $ 222 $ 800 $ 1,022 Total provision (1 ) 27 26 15 (18 ) (3 ) Charge-offs: Gross charge-offs (20 ) (187 ) (207 ) (37 ) (161 ) (198 ) Expected future recoveries on current period gross charge-offs — 21 21 — 24 24 Net charge-offs (1)(2) (20 ) (166 ) (186 ) (37 ) (137 ) (174 ) Decrease in expected future recoveries on previously fully charged-off loans (3) — 15 15 — 12 12 Allowance at end of period (GAAP) 194 493 687 200 657 857 Plus: expected future recoveries on previously fully charged-off loans (3) — 211 211 — 262 262 Allowance at end of period excluding expected future recoveries on previously fully charged-off loans (Non-GAAP Financial Measure) (4) $ 194 $ 704 $ 898 $ 200 $ 919 $ 1,119 Net charge-offs as a percentage of average loans in repayment (annualized) .14 % 2.03 % .22 % 1.51 % Allowance coverage of charge-offs (annualized) (4) 4.9 2.1 (Non-GAAP) 2.7 3.3 (Non-GAAP) Allowance as a percentage of the ending total loan balance (4) .6 % 4.2 % (Non-GAAP) .5 % 5.0 % (Non-GAAP) Allowance as a percentage of ending loans in repayment (4) .7 % 4.4 % (Non-GAAP) .6 % 5.2 % (Non-GAAP) Ending total loans $ 33,134 $ 16,731 $ 41,051 $ 18,389 Average loans in repayment $ 28,622 $ 16,471 $ 34,046 $ 18,270 Ending loans in repayment $ 26,411 $ 16,087 $ 33,076 $ 17,720 (1) $28 million of first-quarter 2024 Private Education Loan net charge-offs was in connection with the resolution of certain private legacy loans in bankruptcy. This was previously reserved for in 2023. (2) Charge-offs are reported net of expected recoveries. For Private Education Loans, we charge off the estimated loss of a defaulted loan balance by charging off the entire defaulted loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as “expected future recoveries on previously fully 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 by charging off the entire loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as "expected future recoveries on previously fully charged-off loans." If actual periodic recoveries are less than expected, the difference is immediately reflected as a reduction to expected future recoveries on previously fully 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 previously fully charged-off loans: Six Months Ended June 30, (Dollars in millions) 2024 2023 Beginning of period expected future recoveries on previously fully charged-off loans $ 226 $ 274 Expected future recoveries of current period defaults 21 24 Recoveries (cash collected) (21 ) (24 ) Charge-offs (as a result of lower recovery expectations) (15 ) (12 ) End of period expected future recoveries on previously fully charged-off loans $ 211 $ 262 Change in balance during period $ (15 ) $ (12 ) (4) The allowance used for these metrics excludes the expected future recoveries on previously fully charged-off loans to better reflect the current expected credit losses remaining in the portfolio. 24 L iquidity 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 segment requires minimal liquidity and funding. We define liquidity as cash and high-quality liquid assets that we can use to meet our cash requirements. Our two primary liquidity needs are: (1) servicing our debt and (2) our ongoing ability to meet our cash needs for running the operations of our businesses (including derivative collateral requirements) throughout market cycles, including during periods of financial stress. Secondary liquidity needs, which can be adjusted as needed, include 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 $5.9 billion at June 30, 2024. 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 $1.1 billion of senior unsecured notes that mature in the short term (i.e., over the next 12 months) and the remaining $4.8 billion of senior unsecured notes that mature in the long term (from 2025 to 2043 with 56% maturing by 2029), through a number of sources. These sources include 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 asset-backed commercial paper (ABCP) facilities, issue term ABS, enter into additional Private Education Loan and FFELP Loan ABS repurchase facilities, or issue additional unsecured debt. We originate Private Education Loans (a portion of which is obtained 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. Loan originations and purchases are part of our ongoing liquidity needs. We purchased 2.5 million shares of common stock for $38 million in the second quarter of 2024 and have $209 million of unused share repurchase authority as of June 30, 2024. 25 Sources of Primary Liquidity (Dollars in millions) June 30, 2024 December 31, 2023 June 30, 2023 Ending Balances: Total unrestricted cash and liquid investments $ 1,088 $ 839 $ 1,317 Unencumbered FFELP Loans 160 92 69 Unencumbered Private Education Refinance Loans 326 236 45 Total $ 1,574 $ 1,167 $ 1,431 Three Months Ended Six Months Ended (Dollars in millions) June 30, 2024 December 31, 2023 June 30, 2023 June 30, 2024 June 30, 2023 Average Balances: Total unrestricted cash and liquid investments $ 1,116 $ 1,167 $ 963 $ 941 $ 894 Unencumbered FFELP Loans 148 92 94 $ 132 90 Unencumbered Private Education Refinance Loans 224 137 100 $ 221 83 Total $ 1,488 $ 1,396 $ 1,157 $ 1,294 $ 1,067 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 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 July 2024 to April 2026. (Dollars in millions) June 30, 2024 December 31, 2023 June 30, 2023 Ending Balances: FFELP Loan ABCP facilities $ 416 $ 408 $ 28 Private Education Loan ABCP facilities 2,088 1,719 1,983 Total $ 2,504 $ 2,127 $ 2,011 Three Months Ended Six Months Ended (Dollars in millions) June 30, 2024 December 31, 2023 June 30, 2023 June 30, 2024 June 30, 2023 Average Balances: FFELP Loan ABCP facilities $ 409 $ 203 $ 68 $ 409 $ 87 Private Education Loan ABCP facilities 1,664 1,693 1,888 1,613 1,681 Total $ 2,073 $ 1,896 $ 1,956 $ 2,022 $ 1,768 At June 30, 2024, we had a total of $3.4 billion of unencumbered tangible assets inclusive of those listed in the table above as sources of primary liquidity. Total unencumbered education loans comprised $1.3 billion principal of our unencumbered tangible assets of which $1.2 billion and $160 million related to Private Education Loans and FFELP Loans, respectively. In addition, as of June 30, 2024, we had $4.9 billion of encumbered net assets (i.e., overcollateralization) in our various financing facilities (consolidated variable interest entities). We enter into repurchase facilities at times to borrow against the encumbered net assets of these financing vehicles. As of June 30, 2024, $0.9 billion of repurchase facility borrowings were outstanding. 26 The following table reconciles encumbered and unencumbered assets and their net impact on total Tangible Equity. (Dollars in billions) June 30, 2024 December 31, 2023 Net assets of consolidated variable interest entities (encumbered assets) — FFELP Loans $ 3.2 3.4 Net assets of consolidated variable interest entities (encumbered assets) — Private Education Loans 1.7 2.1 Tangible unencumbered assets (1) 3.4 3.0 Senior unsecured debt (5.9 ) (5.9 ) Mark-to-market on unsecured hedged debt (2) .2 .2 Other liabilities, net (.5 ) (.7 ) Total Tangible Equity (3) $ 2.1 $ 2.1 (1) Excludes goodwill and acquired intangible assets. (2) At June 30, 2024 and December 31, 2023, there were $(230) million and $(181) million, respectively, of net gains (losses) on derivatives hedging this debt in unencumbered assets, which partially offset these gains (losses). (3) Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.” Borrowings Ending Balances June 30, 2024 December 31, 2023 (Dollars in millions) Short Term Long Term Total Short Term Long Term Total Unsecured borrowings: Senior unsecured debt $ 1,052 $ 4,802 $ 5,854 $ 506 $ 5,351 $ 5,857 Total unsecured borrowings 1,052 4,802 5,854 506 5,351 5,857 Secured borrowings: FFELP Loan securitizations 159 31,596 31,755 59 35,626 35,685 Private Education Loan securitizations 719 11,382 12,101 435 11,754 12,189 FFELP Loan ABCP facilities 1,600 81 1,681 1,854 89 1,943 Private Education Loan ABCP facilities 1,747 — 1,747 1,286 821 2,107 Other 67 39 106 95 39 134 Total secured borrowings 4,292 43,098 47,390 3,729 48,329 52,058 Core Earnings basis borrowings (1) 5,344 47,900 53,244 4,235 53,680 57,915 Adjustment for GAAP accounting treatment (18 ) (355 ) (373 ) (9 ) (278 ) (287 ) GAAP basis borrowings $ 5,326 $ 47,545 $ 52,871 $ 4,226 $ 53,402 $ 57,628 Average Balances Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 (Dollars in millions) Average Balance Average Rate Average Balance Average Rate Average Balance Average Rate Average Balance Average Rate Unsecured borrowings: Senior unsecured debt $ 5,859 9.26 % $ 6,329 8.67 % $ 5,858 9.25 % $ 6,304 8.41 % Total unsecured borrowings 5,859 9.26 6,329 8.67 5,858 9.25 6,304 8.41 Secured borrowings: FFELP Loan securitizations 32,938 6.42 39,131 5.71 33,899 6.38 40,248 5.42 Private Education Loan securitizations 11,777 3.67 13,035 3.46 11,842 3.61 13,103 3.35 FFELP Loan ABCP facilities 1,761 6.94 1,843 6.19 1,827 6.96 1,567 6.07 Private Education Loan ABCP facilities 2,156 7.36 2,438 6.81 2,199 7.31 2,632 6,51 Other 96 (3.45 ) 107 5.54 104 (2.50 ) 108 5.28 Total secured borrowings 48,728 5.79 56,554 5.25 49,871 5.77 57,658 5.02 Core Earnings basis borrowings (1) 54,587 6.17 62,883 5.60 55,729 6.14 63,962 5.35 Adjustment for GAAP accounting treatment — .04 — .26 — .06 — .19 GAAP basis borrowings $ 54,587 6.21 % $ 62,883 5.86 % $ 55,729 6.20 % $ 63,962 5.54 % (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. 27 C ritical 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, premium and discount amortization, and the impact of the SDR Plan on our accounting policies and estimates, can be found in our 2023 Form 10-K. See "Segment Results —Federal Education Loans Segment — Various Federal Loan Forgiveness Plans" for an update on the SDR Plan. Related to goodwill, we last performed a quantitative goodwill impairment test by engaging an independent appraiser to estimate the fair values of these reporting units as of October 1, 2022. During second quarter 2024, we assessed relevant qualitative factors to determine whether it is "more-likely-than-not” that the fair value of an individual reporting unit is less than its carrying value. For the FFELP Loans reporting unit, due to the runoff nature of portfolio, goodwill at some point will be impaired. The only uncertainty is when goodwill will be impaired. Due to the elevated prepayments experienced in the first half of 2024, the runoff nature of the portfolio and the passage of time, our current projections of future cash flows would result in goodwill being partially impaired at an earlier point in 2025 than previously estimated (as previously disclosed in our 2023 Form 10-K) and may be accelerated into 2024 if elevated prepayment rates continue. This is based on estimated cash flows and, as a result, this future impairment date may change. For the Business Processing reporting units, the outlook and long-term cash flow projections for these reporting units remain favorable and have not changed significantly since our 2022 quantitative impairment assessment. However, expected multiples used for valuation purposes for the Government Services reporting unit have decreased and as a result the amount of cushion (the difference between the fair value and carrying value) has declined. If this decline in multiples continues, goodwill could potentially be impaired in the future. No goodwill was deemed impaired in the second quarter of 2024 for these, or any, reporting units after assessing these relevant qualitative factors. 28 N on-GAAP Financial Measures In addition to financial results reported on a GAAP basis, Navient also provides certain performance measures which are non-GAAP financial measures. We present the following non-GAAP financial measures: (1) Core Earnings, (2) Tangible Equity (as well as the Adjusted Tangible Equity Ratio), (3) EBITDA for the Business Processing segment, and (4) Allowance for Loan Losses Excluding Expected Future Recoveries on Previously Fully Charged-off Loans. Definitions for the non-GAAP financial measures and reconciliations are provided below, except that reconciliations of forward-looking non-GAAP financial measures are not provided because the Company is unable to provide such reconciliations without unreasonable effort due to the uncertainty and inherent difficulty of predicting the occurrence and financial impact of certain items, including, but not limited to, the impact of any mark-to-market gains/losses resulting from our use of derivative instruments to hedge our economic risks. 1. Core Earnings We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate our business segments and present financial results on a basis that differs from GAAP. We refer to this different basis of presentation as Core Earnings. We provide this Core Earnings basis of presentation on a consolidated basis and for each business segment because this is what we review internally when making management decisions regarding our performance and how we allocate resources. We also refer to this information in our presentations with credit rating agencies, lenders and investors. Because our Core Earnings basis of presentation corresponds to our segment financial presentations, we are required by GAAP to provide certain Core Earnings disclosures in the notes to our consolidated financial statements for our business segments. Core Earnings are not a substitute for reported results under GAAP. We use Core Earnings to manage our business segments because Core Earnings reflect adjustments to GAAP financial results for two items, discussed below, that can create significant volatility mostly due to timing factors generally beyond the control of management. Accordingly, we believe that Core Earnings provide management with a useful basis from which to better evaluate results from ongoing operations against the business plan or against results from prior periods. Consequently, we disclose this information because we believe it provides investors with additional information regarding the operational and performance indicators that are most closely assessed by management. When compared to GAAP results, the two items we remove to result in our Core Earnings presentations are: (1) Mark-to-market gains/losses resulting from our use of derivative instruments to hedge our economic risks that do not qualify for hedge accounting treatment or do qualify for hedge accounting treatment but result in ineffectiveness; and (2) The accounting for goodwill and acquired intangible assets. While GAAP provides a uniform, comprehensive basis of accounting, for the reasons described above, our Core Earnings basis of presentation does not. Core Earnings are subject to certain general and specific limitations that investors should carefully consider. For example, there is no comprehensive, authoritative guidance for management reporting. Our Core Earnings are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. Accordingly, our Core Earnings presentation does not represent a comprehensive basis of accounting. Investors, therefore, may not be able to compare our performance with that of other financial services companies based upon Core Earnings. Core Earnings results are only meant to supplement GAAP results by providing additional information regarding the operational and performance indicators that are most closely used by management, our Board of Directors, credit rating agencies, lenders and investors to assess performance. 29 The following tables show our consolidated GAAP results, Core Earnings results (including for each reportable segment) along with the adjustments made to the income/expense items to reconcile the consolidated GAAP results to the Core Earnings results as required by GAAP and reported in “Note 11 — Segment Reporting.” Three Months Ended June 30, 2024 Adjustments Reportable Segments (Dollars in millions) Total GAAP Reclassi- fications Additions/ (Subtractions) Total Adjustments (1) Total Core Earnings Federal Education Loans Consumer Lending Business Processing Other Interest income: Education loans $ 925 $ 608 $ 317 $ — $ — Cash and investments 48 28 7 — 13 Total interest income 973 636 324 — 13 Total interest expense 843 603 198 — 36 Net interest income (loss) 130 $ 9 $ (3 ) $ 6 $ 136 33 126 — (23 ) Less: provisions for loan losses 14 14 (2 ) 16 — — Net interest income (loss) after provisions for loan losses 116 35 110 — (23 ) Other income (loss): Servicing revenue 18 15 3 — — Asset recovery and business processing revenue 81 — — 81 — Other revenue 18 2 — — 2 Total other income (loss) 117 (9 ) (5 ) (14 ) 103 17 3 81 2 Expenses: Direct operating expenses 112 16 34 62 — Unallocated shared services expenses 54 — — — 54 Operating expenses 166 — — — 166 16 34 62 54 Goodwill and acquired intangible asset impairment and amortization 3 — (3 ) (3 ) — — — — — Restructuring/other reorganization expenses 16 — — — 16 — — — 16 Total expenses 185 — (3 ) (3 ) 182 16 34 62 70 Income (loss) before income tax expense (benefit) 48 — (5 ) (5 ) 43 36 79 19 (91 ) Income tax expense (benefit) (2) 12 — (2 ) (2 ) 10 8 19 4 (21 ) Net income (loss) $ 36 $ — $ (3 ) $ (3 ) $ 33 $ 28 $ 60 $ 15 $ (70 ) (1) Core Earnings adjustments to GAAP: Three Months Ended June 30, 2024 (Dollars in millions) Net Impact of Derivative Accounting Net Impact of Goodwill and Acquired Intangibles Total Net interest income (loss) after provisions for loan losses $ 6 $ — $ 6 Total other income (loss) (14 ) — (14 ) Goodwill and acquired intangible asset impairment and amortization — (3 ) (3 ) Total Core Earnings adjustments to GAAP $ (8 ) $ 3 (5 ) Income tax expense (benefit) (2 ) Net income (loss) $ (3 ) (2) Income taxes are based on a percentage of net income before tax for the individual reportable segment. 30 Three Months Ended June 30, 2023 Adjustments Reportable Segments (Dollars in millions) Total GAAP Reclassi- fications Additions/ (Subtractions) Total Adjustments (1) Total Core Earnings Federal Education Loans Consumer Lending Business Processing Other Interest income: Education loans $ 1,061 $ 721 $ 341 $ — $ — Cash and investments 36 18 7 — 11 Total interest income 1,097 739 348 — 11 Total interest expense 919 633 205 — 39 Net interest income (loss) 178 $ 4 $ 39 $ 43 $ 221 106 143 — (28 ) Less: provisions for loan losses 11 11 5 6 — — Net interest income (loss) after provisions for loan losses 167 101 137 — (28 ) Other income (loss): Servicing revenue 16 13 3 — — Asset recovery and business processing revenue 83 — — 83 — Other revenue 30 2 2 — — Total other income (loss) 129 (4 ) (22 ) (26 ) 103 15 5 83 — Expenses: Direct operating expenses 135 18 42 75 — Unallocated shared services expenses 47 — — — 47 Operating expenses 182 — — — 182 18 42 75 47 Goodwill and acquired intangible asset impairment and amortization 3 — (3 ) (3 ) — — — — — Restructuring/other reorganization expenses 15 — — — 15 — — — 15 Total expenses 200 — (3 ) (3 ) 197 18 42 75 62 Income (loss) before income tax expense (benefit) 96 — 20 20 116 98 100 8 (90 ) Income tax expense (benefit) (2) 30 — (2 ) (2 ) 28 22 25 2 (21 ) Net income (loss) $ 66 $ — $ 22 $ 22 $ 88 $ 76 $ 75 $ 6 $ (69 ) (1) Core Earnings adjustments to GAAP: Three Months Ended June 30, 2023 (Dollars in millions) Net Impact of Derivative Accounting Net Impact of Goodwill and Acquired Intangibles Total Net interest income (loss) after provisions for loan losses $ 43 $ — $ 43 Total other income (loss) (26 ) — (26 ) Goodwill and acquired intangible asset impairment and amortization — (3 ) (3 ) Total Core Earnings adjustments to GAAP $ 17 $ 3 20 Income tax expense (benefit) (2 ) Net income (loss) $ 22 (2) Income taxes are based on a percentage of net income before tax for the individual reportable segment. 31 Six Months Ended June 30, 2024 Adjustments Reportable Segments (Dollars in millions) Total GAAP Reclassi- fications Additions/ (Subtractions) Total Adjustments (1) Total Core Earnings Federal Education Loans Consumer Lending Business Processing Other Interest income: Education loans $ 1,914 $ 1,269 $ 645 $ — $ — Cash and investments 86 51 14 — 21 Total interest income 2,000 1,320 659 — 21 Total interest expense 1,718 1,233 400 — 68 Net interest income (loss) 282 $ 19 $ (2 ) $ 17 $ 299 87 259 — (47 ) Less: provisions for loan losses 26 26 (1 ) 27 — — Net interest income (loss) after provisions for loan losses 256 88 232 — (47 ) Other income (loss): Servicing revenue 35 28 7 — — Asset recovery and business processing revenue 158 — — 158 — Other revenue 59 5 1 — 7 Total other income (loss) 252 (19 ) (27 ) (46 ) 206 33 8 158 7 Expenses: Direct operating expenses 231 33 67 131 — Unallocated shared services expenses 119 — — — 119 Operating expenses 350 — — — 350 33 67 131 119 Goodwill and acquired intangible asset impairment and amortization 5 — (5 ) (5 ) — — — — — Restructuring/other reorganization expenses 17 — — — 17 — — — 17 Total expenses 372 — (5 ) (5 ) 367 33 67 131 136 Income (loss) before income tax expense (benefit) 136 — (24 ) (24 ) 112 88 173 27 (176 ) Income tax expense (benefit) (2) 27 — (1 ) (1 ) 26 20 40 6 (40 ) Net income (loss) $ 109 $ — $ (23 ) $ (23 ) $ 86 $ 68 $ 133 $ 21 $ (136 ) (1) Core Earnings adjustments to GAAP: Six Months Ended June 30, 2024 (Dollars in millions) Net Impact of Derivative Accounting Net Impact of Goodwill and Acquired Intangibles Total Net interest income (loss) after provisions for loan losses $ 17 $ — $ 17 Total other income (loss) (46 ) — (46 ) Goodwill and acquired intangible asset impairment and amortization — (5 ) (5 ) Total Core Earnings adjustments to GAAP $ (29 ) $ 5 (24 ) Income tax expense (benefit) (1 ) Net income (loss) $ (23 ) (2) Income taxes are based on a percentage of net income before tax for the individual reportable segment. 32 Six Months Ended June 30, 2023 Adjustments Reportable Segments (Dollars in millions) Total GAAP Reclassi- fications Additions/ (Subtractions) Total Adjustments (1) Total Core Earnings Federal Education Loans Consumer Lending Business Processing Other Interest income: Education loans $ 2,099 $ 1,416 $ 686 $ — $ — Cash and investments 70 38 13 — 19 Total interest income 2,169 1,454 699 — 19 Total interest expense 1,756 1,223 402 — 73 Net interest income (loss) 413 $ 16 $ 45 $ 61 $ 474 231 297 — (54 ) Less: provisions for loan losses (3 ) (3 ) 15 (18 ) — — Net interest income (loss) after provisions for loan losses 416 216 315 — (54 ) Other income (loss): Servicing revenue 33 27 6 — — Asset recovery and business processing revenue 155 — — 155 — Other revenue 28 7 1 — 3 Total other income (loss) 216 (16 ) (1 ) (17 ) 199 34 7 155 3 Expenses: Direct operating expenses 259 38 79 142 — Unallocated shared services expenses 109 — — — 109 Operating expenses 368 — — — 368 38 79 142 109 Goodwill and acquired intangible asset impairment and amortization 5 — (5 ) (5 ) — — — — — Restructuring/other reorganization expenses 19 — — — 19 — — — 19 Total expenses 392 — (5 ) (5 ) 387 38 79 142 128 Income (loss) before income tax expense (benefit) 240 — 49 49 289 212 243 13 (179 ) Income tax expense (benefit) (2) 63 — 5 5 68 50 58 3 (43 ) Net income (loss) $ 177 $ — $ 44 $ 44 $ 221 $ 162 $ 185 $ 10 $ (136 ) (1) Core Earnings adjustments to GAAP: Six Months Ended June 30, 2023 (Dollars in millions) Net Impact of Derivative Accounting Net Impact of Goodwill and Acquired Intangibles Total Net interest income (loss) after provisions for loan losses $ 61 $ — $ 61 Total other income (loss) (17 ) — (17 ) Goodwill and acquired intangible asset impairment and amortization — (5 ) (5 ) Total Core Earnings adjustments to GAAP $ 44 $ 5 49 Income tax expense (benefit) 5 Net income (loss) $ 44 (2) Income taxes are based on a percentage of net income before tax for the individual reportable segment. 33 Three Months Ended June 30, Six Months Ended June 30, (Dollars in millions) 2024 2023 2024 2023 GAAP net income $ 36 $ 66 $ 109 $ 177 Core Earnings adjustments to GAAP: Net impact of derivative accounting (8 ) 17 (29 ) 44 Net impact of goodwill and acquired intangible assets 3 3 5 5 Net income tax effect 2 2 1 (5 ) Total Core Earnings adjustments to GAAP (3 ) 22 (23 ) 44 Core Earnings net income $ 33 $ 88 $ 86 $ 221 (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 interest rate 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. See our 2023 Form 10-K for further discussion. 34 The table below quantifies the adjustments for derivative accounting between GAAP and Core Earnings net income. Three Months Ended June 30, Six Months Ended June 30, (Dollars in millions) 2024 2023 2024 2023 Core Earnings derivative adjustments: (Gains) losses on derivative and hedging activities, net, included in other income $ (14 ) $ (26 ) $ (46 ) $ (17 ) Plus: (Gains) losses on fair value hedging activity included in interest expense (5 ) 37 (5 ) 42 Total (gains) losses in GAAP net income (19 ) 11 (51 ) 25 Plus: Reclassification of settlement income (expense) on derivative and hedging activities, net (1) 9 4 19 16 Mark-to-market (gains) losses on derivative and hedging activities, net (2) (10 ) 15 (32 ) 41 Amortization of net premiums on Floor Income Contracts in net interest income for Core Earnings — 1 — 3 Other derivative accounting adjustments (3) 2 1 3 — Total net impact of derivative accounting $ (8 ) $ 17 $ (29 ) $ 44 (1) Derivative accounting requires net settlement income/expense on derivatives that do not qualify as hedges to be recorded in a separate income statement line item below net interest income. Under our Core Earnings presentation, these settlements are reclassified to the income statement line item of the economically hedged item. For our Core Earnings net interest income, this would primarily include (a) reclassifying the net settlement amounts related to our Floor Income Contracts to education loan interest income and (b) reclassifying the net settlement amounts related to certain of our interest rate swaps to debt interest expense. The table below summarizes these net settlements on derivative and hedging activities and the associated reclassification on a Core Earnings basis. Three Months Ended June 30, Six Months Ended June 30, (Dollars in millions) 2024 2023 2024 2023 Reclassification of settlements on derivative and hedging activities: Net settlement expense on Floor Income Contracts reclassified to net interest income $ — $ — $ — $ — Net settlement income (expense) on interest rate swaps reclassified to net interest income 9 4 19 16 Total reclassifications of settlement income (expense) on derivative and hedging activities $ 9 $ 4 $ 19 $ 16 (2) “Mark-to-market (gains) losses on derivative and hedging activities, net” is comprised of the following: Three Months Ended June 30, Six Months Ended June 30, (Dollars in millions) 2024 2023 2024 2023 Fair value hedges $ 2 $ 13 $ (2 ) $ 16 Foreign currency hedges (7 ) 24 (3 ) 26 Floor Income Contracts — — — — Basis swaps — (3 ) — — Other (5 ) (19 ) (27 ) (1 ) Total mark-to-market (gains) losses on derivative and hedging activities, net $ (10 ) $ 15 $ (32 ) $ 41 (3) Other derivative accounting adjustments consist of adjustments related to 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. 35 Cumulative Impact of Derivative Accounting under GAAP compared to Core Earnings As of June 30, 2024, derivative accounting increased GAAP equity by approximately $12 million as a result of cumulative net mark-to-market gains (after tax) recognized under GAAP, but not in Core Earnings. The following table rolls forward the cumulative impact to GAAP equity due to these after-tax mark-to-market net gains and losses related to derivative accounting. Three Months Ended June 30, Six Months Ended June 30, (Dollars in millions) 2024 2023 2024 2023 Beginning impact of derivative accounting on GAAP equity $ 11 $ 81 $ (1 ) $ 122 Net impact of net mark-to-market gains (losses) under derivative accounting (1) 1 (14 ) 13 (55 ) Ending impact of derivative accounting on GAAP equity $ 12 $ 67 $ 12 $ 67 (1) Net impact of net mark-to-market gains (losses) under derivative accounting is composed of the following: Three Months Ended June 30, Six Months Ended June 30, (Dollars in millions) 2024 2023 2024 2023 Total pre-tax net impact of derivative accounting recognized in net income (2) $ 8 $ (17 ) $ 29 $ (44 ) Tax and other impacts of derivative accounting adjustments (2 ) 4 (7 ) 11 Change in mark-to-market gains (losses) on derivatives, net of tax recognized in other comprehensive income (5 ) (1 ) (9 ) (22 ) Net impact of net mark-to-market gains (losses) under derivative accounting $ 1 $ (14 ) $ 13 $ (55 ) (2) See “Core Earnings derivative adjustments” table above. Hedging Embedded Floor Income We use Floor Income Contracts, pay-fixed swaps and fixed rate debt to economically hedge embedded Floor Income in our FFELP Loans. Historically, we have used these instruments on a periodic basis and depending upon market conditions and pricing, we may enter into additional hedges in the future. Under GAAP, the Floor Income Contracts do not qualify for hedge accounting and the pay-fixed swaps are accounted for as cash flow 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) June 30, 2024 June 30, 2023 Total hedged Floor Income, net of tax (1)(2) $ 69 $ 142 (1) $90 million and $186 million on a pre-tax basis as of June 30, 2024 and June 30, 2023, respectively. (2) Of the $69 million as of June 30, 2024, approximately $16 million, $19 million, $16 million and $10 million will be recognized as part of Core Earnings net income in the remainder of 2024, 2025, 2026 and 2027, respectively. (2) Goodwill and Acquired Intangible Assets: Our Core Earnings exclude goodwill and intangible asset impairment and the amortization of acquired intangible assets. The following table summarizes the goodwill and acquired intangible asset adjustments. Three Months Ended June 30, Six Months Ended June 30, (Dollars in millions) 2024 2023 2024 2023 Core Earnings goodwill and acquired intangible asset adjustments $ 3 $ 3 $ 5 $ 5 36 2. Tangible Equity and 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 Loan portfolio because FFELP Loans are no longer originated and the FFELP Loan portfolio bears a 3% maximum loss exposure under the terms of the federal guaranty. Management believes that excluding this portfolio from the ratio enhances its usefulness to investors. Management uses this ratio, in addition to other metrics, for analysis and decision making related to capital allocation decisions. The Adjusted Tangible Equity Ratio is calculated as: (Dollars in millions) June 30, 2024 June 30, 2023 Navient Corporation's stockholders' equity $ 2,748 $ 2,930 Less: Goodwill and acquired intangible assets 690 700 Tangible Equity 2,058 2,230 Less: Equity held for FFELP Loans 165 204 Adjusted Tangible Equity $ 1,893 $ 2,026 Divided by: Total assets $ 56,622 $ 65,598 Less: Goodwill and acquired intangible assets 690 700 FFELP Loans 32,940 40,851 Adjusted tangible assets $ 22,992 $ 24,047 Adjusted Tangible Equity Ratio 8.2 % 8.4 % 3. Earnings before Interest, Taxes, Depreciation and Amortization Expense (EBITDA) This measures the operating performance of the Business Processing segment and is used by management and equity investors to monitor operating performance and determine the value of those businesses. EBITDA for the Business Processing segment is calculated as: Three Months Ended June 30, Six Months Ended June 30, (Dollars in millions) 2024 2023 2024 2023 Pre-tax income $ 19 $ 8 $ 27 $ 13 Plus: Depreciation and amortization expense (1) 1 — 2 1 EBITDA $ 20 $ 8 $ 29 $ 14 Divided by: Total revenue $ 81 $ 83 $ 158 $ 155 EBITDA margin 25 % 10 % 18 % 9 % (1) There is no interest expense in this segment. 37 4. Allowance for Loan Losses Excluding Expected Future Recoveries on Previously Fully Charged-off Loans The allowance for loan losses on the Private Education Loan portfolio used for the three credit metrics below excludes the expected future recoveries on previously fully charged-off loans to better reflect the current expected credit losses remaining in connection with the loans on balance sheet that have not charged off. That is, as of June 30, 2024, the $704 million Private Education Loan allowance for loan losses excluding expected future recoveries on previously fully charged-off loans represents the current expected credit losses that remain in connection with the $16,731 million Private Education Loan portfolio. The $211 million of expected future recoveries on previously fully charged-off loans, which is collected over an average 15-year period, mechanically is a reduction to the overall allowance for loan losses. However, it is not related to the $16,731 million Private Education Loan portfolio on our balance sheet and, as a result, management excludes this impact to the allowance to better evaluate and assess our overall credit loss coverage on the Private Education Loan portfolio. We believe this provides a more meaningful and holistic view of the available credit loss coverage on our non-charged-off Private Education Loan portfolio. We believe this information is useful to our investors, lenders and rating agencies . Allowance for Loan Losses Metrics – Private Education Loans Three Months Ended June 30, Six Months Ended June 30, (Dollars in millions) 2024 2023 2024 2023 Allowance at end of period (GAAP) $ 493 $ 657 $ 493 $ 657 Plus: expected future recoveries on previously fully charged-off loans 211 262 211 262 Allowance at end of period excluding expected future recoveries on previously fully charged-off loans (Non-GAAP Financial Measure) $ 704 $ 919 $ 704 $ 919 Ending total loans $ 16,731 $ 18,389 $ 16,731 $ 18,389 Ending loans in repayment $ 16,087 $ 17,720 $ 16,087 $ 17,720 Net charge-offs $ 67 $ 62 $ 166 $ 137 Allowance coverage of charge-offs (annualized): GAAP 1.8 2.6 1.5 2.4 Adjustment (1) .8 1.1 .6 .9 Non-GAAP Financial Measure (1) 2.6 3.7 2.1 3.3 Allowance as a percentage of the ending total loan balance: GAAP 2.9 % 3.6 % 2.9 % 3.6 % Adjustment (1) 1.3 1.4 1.3 1.4 Non-GAAP Financial Measure (1) 4.2 % 5.0 % 4.2 % 5.0 % Allowance as a percentage of the ending loans in repayment: GAAP 3.1 % 3.7 % 3.1 % 3.7 % Adjustment (1) 1.3 1.5 1.3 1.5 Non-GAAP Financial Measure (1) 4.4 % 5.2 % 4.4 % 5.2 % (1) The allowance used for these credit metrics excludes the expected future recoveries on previously fully charged-off loans. See discussion above. 38 Legal Proc eedings For a discussion of legal matters as of June 30, 2024, 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. R isk Factors The risk factors disclosed in our 2023 Form 10-K should be considered together with information included in this Form 10-Q. For a discussion of our risk factors, please see the section titled "Risk Factors" in our 2023 Form 10-K, as updated by the section titled "Risk Factors" in our Form 10-Q for the quarter ended March 31, 2024. 39 Quantitative and Qualitat ive Disclosures about Market Risk Interest Rate Sensitivity Analysis Our interest rate risk management seeks to limit the impact of movements in interest rates on our results of operations and financial position. The following tables summarize the potential effect on earnings over the next 12 months and the potential effect on fair values of balance sheet assets and liabilities at June 30, 2024 and 2023, 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 June 30, 2024 As of June 30, 2023 Impact on Annual Earnings If: Impact on Annual Earnings If: Interest Rates Interest Rates (Dollars in millions, except per share amounts) Increase 100 Basis Points Decrease 100 Basis Points Increase 100 Basis Points Decrease 100 Basis Points Effect on Earnings: Change in pre-tax net income before mark-to -market gains (losses) on derivative and hedging activities $ 14 $ 23 $ 40 $ 10 Mark-to-market gains (losses) on derivative and hedging activities 48 (49 ) 24 (25 ) Increase (decrease) in income before taxes $ 62 $ (26 ) $ 64 $ (15 ) Increase (decrease) in net income after taxes $ 48 $ (20 ) $ 49 $ (12 ) Increase (decrease) in diluted earnings per common share $ .43 $ (.18 ) $ .40 $ (.09 ) 40 At June 30, 2024 Interest Rates: Change from Increase of 100 Basis Points Change from Decrease of 100 Basis Points (Dollars in millions) Fair Value $ % $ % Effect on Fair Values: Assets Education Loans $ 48,256 $ (64 ) — % $ 93 — % Other earning assets 4,138 — — — — Other assets 3,306 23 1 33 1 Total assets gain/(loss) $ 55,700 $ (41 ) — % $ 126 — % Liabilities Interest-bearing liabilities $ 51,622 $ (246 ) — % $ 264 1 % Other liabilities 1,003 115 11 (67 ) (7 ) Total liabilities (gain)/loss $ 52,625 $ (131 ) — % $ 197 — % At December 31, 2023 Interest Rates: Change from Increase of 100 Basis Points Change from Decrease of 100 Basis Points (Dollars in millions) Fair Value $ % $ % Effect on Fair Values: Assets Education Loans $ 52,877 $ (88 ) — % $ 130 — % Other earning assets 2,939 — — — — Other assets 3,609 7 — 50 1 Total assets gain/(loss) $ 59,425 $ (81 ) — % $ 180 — % Liabilities Interest-bearing liabilities $ 55,803 $ (274 ) — % $ 295 1 % Other liabilities 987 113 11 (67 ) (7 ) Total liabilities (gain)/loss $ 56,790 $ (161 ) — % $ 228 — % 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. 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. The result of these hedging transactions is to fix the relative spread between the education loan asset rate and the funding instrument rate. 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) a portion of our unhedged FFELP Loans being in a fixed-rate mode due to Floor Income, while being funded with variable rate debt; (ii) certain FFELP fixed rate loans becoming variable interest rate loans when variable interest rates rise above a certain level (Special Allowance Payment or “SAP”). When these loans are funded with fixed rate debt (as we do for a portion of the portfolio to economically hedge Floor Income) we earn additional interest income when earning the higher variable rate that is in effect; and (iii) 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) and (iii) have the opposite effect. The change due to the interest rate scenario where interest rates increase by 100 basis points in the current period is primarily a result of item (iii) as well as item (ii) having a more significant impact than item (i) as a result of interest rates being higher compared to the prior period. The change due to the interest scenario where interest rates decrease by 100 basis points in the current period is primarily a result of item (iii) as well as item (i) having a more significant impact (including annual reset floors in connection with a portion of the Stafford FFELP loan portfolio) than item (ii) as a result of interest rates being higher compared to the prior period. The relative changes from the prior period are primarily the result of the prior period having a larger portfolio related to item (ii) as well as interest rates being higher in the current period. 41 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 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. 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 SOFR 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 table below presents our assets and liabilities (funding) arranged by underlying indices as of June 30, 2024. 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 present the asset and liability funding gap on a Core Earnings basis. 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. Index (Dollars in billions) Frequency of Variable Resets Assets Funding Funding Gap 3 month Treasury bill weekly $ 1.7 $ — $ 1.7 3 month Treasury bill annual .1 — .1 Prime annual .1 — .1 Prime quarterly .9 — .9 Prime monthly 3.2 — 3.2 3 month Term SOFR quarterly .2 1.2 (1.0 ) 3 month Term SOFR (1) monthly — .7 (.7 ) 1 month Term SOFR monthly 2.2 .9 1.3 Overnight SOFR (2) daily 31.0 33.2 (2.2 ) Non Discrete reset (1) monthly — 3.9 (3.9 ) Non Discrete reset (3) daily/weekly 4.1 — 4.1 Fixed Rate (4) 13.3 16.9 (3.6 ) Total $ 56.8 $ 56.8 $ — (1) Funding includes debt related to Repurchase Facilities. (2) The assets are indexed to 30-day average overnight SOFR. A portion of the funding uses the daily average of overnight SOFR from a period preceding the accrual period of the asset ("lookback debt"). Funding includes $15.1 billion of 30-day average SOFR lookback debt and $15.1 billion of 90-day average SOFR lookback debt. (3) 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. (4) Assets include receivables and other assets (including goodwill and acquired intangibles). Funding includes other liabilities and stockholders' equity. 42 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 30-day average overnight SOFR reset daily and our cost of funds is primarily indexed to overnight SOFR but resetting at different times than the asset. 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 to 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 term SOFR rates and our cost of funds is primarily indexed to one-month or three-month term SOFR. 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 Issuer Purchases of Equity Securities The following tables provide information relating to our purchases of shares of our common stock in the three months ended June 30, 2024. (In millions, except per share data) Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)(2) Approximate Dollar Value of Shares That May Yet Be Purchased Under Publicly Announced Plans or Programs (1) Period: April 1 — April 30, 2024 .8 $ 16.46 .8 $ 234 May 1 — May 31, 2024 .9 15.37 .9 $ 221 June 1 — June 30, 2024 .8 14.45 .8 $ 209 Total second-quarter 2024 2.5 $ 15.41 2.5 (1) On December 10, 2021, our Board of Directors approved a $1 billion multi-year share repurchase program (the Share Repurchase Program). The Share Repurchase Program does not have an expiration date. (2) On March 14, 2024, the Company entered into a "Rule 10b5-1 trading arrangement" intended to satisfy the affirmative defense conditions of Rule 10b5-1, pursuant to which the Company purchased the applicable shares during first-quarter 2024 from March 18, 2024 to March 28, 2024. This plan terminates by its terms on April 30, 2024. On June 12, 2024, the Company entered into a "Rule 10b5-1 trading arrangement" intended to satisfy the affirmative defense conditions of Rule 10b5-1, pursuant to which the Company purchased the applicable shares during second-quarter 2024 from June 17, 2024 to June 30, 2024. This plan terminates by its terms on July 31, 2024. 43 Execution Date Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as part of Publicly Announced Plans or Programs (1)(2) Approximate Dollar Value of Shares that May Yet Be Purchased Under Publicly Announced Plans or Programs (1) 4/1/2024 37,750 $ 17.19 37,750 $ 246,376,055 4/2/2024 35,000 $ 16.71 35,000 $ 245,791,069 4/3/2024 33,000 $ 17.22 33,000 $ 245,222,891 4/4/2024 37,500 $ 17.26 37,500 $ 244,575,510 4/5/2024 33,000 $ 16.90 33,000 $ 244,017,724 4/8/2024 33,024 $ 17.15 33,024 $ 243,451,475 4/9/2024 32,000 $ 17.07 32,000 $ 242,905,366 4/10/2024 33,000 $ 16.61 33,000 $ 242,357,203 4/11/2024 35,000 $ 16.73 35,000 $ 241,771,569 4/12/2024 35,800 $ 16.48 35,800 $ 241,181,499 4/15/2024 36,000 $ 16.20 36,000 $ 240,598,274 4/16/2024 37,000 $ 16.13 37,000 $ 240,001,305 4/17/2024 37,000 $ 16.31 37,000 $ 239,397,653 4/18/2024 37,000 $ 16.29 37,000 $ 238,794,746 4/19/2024 37,000 $ 16.35 37,000 $ 238,189,711 4/22/2024 33,000 $ 16.58 33,000 $ 237,642,412 4/23/2024 39,000 $ 16.68 39,000 $ 236,991,698 4/24/2024 40,000 $ 15.95 40,000 $ 236,353,794 4/25/2024 42,000 $ 15.64 42,000 $ 235,696,841 4/26/2024 41,000 $ 15.83 41,000 $ 235,047,870 4/29/2024 42,000 $ 15.67 42,000 $ 234,389,777 4/30/2024 23,831 $ 15.31 23,831 $ 234,024,860 5/1/2024 38,748 $ 15.25 38,748 $ 233,433,875 5/2/2024 38,241 $ 15.45 38,241 $ 232,842,887 5/3/2024 37,179 $ 15.90 37,179 $ 232,251,894 5/6/2024 37,225 $ 15.88 37,225 $ 231,660,891 5/7/2024 38,132 $ 15.50 38,132 $ 231,069,914 5/8/2024 38,225 $ 15.46 38,225 $ 230,478,928 5/9/2024 38,117 $ 15.50 38,117 $ 229,887,955 5/10/2024 38,225 $ 15.46 38,225 $ 229,296,970 5/13/2024 37,589 $ 15.72 37,589 $ 228,706,037 5/14/2024 37,470 $ 15.77 37,470 $ 228,115,056 5/15/2024 37,896 $ 15.57 37,896 $ 227,524,974 5/16/2024 38,185 $ 15.48 38,185 $ 226,934,007 5/17/2024 38,178 $ 15.48 38,178 $ 226,343,020 5/20/2024 38,658 $ 15.29 38,658 $ 225,752,028 5/21/2024 38,578 $ 15.32 38,578 $ 225,161,032 5/22/2024 38,473 $ 15.36 38,473 $ 224,570,083 5/23/2024 39,190 $ 14.93 39,190 $ 223,984,996 5/24/2024 38,305 $ 15.05 38,305 $ 223,408,670 5/28/2024 39,973 $ 14.91 39,973 $ 222,812,685 5/29/2024 39,842 $ 14.71 39,842 $ 222,226,509 5/30/2024 39,970 $ 14.92 39,970 $ 221,630,317 5/31/2024 39,492 $ 15.32 39,492 $ 221,025,319 6/3/2024 42,100 $ 15.01 42,100 $ 220,393,537 6/4/2024 42,200 $ 14.93 42,200 $ 219,763,453 6/5/2024 43,000 $ 14.66 43,000 $ 219,133,155 6/6/2024 43,000 $ 14.66 43,000 $ 218,502,770 6/7/2024 43,500 $ 14.39 43,500 $ 217,876,762 6/10/2024 44,100 $ 14.31 44,100 $ 217,245,493 6/11/2024 44,500 $ 14.17 44,500 $ 216,614,718 6/12/2024 43,800 $ 14.41 43,800 $ 215,983,464 6/13/2024 43,200 $ 14.57 43,200 $ 215,353,833 6/14/2024 44,000 $ 14.26 44,000 $ 214,726,366 6/17/2024 45,000 $ 14.15 45,000 $ 214,089,450 6/18/2024 44,136 $ 14.24 44,136 $ 213,461,146 6/20/2024 44,000 $ 14.39 44,000 $ 212,827,959 6/21/2024 43,500 $ 14.60 43,500 $ 212,192,981 6/24/2024 43,000 $ 14.74 43,000 $ 211,559,269 6/25/2024 43,500 $ 14.35 43,500 $ 210,934,966 6/26/2024 45,000 $ 14.20 45,000 $ 210,295,961 6/27/2024 41,353 $ 14.19 41,353 $ 209,709,274 6/28/2024 47,375 $ 14.41 47,375 $ 209,026,373 2,466,060 $ 15.41 2,466,060 (1) On December 10, 2021, our Board of Directors approved a $1 billion multi-year share repurchase program (the Share Repurchase Program). The Share Repurchase Program does not have an expiration date. (2) On March 14, 2024, the Company entered into a "Rule 10b5-1 trading arrangement" intended to satisfy the affirmative defense conditions of Rule 10b5-1, pursuant to which the Company purchased the applicable shares during first-quarter 2024 from March 18, 2024 to March 28, 2024. This plan terminates by its terms on April 30, 2024. On June 12, 2024, the Company entered into a "Rule 10b5-1 trading arrangement" intended to satisfy the affirmative defense conditions of Rule 10b5-1, pursuant to which the Company purchased the applicable shares during second-quarter 2024 from June 17, 2024 to June 30, 2024. This plan terminates by its terms on July 31, 2024. 44 Other Information Director and Officer Trading Arrangements None of our directors or officers (as defined in Rule 16a–1(f)) adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the second quarter of 2024. Controls and Procedures Disclosure Controls and Procedures Our management, with the participation of our Principal Executive and Principal Financial Officers, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of June 30, 2024. Based on this evaluation, our Principal Executive and Principal Financial Officers concluded that, as of June 30, 2024, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) accumulated and communicated to our management, including our Principal Executive and Principal Financial Officers as appropriate, to allow timely decisions regarding required disclosure. Changes in Internal Control over Financial Reporting No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 45 E xhibits 10.1* Form of Navient Corporation 2024 Omnibus Incentive Plan Performance Stock Unit Agreement. 10.2* Form of Navient Corporation 2024 Omnibus Incentive Plan Restricted Stock Unit Agreement. 10.3* 2024 Strategic Transformation Incentive Plan. 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 as its XBRL tags are embedded within the Inline XBRL document. 101.SCH* Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). * Filed herewith ** Furnished herewith 46 Financ ial Statements NAVIENT CORPORATION CONSOLIDATED BALANCE SHEETS (In millions, except per share amounts) (Unaudited) June 30, 2024 December 31, 2023 Assets FFELP Loans (net of allowance for losses of $ 194 and $ 215 , respectively) $ 32,940 $ 37,925 Private Education Loans (net of allowance for losses of $ 493 and $ 617 , respectively) 16,238 16,902 Investments 132 146 Cash and cash equivalents 1,088 839 Restricted cash and cash equivalents 2,918 1,954 Goodwill and acquired intangible assets, net 690 695 Other assets 2,616 2,914 Total assets $ 56,622 $ 61,375 Liabilities Short-term borrowings $ 5,326 $ 4,226 Long-term borrowings 47,545 53,402 Other liabilities 1,003 987 Total liabilities 53,874 58,615 Commitments and contingencies Equity Series A Junior Participating Preferred Stock, par value $ 0.20 per share; 2 million shares authorized at December 31, 2021; no shares issued or outstanding — — Common stock, par value $ 0.01 per share, 1.125 billion shares authorized: 465 million and 464 million shares issued, respectively 4 4 Additional paid-in capital 3,367 3,353 Accumulated other comprehensive income (net of tax expense of $ 3 and $ 6 , respectively) 10 19 Retained earnings 4,710 4,638 Total stockholders’ equity before treasury stock 8,091 8,014 Less: Common stock held in treasury at cost: 356 million and 350 million shares, respectively ( 5,343 ) ( 5,254 ) Total equity 2,748 2,760 Total liabilities and equity $ 56,622 $ 61,375 Supplemental information — assets and liabilities of consolidated variable interest entities: June 30, 2024 December 31, 2023 FFELP Loans $ 32,779 $ 37,832 Private Education Loans 15,019 15,759 Restricted cash 2,904 1,937 Other assets, net 1,308 1,744 Short-term borrowings 4,225 3,634 Long-term borrowings 42,903 48,169 Net assets of consolidated variable interest entities $ 4,882 $ 5,469 See accompanying notes to consolidated financial statements. 47 NAVIENT CORPORATION CONSOLIDATED STAT EMENTS OF INCOME (In millions, except per share amounts) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Interest income: FFELP Loans $ 608 $ 720 $ 1,269 $ 1,413 Private Education Loans 317 341 645 686 Cash and investments 48 36 86 70 Total interest income 973 1,097 2,000 2,169 Total interest expense 843 919 1,718 1,756 Net interest income 130 178 282 413 Less: provisions for loan losses 14 11 26 ( 3 ) Net interest income after provisions for loan losses 116 167 256 416 Other income (loss): Servicing revenue 18 16 35 33 Asset recovery and business processing revenue 81 83 158 155 Other income 4 4 13 11 Gains (losses) on derivative and hedging activities, net 14 26 46 17 Total other income 117 129 252 216 Expenses: Salaries and benefits 87 98 188 203 Other operating expenses 79 84 162 165 Total operating expenses 166 182 350 368 Goodwill and acquired intangible asset impairment and amortization expense 3 3 5 5 Restructuring/other reorganization expenses 16 15 17 19 Total expenses 185 200 372 392 Income before income tax expense 48 96 136 240 Income tax expense 12 30 27 63 Net income $ 36 $ 66 $ 109 $ 177 Basic earnings per common share $ .32 $ .53 $ .98 $ 1.40 Average common shares outstanding 111 124 112 126 Diluted earnings per common share $ .32 $ .52 $ .97 $ 1.39 Average common and common equivalent shares outstanding 112 125 113 128 Dividends per common share $ .16 $ .16 $ .32 $ .32 See accompanying notes to consolidated financial statements. 48 NAVIENT CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net income $ 36 $ 66 $ 109 $ 177 Net changes in cash flow hedges, net of tax (1) ( 5 ) ( 1 ) ( 9 ) ( 22 ) Total comprehensive income $ 31 $ 65 $ 100 $ 155 (1) See “Note 4 – Derivative Financial Instruments.” See accompanying notes to consolidated financial statements. 49 NAVIENT CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (In millions, except share and per share amounts) (Unaudited) Accumulated Common Stock Shares Additional Other Common Paid-In Comprehensive Retained Treasury Total Issued Treasury Outstanding Stock Capital Income (Loss) Earnings Stock Equity Balance at March 31, 2023 463,508,522 ( 337,043,677 ) 126,464,845 $ 4 $ 3,335 $ 66 $ 4,579 $ ( 5,026 ) $ 2,958 Comprehensive income (loss): Net income — — — — — — 66 — 66 Other comprehensive income (loss), net of tax — — — — — ( 1 ) — — ( 1 ) Total comprehensive income (loss) — — — — — — — — 65 Cash dividends: Common stock ($ .16 per share) — — — — — — ( 20 ) — ( 20 ) Dividend equivalent units related to employee stock-based compensation plans — — — — — — — — — Issuance of common shares 26,259 — 26,259 — — — — — — Stock-based compensation expense — — — — 8 — — — 8 Common stock repurchased — ( 4,886,411 ) ( 4,886,411 ) — — — — ( 80 ) ( 80 ) Shares repurchased related to employee stock-based compensation plans — ( 2,829 ) ( 2,829 ) — — — — — — Other — — — — — — — ( 1 ) ( 1 ) Balance at June 30, 2023 463,534,781 ( 341,932,917 ) 121,601,864 $ 4 $ 3,343 $ 65 $ 4,625 $ ( 5,107 ) $ 2,930 Balance at March 31, 2024 465,031,305 ( 353,206,556 ) 111,824,749 $ 4 $ 3,360 $ 15 $ 4,691 $ ( 5,304 ) $ 2,766 Comprehensive income (loss): Net income — — — — — — 36 — 36 Other comprehensive income (loss), net of tax — — — — — ( 5 ) — — ( 5 ) Total comprehensive income (loss) — — — — — — — — 31 Cash dividends: — Common stock ($ .16 per share) — — — — — — ( 17 ) — ( 17 ) Dividend equivalent units related to employee stock-based compensation plans — — — — — — — — — Issuance of common shares 76,826 — 76,826 — — — — — — Stock-based compensation expense — — — — 7 — — — 7 Common stock repurchased — ( 2,466,060 ) ( 2,466,060 ) — — — — ( 38 ) ( 38 ) Shares repurchased related to employee stock-based compensation plans — ( 25,421 ) ( 25,421 ) — — — — — — Other — — — — — — — ( 1 ) ( 1 ) Balance at June 30, 2024 465,108,131 ( 355,698,037 ) 109,410,094 $ 4 $ 3,367 $ 10 $ 4,710 $ ( 5,343 ) $ 2,748 See accompanying notes to consolidated financial statements. 50 NAVIENT CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (In millions, except share and per share amounts) (Unaudited) Accumulated Common Stock Shares Additional Other Common Paid-In Comprehensive Retained Treasury Total Issued Treasury Outstanding Stock Capital Income (Loss) Earnings Stock Equity Balance at December 31, 2022 461,087,590 ( 330,878,152 ) 130,209,438 $ 4 $ 3,313 $ 87 $ 4,490 $ ( 4,917 ) $ 2,977 Comprehensive income (loss): Net income — — — — — — 177 — 177 Other comprehensive income (loss), net of tax — — — — — ( 22 ) — — ( 22 ) Total comprehensive income (loss) — — — — — — — — 155 Cash dividends: Common stock ($ .32 per share) — — — — — — ( 40 ) — ( 40 ) Dividend equivalent units related to employee stock-based compensation plans — — — — — — ( 2 ) — ( 2 ) Issuance of common shares 2,447,191 — 2,447,191 — 13 — — — 13 Stock-based compensation expense — — — — 17 — — — 17 Common stock repurchased — ( 9,775,223 ) ( 9,775,223 ) — — — — ( 165 ) ( 165 ) Shares repurchased related to employee stock-based compensation plans — ( 1,279,542 ) ( 1,279,542 ) — — — — ( 24 ) ( 24 ) Other — — — — — — — ( 1 ) ( 1 ) Balance at June 30, 2023 463,534,781 ( 341,932,917 ) 121,601,864 $ 4 $ 3,343 $ 65 $ 4,625 $ ( 5,107 ) $ 2,930 Balance at December 31, 2023 463,715,048 ( 350,210,737 ) 113,504,311 $ 4 $ 3,353 $ 19 $ 4,638 $ ( 5,254 ) $ 2,760 Comprehensive income (loss): Net income — — — — — — 109 — 109 Other comprehensive income (loss), net of tax — — — — — ( 9 ) — — ( 9 ) Total comprehensive income (loss) — — — — — — — — 100 Cash dividends: — Common stock ($ .32 per share) — — — — — — ( 35 ) — ( 35 ) Dividend equivalent units related to employee stock-based compensation plans — — — — — — ( 2 ) — ( 2 ) Issuance of common shares 1,393,083 — 1,393,083 — 2 — — — 2 Stock-based compensation expense — — — — 12 — — — 12 Common stock repurchased — ( 5,017,909 ) ( 5,017,909 ) — — — — ( 81 ) ( 81 ) Shares repurchased related to employee stock-based compensation plans — ( 469,391 ) ( 469,391 ) — — — — ( 7 ) ( 7 ) Other — — — — — — — ( 1 ) ( 1 ) Balance at June 30, 2024 465,108,131 ( 355,698,037 ) 109,410,094 $ 4 $ 3,367 $ 10 $ 4,710 $ ( 5,343 ) $ 2,748 See accompanying notes to consolidated financial statements. 51 NAVIENT CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited) Six Months Ended June 30, 2024 2023 Cash flows from operating activities Net income $ 109 $ 177 Adjustments to reconcile net income to net cash provided by operating activities: Goodwill and acquired intangible asset impairment and amortization expense 5 5 Stock-based compensation expense 12 17 Mark-to-market (gains) losses on derivative and hedging activities, net ( 30 ) 41 Provisions for loan losses 26 ( 3 ) Decrease (increase) in accrued interest receivable 276 ( 69 ) Increase (decrease) in accrued interest payable 12 ( 7 ) Decrease in other assets 79 81 (Decrease) increase in other liabilities ( 28 ) 2 Total adjustments 352 67 Net cash provided by operating activities 461 244 Cash flows from investing activities Education loans originated and acquired ( 610 ) ( 438 ) Proceeds from payments on education loans 6,200 4,111 Other investing activities, net 8 1 Net cash provided by investing activities 5,598 3,674 Cash flows from financing activities Borrowings collateralized by loans in trust - issued 1,106 844 Borrowings collateralized by loans in trust - repaid ( 5,154 ) ( 5,837 ) Asset-backed commercial paper conduits, net ( 622 ) 277 Long-term unsecured notes issued — 495 Long-term unsecured notes repaid ( 7 ) ( 1,002 ) Other financing activities, net ( 53 ) ( 29 ) Common stock repurchased ( 81 ) ( 165 ) Common dividends paid ( 35 ) ( 40 ) Net cash used in financing activities ( 4,846 ) ( 5,457 ) Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents 1,213 ( 1,539 ) Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period 2,793 4,807 Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period $ 4,006 $ 3,268 Supplemental disclosure of cash flow information: Cash disbursements made (refunds received) for: Interest paid $ 1,680 $ 1,688 Income taxes paid $ 30 $ 9 Income taxes refunds received $ ( 1 ) $ ( 2 ) Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated Balance Sheets: Cash and cash equivalents $ 1,088 $ 1,317 Restricted cash and restricted cash equivalents 2,918 1,951 Total cash, cash equivalents, restricted cash and restricted cash equivalents at end of period $ 4,006 $ 3,268 See accompanying notes to consolidated financial statements. 52 NAVIENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 is unaudited) 1. Significant Accounting Policies Basis of Presentation The accompanying unaudited, consolidated financial statements of Navient have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. The consolidated financial statements include the accounts of Navient and its majority-owned and controlled subsidiaries and those Variable Interest Entities (VIEs) for which we are the primary beneficiary, after eliminating the effects of intercompany accounts and transactions. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results for the year ending December 31, 2024 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 2023 Form 10-K. Definitions for certain capitalized terms used but not otherwise defined in this Form 10-Q can be found in our 2023 Form 10-K. Recently Issued Accounting Pronouncements Segment Reporting In November 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-07, “Segment Reporting – Improvements to Reportable Segment Disclosures,” which requires expanded disclosures regarding significant segment expenses for each reportable segment. Significant segment expenses include expenses that are regularly provided to the chief operating decision maker (CODM) and included in each reported measure of segment profit or loss. The ASU also requires disclosure of the CODM’s title and position and permits companies to disclose multiple segment profit or loss measures if the CODM uses these measures to allocate resources and assess segment performance. Companies must reconcile each measure of profit or loss quarterly to the consolidated income statement. This guidance became effective beginning after January 1, 2024, for fiscal years, and beginning after January 1, 2025, for interim periods. The Company continues to assess the impact of the reportable segment disclosure requirements. 53 NAVIENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 is unaudited) 2. Allowance for Loan Losses Allowance for Loan Losses Roll Forward Three Months Ended June 30, 2024 (Dollars in millions) FFELP Loans Private Education Loans Total Beginning balance $ 206 $ 538 $ 744 Total provision ( 2 ) 16 14 Charge-offs: Gross charge-offs ( 10 ) ( 77 ) ( 87 ) Expected future recoveries on current period gross charge-offs — 10 10 Net charge-offs (1) ( 10 ) ( 67 ) ( 77 ) Decrease in expected future recoveries on previously fully charged-off loans (2) — 6 6 Allowance at end of period $ 194 $ 493 $ 687 Net charge-offs as a percentage of average loans in repayment (annualized) .14 % 1.65 % Ending total loans $ 33,134 $ 16,731 Average loans in repayment $ 27,509 $ 16,271 Ending loans in repayment $ 26,411 $ 16,087 (1) Charge-offs are reported net of expected recoveries. For Private Education Loans, we charge off the estimated loss of a defaulted loan balance by charging off the entire defaulted loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as "expected future recoveries on previously fully 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 days past due, we charge off the estimated loss of a defaulted loan balance by charging off the entire loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as “expected future recoveries on previously fully charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately reflected as a reduction to expected future recoveries on previously fully 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 previously fully charged-off loans: Three Months Ended June 30, (Dollars in millions) 2024 Beginning of period expected future recoveries on previously fully charged-off loans $ 217 Expected future recoveries of current period defaults 10 Recoveries (cash collected) ( 10 ) Charge-offs (as a result of lower recovery expectations) ( 6 ) End of period expected future recoveries on previously fully charged-off loans $ 211 Change in balance during period $ ( 6 ) 54 NAVIENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 is unaudited) 2. Allowance for Loan Losses (Continued) Three Months Ended June 30, 2023 (Dollars in millions) FFELP Loans Private Education Loans Total Beginning balance $ 214 $ 706 $ 920 Total provision 5 6 11 Charge-offs: Gross charge-offs ( 19 ) ( 73 ) ( 92 ) Expected future recoveries on current period gross charge-offs — 11 11 Net charge-offs (1) ( 19 ) ( 62 ) ( 81 ) Decrease in expected future recoveries on previously fully charged-off loans (2) — 7 7 Allowance at end of period $ 200 $ 657 $ 857 Net charge-offs as a percentage of average loans in repayment (annualized) .22 % 1.39 % Ending total loans $ 41,051 $ 18,389 Average loans in repayment $ 33,790 $ 17,990 Ending loans in repayment $ 33,076 $ 17,720 (1) Charge-offs are reported net of expected recoveries. For Private Education Loans, we charge off the estimated loss of a defaulted loan balance by charging off the entire defaulted loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as "expected future recoveries on previously fully 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 days past due, we charge off the estimated loss of a defaulted loan balance by charging off the entire loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as “expected future recoveries on previously fully charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately reflected as a reduction to expected future recoveries on previously fully 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 previously fully charged-off loans: Three Months Ended June 30, (Dollars in millions) 2023 Beginning of period expected future recoveries on previously fully charged-off loans $ 268 Expected future recoveries of current period defaults 11 Recoveries (cash collected) ( 11 ) Charge-offs (as a result of lower recovery expectations) ( 6 ) End of period expected future recoveries on previously fully charged-off loans $ 262 Change in balance during period $ ( 7 ) 55 NAVIENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 is unaudited) 2. Allowance for Loan Losses (Continued) Six Months Ended June 30, 2024 (Dollars in millions) FFELP Loans Private Education Loans Total Beginning balance $ 215 $ 617 $ 832 Total provision ( 1 ) 27 26 Charge-offs: Gross charge-offs ( 20 ) ( 187 ) ( 207 ) Expected future recoveries on current period gross charge-offs — 21 21 Net charge-offs (1) (2) ( 20 ) ( 166 ) ( 186 ) Decrease in expected future recoveries on previously fully charged-off loans (3) — 15 15 Allowance at end of period $ 194 $ 493 $ 687 Net charge-offs as a percentage of average loans in repayment (annualized) .14 % 2.03 % Ending total loans $ 33,134 $ 16,731 Average loans in repayment $ 28,622 $ 16,471 Ending loans in repayment $ 26,411 $ 16,087 (1) $ 28 million of Private Education Loan net charge-offs is in connection with the resolution of certain private legacy loans in bankruptcy. This was previously reserved for in 2023. (2) Charge-offs are reported net of expected recoveries. For Private Education Loans, we charge off the estimated loss of a defaulted loan balance by charging off the entire defaulted loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as "expected future recoveries on previously fully 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 days past due, we charge off the estimated loss of a defaulted loan balance by charging off the entire loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as “expected future recoveries on previously fully charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately reflected as a reduction to expected future recoveries on previously fully 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 previously fully charged-off loans: Six Months Ended June 30, (Dollars in millions) 2024 Beginning of period expected future recoveries on previously fully charged-off loans $ 226 Expected future recoveries of current period defaults 21 Recoveries (cash collected) ( 21 ) Charge-offs (as a result of lower recovery expectations) ( 15 ) End of period expected future recoveries on previously fully charged-off loans $ 211 Change in balance during period $ ( 15 ) 56 NAVIENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 is unaudited) 2. Allowance for Loan Losses (Continued) Six Months Ended June 30, 2023 (Dollars in millions) FFELP Loans Private Education Loans Total Beginning balance $ 222 $ 800 $ 1,022 Total provision 15 ( 18 ) ( 3 ) Charge-offs: Gross charge-offs ( 37 ) ( 161 ) ( 198 ) Expected future recoveries on current period gross charge-offs — 24 24 Net charge-offs (1) ( 37 ) ( 137 ) ( 174 ) Decrease in expected future recoveries on previously fully charged-off loans (2) — 12 12 Allowance at end of period $ 200 $ 657 $ 857 Net charge-offs as a percentage of average loans in repayment (annualized) .22 % 1.51 % Ending total loans $ 41,051 $ 18,389 Average loans in repayment $ 34,046 $ 18,270 Ending loans in repayment $ 33,076 $ 17,720 (1) Charge-offs are reported net of expected recoveries. For Private Education Loans, we charge off the estimated loss of a defaulted loan balance by charging off the entire defaulted loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as "expected future recoveries on previously fully 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 days past due, we charge off the estimated loss of a defaulted loan balance by charging off the entire loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as “expected future recoveries on previously fully charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately reflected as a reduction to expected future recoveries on previously fully 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 previously fully charged-off loans Six Months Ended June 30, (Dollars in millions) 2023 Beginning of period expected future recoveries on previously fully charged-off loans $ 274 Expected future recoveries of current period defaults 24 Recoveries (cash collected) ( 24 ) Charge-offs (as a result of lower recovery expectations) ( 12 ) End of period expected future recoveries on previously fully charged-off loans $ 262 Change in balance during period $ ( 12 ) 57 NAVIENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 is unaudited) 2. Allowance for Loan Losses (Continued) Key Credit Quality Indicators We assess and determine the collectability of our education loan portfolios by evaluating certain risk characteristics we refer to as key credit quality indicators. Key credit quality indicators are incorporated into the allowance for loan losses calculation. FFELP Loans FFELP Loans are substantially insured and guaranteed as to their principal and accrued interest in the event of default. The key credit quality indicators are loan status and loan type. FFELP Loan Delinquencies June 30, 2024 December 31, 2023 June 30, 2023 (Dollars in millions) Balance % Balance % Balance % Loans in-school/grace/deferment (1) $ 1,403 $ 1,557 $ 1,659 Loans in forbearance (2) 5,320 6,147 6,316 Loans in repayment and percentage of each status: Loans current 22,833 86.5 % 26,204 86.1 % 27,756 83.9 % Loans delinquent 31-60 days (3) 1,041 3.9 1,193 3.9 1,596 4.8 Loans delinquent 61-90 days (3) 680 2.6 746 2.5 1,013 3.1 Loans delinquent greater than 90 days (3) 1,857 7.0 2,293 7.5 2,711 8.2 Total FFELP Loans in repayment 26,411 100 % 30,436 100 % 33,076 100 % Total FFELP Loans 33,134 38,140 41,051 FFELP Loan allowance for losses ( 194 ) ( 215 ) ( 200 ) FFELP Loans, net $ 32,940 $ 37,925 $ 40,851 Percentage of FFELP Loans in repayment 79.7 % 79.8 % 80.6 % Delinquencies as a percentage of FFELP Loans in repayment 13.5 % 13.9 % 16.1 % FFELP Loans in forbearance as a percentage of loans in repayment and forbearance 16.8 % 16.8 % 16.0 % (1) Loans for customers who may still be attending school or engaging in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation, as well as loans for customers who have requested and qualify for other permitted program deferments such as military, unemployment, or economic hardships. (2) Loans for customers who have used their allowable deferment time or do not qualify for deferment, that need additional time to obtain employment or who have temporarily ceased making full payments due to hardship or other factors such as disaster relief, including COVID-19 relief programs, consistent with established loan program servicing policies and procedures. (3) The period of delinquency is based on the number of days scheduled payments are contractually past due. Loan type : (Dollars in millions) June 30, 2024 June 30, 2023 Change Stafford Loans $ 10,589 $ 13,151 $ ( 2,562 ) Consolidation Loans 19,273 23,956 ( 4,683 ) Rehab Loans 3,272 3,944 ( 672 ) Total loans, gross $ 33,134 $ 41,051 $ ( 7,917 ) 58 NAVIENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 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, certain loan modifications, the existence of a cosigner and school type. The FICO score is the higher of the borrower or co-borrower score and is updated at least every six months while school type is assessed at origination. The other Private Education Loan key quality indicators are updated quarterly. Private Education Loan Credit Quality Indicators by Origination Year June 30, 2024 (Dollars in millions) 2024 2023 2022 2021 2020 Prior Total % of Total Credit Quality Indicators FICO Scores: 640 and above $ 490 $ 841 $ 1,453 $ 3,591 $ 1,119 $ 7,513 $ 15,007 90 % Below 640 8 20 75 137 31 1,453 1,724 10 Total $ 498 $ 861 $ 1,528 $ 3,728 $ 1,150 $ 8,966 $ 16,731 100 % Loan Status: In-school/grace/ deferment/forbearance $ 22 $ 69 $ 64 $ 80 $ 19 $ 390 $ 644 4 % Current/90 days or less delinquent 476 789 1,454 3,634 1,127 8,256 15,736 94 Greater than 90 days delinquent — 3 10 14 4 320 351 2 Total $ 498 $ 861 $ 1,528 $ 3,728 $ 1,150 $ 8,966 $ 16,731 100 % Seasoning (1) : 1-12 payments $ 479 $ 632 $ 36 $ 24 $ 3 $ 45 $ 1,219 7 % 13-24 payments — 172 656 82 11 61 982 6 25-36 payments — — 791 2,602 28 111 3,532 21 37-48 payments — — — 976 683 206 1,865 11 More than 48 payments — — — — 416 8,367 8,783 53 Loans in-school/ grace/deferment 19 57 45 44 9 176 350 2 Total $ 498 $ 861 $ 1,528 $ 3,728 $ 1,150 $ 8,966 $ 16,731 100 % Certain Loan Modifications (2) : Modified $ — $ 3 $ 64 $ 161 $ 53 $ 5,538 $ 5,819 35 % Non-Modified 498 858 1,464 3,567 1,097 3,428 10,912 65 Total $ 498 $ 861 $ 1,528 $ 3,728 $ 1,150 $ 8,966 $ 16,731 100 % Cosigners: With cosigner (3) $ 76 $ 264 $ 168 $ 87 $ 21 $ 4,808 $ 5,424 32 % Without cosigner 422 597 1,360 3,641 1,129 4,158 11,307 68 Total $ 498 $ 861 $ 1,528 $ 3,728 $ 1,150 $ 8,966 $ 16,731 100 % School Type: Not-for-profit $ 335 $ 814 $ 1,447 $ 3,511 $ 1,099 $ 7,674 $ 14,880 89 % For-profit 163 47 81 217 51 1,292 1,851 11 Total $ 498 $ 861 $ 1,528 $ 3,728 $ 1,150 $ 8,966 $ 16,731 100 % Allowance for loan losses ( 493 ) Total loans, net $ 16,238 Charge-Offs $ — $ ( 1 ) $ ( 5 ) $ ( 9 ) $ ( 2 ) $ ( 149 ) $ ( 166 ) 100 % (1) Number of months in active repayment for which a scheduled payment was received. (2) Loan Modifications represents the historical definition of a troubled debt restructuring (TDR) prior to the implementation of ASU No. 2022-02 on January 1, 2023. Any loan that meets the historical definition of a TDR retains that classification for the life of the loan (including loans that meet that definition in 2023). This includes loans given rate modifications, term extensions or forbearance greater than 3 months in the prior 24-month period. This classification is not intended to reconcile in any way to the modification disclosures required under ASU No. 2022-02. (3) Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 66 % for total loans at June 30, 2024. 59 NAVIENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 is unaudited) 2. Allowance for Loan Losses (Continued) Private Education Loan Credit Quality Indicators by Origination Year June 30, 2023 (Dollars in millions) 2023 2022 2021 2020 2019 Prior Total % of Total Credit Quality Indicators FICO Scores: 640 and above $ 322 $ 1,698 $ 4,209 $ 1,367 $ 1,287 $ 7,851 $ 16,734 91 % Below 640 4 50 100 26 43 1,432 1,655 9 Total $ 326 $ 1,748 $ 4,309 $ 1,393 $ 1,330 $ 9,283 $ 18,389 100 % Loan Status: In-school/grace/ deferment/forbearance $ 15 $ 69 $ 82 $ 22 $ 27 $ 454 $ 669 4 % Current/90 days or less delinquent 311 1,673 4,218 1,367 1,297 8,503 17,369 94 Greater than 90 days delinquent — 6 9 4 6 326 351 2 Total $ 326 $ 1,748 $ 4,309 $ 1,393 $ 1,330 $ 9,283 $ 18,389 100 % Seasoning (1) : 1-12 payments $ 312 $ 744 $ 49 $ 10 $ 6 $ 66 $ 1,187 6 % 13-24 payments — 950 3,021 23 18 77 4,089 22 25-36 payments — — 1,188 819 58 142 2,207 12 37-48 payments — — — 529 1,036 230 1,795 10 More than 48 payments — — — — 198 8,572 8,770 48 Loans in-school/ grace/deferment 14 54 51 12 14 196 341 2 Total $ 326 $ 1,748 $ 4,309 $ 1,393 $ 1,330 $ 9,283 $ 18,389 100 % Certain Loan Modifications (2) : Modified $ — $ 20 $ 102 $ 41 $ 75 $ 6,101 $ 6,339 34 % Non-Modified 326 1,728 4,207 1,352 1,255 3,182 12,050 66 Total $ 326 $ 1,748 $ 4,309 $ 1,393 $ 1,330 $ 9,283 $ <ix:nonFraction id="F_6cb419c2-0da3-4bbd-9eee-0aaf3